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<SEC-DOCUMENT>0000950133-04-004285.txt : 20041112
<SEC-HEADER>0000950133-04-004285.hdr.sgml : 20041111
<ACCEPTANCE-DATETIME>20041112170506
ACCESSION NUMBER:		0000950133-04-004285
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041112
DATE AS OF CHANGE:		20041112

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ACCERIS COMMUNICATIONS INC
		CENTRAL INDEX KEY:			0000849145
		STANDARD INDUSTRIAL CLASSIFICATION:	TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822]
		IRS NUMBER:				592291344
		STATE OF INCORPORATION:			FL
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-17973
		FILM NUMBER:		041140340

	BUSINESS ADDRESS:	
		STREET 1:		9775 BUSINESSPARK AVENUE
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92131
		BUSINESS PHONE:		8585475700

	MAIL ADDRESS:	
		STREET 1:		1001 BRINTON ROAD
		CITY:			PITTSBURGH
		STATE:			PA
		ZIP:			15221

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	I LINK INC
		DATE OF NAME CHANGE:	19971020

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MEDCROSS INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>w68578e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<HR size="4" noshade color="#000000" style="margin-top: -5px">
<HR size="1" noshade color="#000000" style="margin-top: -10px">





<P align="center" style="font-size: 14pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<P align="center" style="font-size: 18pt"><B>FORM 10-Q</B>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%" style="font-size: 12pt">
<TR>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#120;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>For the quarterly period ended September&nbsp;30, 2004</B>



<P align="center" style="font-size: 10pt"><B>OR</B>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%" style="font-size: 12pt">
<TR>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>For the transition period from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</B>



<P align="center" style="font-size: 10pt"><B>Commission file number: 0-17973</B>


<P align="center" style="font-size: 24pt"><B>ACCERIS COMMUNICATIONS INC.</B>


<P align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>FLORIDA</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>59-2291344</B></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer Identification No.)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>9775 Businesspark Avenue, San Diego, California 92131</B><BR>
(Address of principal executive offices)



<P align="center" style="font-size: 10pt"><B>(858)&nbsp;547-5700</B><BR>
(Registrant&#146;s telephone number)


<P align="left" style="font-size: 10pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12&nbsp;months (or for such shorter time period that
the registrant was required to file such reports), and (2)&nbsp;has been subject to
such filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#120;</FONT> No <FONT face="Wingdings">&#111;</FONT>



<P align="left" style="font-size: 10pt">Check whether the registrant is an accelerated filed (as defined in Rule&nbsp;12b-2
of the Act).

Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#120;</FONT>



<P align="left" style="font-size: 10pt">As of October&nbsp;29, 2004, there were 19,237,101 shares of common stock $0.01 par
value outstanding.



<P>
<HR size="1" noshade color="#000000" style="margin-top: -2px">
<HR size="4" noshade color="#000000" style="margin-top: -10px">






<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">








<P align="left" style="font-size: 10pt"><B>PART I</B>&nbsp;<B>&#150;</B>&nbsp;<B>FINANCIAL INFORMATION</B>



<P align="left" style="font-size: 10pt"><B>Item&nbsp;1</B>&nbsp;<B>&#150;</B>&nbsp;<B>Financial Statements.</B>



<P align="center" style="font-size: 10pt"><B>ACCERIS COMMUNICATIONS INC. AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED BALANCE SHEETS</B>


<DIV align="center" style="font-size: 10pt"><B>(unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In thousands of dollars, except share and per share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,033</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable, less allowance for doubtful accounts
of $2,267 and $1,764 at September&nbsp;30, 2004 and December
31, 2003, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,018</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment in preferred and common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,058</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,202</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,311</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Furniture, fixtures, equipment and software, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,483</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,297</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,120</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment in preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">743</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,054</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">LIABILITIES AND STOCKHOLDERS&#146; DEFICIT</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unearned revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,678</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Revolving credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,127</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current portion of notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,254</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current portion of obligations under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,715</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,887</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Notes payable, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Obligations under capital leases, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,631</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Notes payable to a related party, net of unamortized
beneficial conversion features</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,717</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders&#146; deficit:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Preferred stock, $10.00 par value, authorized 10,000,000
shares, issued and outstanding 619 at September&nbsp;30, 2004
and December&nbsp;31, 2003, liquidation preference of $613 at
September&nbsp;30, 2004 and December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In thousands of dollars, except share and per share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, $0.01 par value, authorized 300,000,000
shares, issued and outstanding 19,237,101 at September&nbsp;30,
2004 and 19,262,101 at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,879</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(242,342</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(226,030</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total stockholders&#146; deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(58,190</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(42,953</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities and stockholders&#146; deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,054</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of these condensed consolidated financial statements



<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>ACCERIS COMMUNICATIONS INC. AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</B>


<DIV align="center" style="font-size: 10pt"><B>(unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In thousands of dollars, except per share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Telecommunications services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">88,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">101,364</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Technology licensing and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,099</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,463</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Telecommunications network expense (exclusive of
depreciation expense on telecommunications network
assets of $1,222 and $1,012 for the three months
ended September&nbsp;30, 2004 and 2003, respectively,
and $3,861 and $3,098 for the nine months ended
September&nbsp;30, 2004 and 2003, respectively,
included in depreciation and amortization below)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,141</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling, general and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,822</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Provision for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,577</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total operating costs and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,531</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,462</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,227</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,849</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,562</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,398</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,583</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,707</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest and other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,345</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,168</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,651</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,807</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,395</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25,500</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gain from discontinued operations (net of $0 tax)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,594</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16,291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(25,193</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic and diluted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,834</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,834</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per common share &#150; basic and diluted:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4.37</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gain from discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4.32</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of these condensed consolidated financial statements



<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>ACCERIS COMMUNICATIONS INC. AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B>


<DIV align="center" style="font-size: 10pt"><B>(unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In thousands of dollars)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16,291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(25,193</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Adjustments to reconcile net loss to net cash used in operating
activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,577</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Provision for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Amortization of discount on notes payable to related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,905</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accrued interest added to loan principal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,230</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Gain on sale of investment in common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,376</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Gain on discharge of obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(971</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Decrease in allowance for impairment of net assets of discontinued
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(169</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Expense associated with stock options issued to non-employee for
services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Settlement of note payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(394</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Management benefit conferred by controlling shareholder</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Stock received as payment on technology licensing agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,100</TD>
    <TD nowrap>)</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,416</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,372</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Increase
(decrease)&nbsp;from changes in operating assets and liabilities, net
of business acquisition:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(250</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,650</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net assets and liabilities of discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">884</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(680</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Unearned revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,708</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,003</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,520</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,222</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,295</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of furniture, fixtures, equipment and software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(670</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,636</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash acquired in business acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash received from sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash received from sale of investments in common stock, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash provided by (used in) investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,911</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,327</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from issuance of notes payable to related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">650</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from (repayment of) revolving credit facility, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,862</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,832</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payment of capital lease and note payable obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,868</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payment of note payable to RSL Estate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchase and retirement of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Costs paid by controlling shareholder</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,678</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(685</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,620</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,676</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
    <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
      <!-- Begin Table Head -->
      <TR valign="bottom">
        <TD width="78%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
      </TR>
      <TR style="font-size: 8pt" valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
      </TR>
      <TR style="font-size: 8pt" valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="7"><B>September 30,</B> <HR size="1" noshade></TD>
      </TR>
      <TR style="font-size: 8pt" valign="bottom">
        <TD nowrap align="left"><B>(In thousands of dollars)</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>2004</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>2003</B> <HR size="1" noshade></TD>
      </TR>
      <TR style="font-size: 8pt" valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="center" colspan="3"><B>(as restated)</B></TD>
      </TR>
      <!-- End Table Head -->
      <!-- Begin Table Body -->
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Supplemental schedule
            of non-cash investing and financing activities:</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:20px; text-indent:-10px">Preferred stock received
            in exchange for assets of discontinued operations</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD colspan="2" align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,691</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:20px; text-indent:-10px">Notes payable incurred
            for the purchase of software and software licenses</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD colspan="2" align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">921</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:20px; text-indent:-10px">Other assets included
            in purchase price of Transpoint acquisition</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD colspan="2" align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">2,836</TD>
        <TD>&nbsp;</TD>
      </TR>
      <!-- End Table Body -->
    </TABLE>
</DIV>



<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of these condensed consolidated financial statements



<P align="center" style="font-size: 10pt">6
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>ACCERIS COMMUNICATIONS INC. AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR>
(in thousands, except share and per share data)</B>



<P align="left" style="font-size: 10pt"><B>Note 1</B>&nbsp;<B>&#150;</B>&nbsp;<B>Description of Business and Principles of Consolidation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited condensed consolidated financial statements include the
accounts of Acceris Communications Inc. (formerly I-Link Incorporated) and its
wholly owned subsidiaries Acceris Communications Corp. (&#147;ACC,&#148; formerly
WorldxChange Corp.); I-Link Communications Inc., (&#147;ILC&#148;), which is
substantially included in discontinued operations; Transpoint Holdings
Corporation, which includes the purchased assets of Transpoint Communications,
LLC and the purchased membership interest in Local Telecom Holdings, LLC
(collectively, &#147;Transpoint&#148;), which the Company purchased in July&nbsp;2003; and
Acceris Communications Technologies, Inc. These entities combined are referred
to as &#147;Acceris&#148; or the &#147;Company&#148; in these unaudited condensed consolidated
financial statements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a broad-based communications company, servicing residential, small
and medium-sized businesses and corporate accounts in the United States. We
provide a range of products from local dial tone, domestic and international
long-distance voice services to fully managed, integrated data and enhanced
services. We are a US facilities-based carrier with points of presence in 30
major US cities. Our voice network features 11 voice switches and nationwide
Feature Group D (&#147;FGD&#148;) access. Our data network consists of 17 Nortel
Passports that have recently been upgraded to support multi-protocol label
switching (&#147;MPLS&#148;). Finally, we have relationships with multiple tier I and
tier II providers in the U.S. and abroad.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently manage our Company through two business segments. Our
Telecommunications segment offers a broad selection of voice and data
telecommunications products and services to residential and commercial
customers through a network of independent agents, primarily via multi-level
marketing (&#147;MLM&#148;) and commercial agent programs. Our Technologies segment
offers a proven network convergence solution for voice and data in Voice over
Internet Protocol (&#147;VoIP&#148;) communications technology and holds two foundational
patents in the VoIP space (U.S. Patent Nos. 6,243,373 and 6,438,124, together
the &#147;VoIP Patents&#148;). We are pursuing efforts to license the technology
supported by our patents to carriers and equipment manufacturers and suppliers
in the IP telephony market.


<P align="left" style="font-size: 10pt"><I>Telecommunications</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Telecommunications segment offers a broad range of voice and data
products and services to residential, small office/home office (&#147;SOHO&#148;) and
small-medium sized enterprises (&#147;SME&#148;), and corporate accounts through a
network of MLM agents, commercial agents, affinity groups and outbound
telemarketing. Our customers are serviced through direct sales and support
teams who offer fully managed and fully integrated voice and data solutions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have capitalized upon a unique synthesis of marketing and network
capabilities. Through the strength of our agent network we are adding new
customers each month, many of them with a strong international usage component.
Due to our favorable cost structure and network optimization, we offer
competitive rates to selected international regions. We continue to experience
customer attrition particularly with our 10-10-XXX customer base which we have
not marketed directly since 2002. We have also seen the average revenue per
user (&#147;ARPU&#148;) decline. The Company&#146;s domestic telephone network continues to
operate at well below available capacity leading to cost inefficiencies. We
attribute this to increased cellular penetration and deregulation in various
countries which have lower rates per month in those markets. This is most
evident in India in 2004. Additionally, regulatory uncertainty exists in the
domestic telephone markets due to recent court decisions. Future regulatory
changes may penalize or benefit the current operations of the business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We differentiate ourselves to our residential customers by offering
attractively priced bundles of international minutes, both on a stand alone
basis and as part of a local dial tone &#043; long-distance package to


<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">preferred destinations, and by specialized customer service, which includes
in-language customer support. By using this targeted strategy, we have acquired
a substantial number of ethnic users whose monthly spending on
telecommunications services is generally higher than that of the average retail
customer.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our proprietary technology enables us to offer unbundled value-added
services such as voicemail, unified messaging and on-the-fly conferencing at a
low cost, creating another competitive advantage when targeting retail
customers. These features distinguish us from mass-market providers that
typically offer higher priced, &#147;one-size-fits-all&#148; national and international
rate plans. We are in the process of productizing and deploying this
technology.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our direct sales force focuses on multi-location customers with limited
information technology (&#147;IT&#148;) resources. By taking a consultative approach to
network solutions and providing in-depth analysis of our customers&#146; business
needs and operating environments, we are able to design and deliver
competitively priced and customized voice and data solutions. Our commercial
customers also benefit from our relationships with multiple providers, which
ensures superior service with respect to network redundancy, cost and supplier
risk. We are able to offer strong customer service due to easy access to
information and to our engineering, technical and administrative staffs.


<P align="left" style="font-size: 10pt"><I>Technologies</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Technologies segment offers a proven network convergence solution for
the deployment of IP-based voice and data services over a single network. We
have over nine years of experience developing VoIP technologies. Our
proprietary soft-switch solution both enables existing telecom service
providers to reduce telecommunications costs and permits new communications
service providers to enter the enhanced communications market with limited
investment. In addition, we have a patent portfolio that includes two VoIP
patents (the &#147;VoIP Patents&#148;) which we believe are foundational VoIP patents for
communications over traditional telecommunication networks. We are pursuing
opportunities to leverage our patents through a focused licensing strategy that
targets carriers, equipment vendors and customers who are deploying IP for
phone-to-phone communication.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All significant intercompany accounts and transactions have been
eliminated upon consolidation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that the unaudited interim data includes all
adjustments necessary for a
fair presentation. The December&nbsp;31, 2003, condensed consolidated balance sheet
as restated herein is derived from audited consolidated financial statements, but
does not include all disclosures required by accounting principles generally
accepted in the United States of America. The condensed consolidated financial
statements should be read in conjunction with the Company&#146;s annual report on
Form 10-K/A#1, for the year ended December&nbsp;31, 2003, filed with the Securities
and Exchange Commission.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern and, accordingly, do
not include any adjustments that might result from the outcome from this
uncertainty. The independent registered public accounting firm&#146;s report on the
consolidated financial statements included in the Company&#146;s annual report on
Form 10-K/A#1 for the year ended December&nbsp;31, 2003 contained an explanatory
paragraph regarding the Company&#146;s ability to continue as a going concern.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations for the three and nine month periods ended
September&nbsp;30, 2004 are not necessarily indicative of those to be expected for
the entire year ending December&nbsp;31, 2004.


<P align="left" style="font-size: 10pt"><B>Note 2</B>&nbsp;<B>&#150;</B>&nbsp;<B>Restatement</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of the Company have been restated in
each reporting period from the fourth quarter of 2002 through to the first
quarter of 2004 to record additional deemed interest for beneficial conversion
features (&#147;BCF&#148;) embedded in certain of the Company&#146;s indebtedness as required
by Emerging Issues Task Force Issue No.&nbsp;00-27 (&#147;EITF 00-27&#148;). The restated
numbers are included in the year to date results as presented in the
accompanying consolidated financial statements and comparative figures.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;20, 2004, management of the Company concluded that the
accounting principles as set forth in EITF 00-27, regarding BCF, had not been
properly applied in current and prior periods to its convertible debentures
issued in a March&nbsp;2001 loan agreement for which the Company had previously
determined BCF of $1,100. The initial determination of the BCF in 2001 at the
respective issue dates of such debt was correct. However, adjustments to the
conversion price and the number of conversion shares


<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">were made under the debentures&#146; anti-dilution provisions. The various
anti-dilution events and their respective impacts on the number of shares and
the conversion price were disclosed in the Company&#146;s previous public filings.
However, the principles under EITF 00-27 also require a redetermination of the
BCF at each date an anti-dilution event occurred. This redetermination was not
completed in prior reporting periods. Additionally, the accumulation of unpaid
interest costs which are required by the debt terms to be added to principal
and which are payable at maturity on these same convertible debentures has been
deemed to be interest paid in kind (&#147;PIK&#148;); such interest also contains a
conversion feature, and payment of such interest in the form of PIK interest is
non-discretionary requiring the determination of BCF in the PIK interest. This
determination was not made by the Company in its prior reportings.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s management then concluded that a restatement was required
and brought these matters for consideration before the Audit Committee and the
full Board of Directors of the Company. Having considered the circumstances
underlying the accounting errors and their effects upon the Company&#146;s prior
filings, and having discussed the matter with the Company&#146;s management, the
Audit Committee concluded that the previously issued financial statements
should not be relied upon and approved and authorized the Company&#146;s management
to amend certain previously filed public reports to reflect deemed interest
expense from such BCF. The refilings were completed on October&nbsp;26, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the error affects 2001, 2002 and 2003, the $23 cumulative effect
on earnings through the third quarter of 2002 was recorded in the fourth
quarter of 2002 as a charge to interest expense. Therefore, the correction is
an increase in deemed interest expense and net loss, in all reporting periods
from the fourth quarter of 2002 through the first quarter of 2004, and a
reduction in reported liabilities and stockholders&#146; deficit in all reporting
periods from the fourth quarter of 2002 through the first quarter of 2004. The
effect of these errors is detailed, by reporting period, below. The restatement
had no effect on loss from discontinued operations or net loss per share from
discontinued operations.


<P align="left" style="font-size: 10pt"><B>Effect of the restatements on the consolidated statements of operations</B>


<P align="left" style="font-size: 10pt"><B>(per share information reported on a post 20:1 stock consolidation basis for
all periods shown. Stock consolidation enacted in the fourth quarter of 2003)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sept. 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)
as previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(14,895</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,713</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,456</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">594</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Correction of EITF
00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,089</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,337</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,801</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss as
currently reported
on revised Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,418</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(15,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,802</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,594</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,207</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)
per share as
previously reported
on Form&nbsp;10-K or
10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.92</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.64</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.56</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.44</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per share
as currently
reported on revised
Form&nbsp;10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.96</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.82</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.06</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Effect of the restatements on the consolidated balance sheets</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sept. 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Notes payable to a
related party:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,060</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,109</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,265</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,356</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,834</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,226</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Additional paid-in
capital:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,192</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,043</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">135,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">182,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">183,235</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Accumulated deficit</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(194,301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(209,196</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(212,909</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(216,166</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(220,622</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(220,028</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,292</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,629</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,408</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,209</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(194,602</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(210,399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(215,201</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(219,795</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(226,030</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(227,237</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Stockholders&#146;
equity (deficit):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(63,925</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(78,820</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82,468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(85,725</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(49,309</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(47,292</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,834</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(57,816</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(73,456</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(78,031</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82,460</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42,953</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42,458</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>





<P align="center" style="font-size: 10pt">10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Note 3</B>&nbsp;<B>&#150;</B>&nbsp;<B>Summary of Significant Accounting Policies</B>



<P align="left" style="font-size: 10pt"><B>Net loss per share</B>




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share is computed based on the weighted average number
of Acceris common shares outstanding during the period. Options, warrants,
convertible preferred stock and convertible debt are included in the
calculation of diluted earnings per share, except when their effect would be
anti-dilutive. As the Company has a net loss for the three and nine month
periods ended September&nbsp;30, 2003 and 2004, basic and diluted loss per share are
the same.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Potential common shares that were not included in the computation of
diluted earnings per share because they would have been anti-dilutive are as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assumed conversion of Series&nbsp;N preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,760</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assumed conversion of convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,657,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,587,550</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assumed exercise of options and warrants to
purchase shares of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,353,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436,650</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,036,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,048,960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Investments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends and realized gains and losses on securities are included in
other income in the condensed consolidated statements of operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company holds an investment in convertible preferred stock of
AccessLine Communications Corporation (&#147;AccessLine&#148;). The convertible preferred
stock is accounted for under the cost method, as the preferred securities are
not readily marketable and the Company&#146;s ownership interests do not allow it to
exercise significant influence over this entity. As of September&nbsp;30, 2004 and
December&nbsp;31, 2003, the carrying value of the preferred stock was $1,100. The
Company monitors this investment for impairment annually by considering current
factors including economic environment, market conditions and operational
performance and other specific factors relating to the business underlying the
investment, and will record impairments in carrying values when necessary. The
fair value of the security is estimated using the best available information as
of the evaluation date, including the quoted market prices of comparable public
companies, market price of the common stock underlying the preferred stock,
recent financing rounds of the investee and other investee specific
information. See Note 6 for further discussion of the Company&#146;s investment in
AccessLine convertible preferred stock.


<P align="left" style="font-size: 10pt"><B>Concentrations</B>



<P align="left" style="font-size: 10pt"><I>Concentrations of risk with third party providers:</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acceris utilizes the services of certain local exchange carriers (&#147;LECs&#148;)
to bill and collect from customers for a significant portion of its revenues.
If the LECs were unable or unwilling to provide such services in the future,
the Company would be required to significantly enhance its billing and
collection capabilities in a short amount of time and its collection experience
may be adversely affected during this transition period. If the LECs were
unable to remit payments received from their customers relating to Acceris
billings, the Company&#146;s operations and cash position may be adversely affected.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company depends on certain large telecommunications carriers to
provide network services for significant portions of the Company&#146;s
telecommunications traffic. If these carriers were unwilling or unable to
provide such services in the future, the Company&#146;s ability to provide services
to its customers may be adversely affected and the Company might not be able to
obtain similar services from alternative carriers on a timely basis or on terms
favorable to the Company.


<P align="left" style="font-size: 10pt"><I>Concentrations of credit risk</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s retail telecommunications subscribers are primarily
residential and small business subscribers in the United States. The Company&#146;s
customers are generally concentrated in the areas of


<P align="center" style="font-size: 10pt">11
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">highest population in the United States, more specifically California, Florida,
New York, Texas and Illinois. No single customer accounted for over 10% of
revenues in the three and nine month periods ending September&nbsp;30, 2004 or 2003.
The Company monitors credit worthiness of its larger carrier and retail
business customers.


<P align="left" style="font-size: 10pt"><B>Use of estimates</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.


<P align="left" style="font-size: 10pt"><B>Stock-based compensation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September&nbsp;30, 2004, the Company had several stock-based compensation
plans, which are described more fully in Note 18 to the audited consolidated
financial statements contained in our most recently filed Form 10-K/A#1. The
Company accounts for those plans under the recognition and measurement
principles of Accounting Principles Board Opinion No.&nbsp;25, <I>Accounting for Stock
Issued to Employees</I>, and related Interpretations (collectively, &#147;APB 25&#148;).
Stock-based employee compensation cost is not reflected in net loss, as all
options granted under those plans had an exercise price equal to or in excess
of the market value of the underlying common stock on the date of grant. In
accordance with SFAS No.&nbsp;123, <I>Accounting for Stock-Based Compensation </I>(&#147;SFAS
123&#148;), as amended by SFAS No.&nbsp;148, <I>Accounting for Stock-Based Compensation &#150;
Transition and Disclosure, </I>see below for a tabular presentation of the pro
forma stock-based compensation cost, net loss and loss per share as if the fair
value-based method of expense recognition and measurement prescribed by SFAS
123 had been applied to all employee options. Options granted to non-employees
(excluding non-employee members of the Company&#146;s Board of Directors),
consultants and marketing agents are recognized and measured using the fair
value-based method prescribed by SFAS 123.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,594</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16,291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(25,193</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deduct:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Employee
stock-based
compensation cost
determined under
the fair
value-based
method for all
awards, net of $0
tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(116</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,983</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,612</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16,745</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(25,247</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per share,
basic and diluted:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4.32</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.87</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4.33</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Note 4</B>&nbsp;<B>&#150;</B>&nbsp;<B>Liquidity and Capital Resources</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has incurred substantial operating losses and negative cash
flows from operations since inception. At September&nbsp;30, 2004 the Company had a
stockholders&#146; deficit of $58,190 ($42,953 &#150; December&nbsp;31, 2003), negative
working capital of $22,092 ($26,576 &#150; December&nbsp;31, 2003), amounts due to its
controlling shareholder of $45,946 ($28,717 &#150; December&nbsp;31, 2003) and $7,265
($12,127 &#150;

December&nbsp;31, 2003) are owing under its revolving credit facility (included in
working capital). There are no additional borrowings available under the
revolving credit facility at September&nbsp;30, 2004.


<P align="center" style="font-size: 10pt">12
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The related party debt is owed to the Company&#146;s controlling shareholder,
Counsel Corporation (collectively with all its subsidiaries &#147;Counsel&#148;) and is
due at December&nbsp;31, 2005, subject to certain contingent acceleration clauses
linked to the raising of capital. The Company has a funding commitment from
Counsel to fund, through long-term intercompany advances or equity
contributions, all capital investment, working capital or other operational
cash requirements (the &#147;Keep Well&#148;) through June&nbsp;30, 2005. During the first
nine months of 2004, Counsel advanced the Company $11,702 under the Keep Well,
and converted $3,084 of accrued interest into principal. In October&nbsp;2004,
Counsel agreed to subordinate all of its debt in the Company in favor of both
the existing third party revolving credit facility and the newly issued third
party convertible term note (discussed below). Under the subordination
agreements, Counsel further agreed to guarantee the Company&#146;s revolving credit
facility and convertible term note and to pledge all of its shares owned in the
Company as security for the related debts.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revolving credit facility is provided by an asset based lender. The
asset based lender is secured by a first lien on all of the assets of Acceris.
Borrowings under the facility are based on various advance rates of the
accounts receivable base subject to certain reductions and covenants. Amounts
available under the asset based facility are subject to change based upon the
level of receivables and other related factors, such as the aging of accounts,
customer concentrations, etc. The facility
matures on June&nbsp;30, 2005. The Company is looking to extend the term of the
facility beyond its current maturity date, or to replace the facility prior to
maturity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2004, the Company implemented a resizing of the organization
targeted at reducing its operating costs. The cost cutting reflects the
continued efficiencies created by the ongoing integration of the Company&#146;s
operations, related to its four acquisitions over the last three years. As a
result of the resizing, the Company&#146;s work force was reduced by approximately
20&nbsp;percent. The reduction affected staff in the San Diego, Pittsburgh and
Somerset facilities. Management has recorded approximately $400 in expenses
related to the August 2004 restructuring, of which
$326 was paid in the third quarter of 2004, recorded in selling, general and administration expense and anticipates that it
will record expenses, in the fourth quarter, of $1,000 to $1,500 related to
anticipated exit of facilities and the removal of assets from production.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, the Company entered into a Securities Purchase Agreement
(the &#147;Agreement&#148;) for the sale by the Company of a Convertible Term Note (the
&#147;Note&#148;) in the principal amount of $5,000 due October&nbsp;14, 2007. The Note
provides that the principal amount outstanding bears interest at the prime rate
as published in the Wall Street Journal plus 3% (but not less than 7% per
annum) decreasing by 2% (but not less than 0%) for every 25% increase in the
Market Price (as defined therein) above the fixed conversion price following
the effective date of the registration statement covering the Common Stock
issuable upon conversion of the Note. Should the Company default under the
agreement and fail to remedy the default on a timely basis, interest under the
note will increase by 2% per month and the note may become immediately due
inclusive of a 20% premium to the then outstanding principal. Interest is
payable monthly in arrears, commencing November&nbsp;1, 2004. Principal is payable
at the rate of approximately $147 per month commencing January&nbsp;1, 2005, in cash
or registered common stock. Payment amounts will be converted into stock if
(i)&nbsp;the average closing price for five trading days immediately preceding the
repayment date is at least 100% of the Fixed Conversion Price, (ii)&nbsp;the amount
of the conversion does not exceed 25% of the aggregate dollar trading volume
for the 22-day trading period immediately preceding the repayment date, (iii)&nbsp;a
registration statement is effective covering the issued shares and (iv)&nbsp;no
Event of Default exists and is continuing. In the event the monthly payment
must be paid in cash, then the Company shall pay 102% of the amount due in
cash. The Company has the right to prepay the Note, in whole or in part, at
any time by giving seven business days written notice and paying 120% of the
outstanding principal amount of the Note. The holder may convert the Note, in
whole or in part, into shares of Common Stock at any time upon one business
day&#146;s prior written notice. The Note is convertible into shares of the
Company&#146;s common stock at an initial fixed conversion price of $0.88 per share
of common stock (105% of the average closing price for the 30 trading days
prior to the issuance of the Note) not to exceed,
however, 4.99% of the outstanding shares of common stock, of the Company
(including issuable shares from the exercise of the warrants, payments of
interest, or any other shares owned).


<P align="center" style="font-size: 10pt">13
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not expect to generate net cash flow from operating
activities in the remainder of 2004. In the first nine months of 2004, the
Company has been funded primarily by increases in related party debt and with
the proceeds from the sale of its shares of Buyers United Inc. (&#147;BUI&#148;). The
October financing noted above is expected to fund the Company throughout the
remainder of 2004. Should additional funds be required by the Company to
operate the business such funds will be derived from proceeds from additional
third party fund raises which may take the form of debt, equity or a hybrid
instrument, or from the proceeds on the sale of assets or from advances under
the Keep Well.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management intends to raise additional funds from third parties to support
the operating needs of the business beyond 2004. Use of funds from such
arrangements may include such uses as funding operations, improving working
capital, repaying obligations of the business and funding future merger and
acquisition activities. There can be no assurance that the Company&#146;s capital
raising efforts will be successful or can occur on favorable terms to existing
security or debt holders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There continues to be no assurance that the Company will be able to
improve its cash flow from operations, obtain additional third party financing,
extend, repay or refinance its debt with Counsel, its asset based lender or the
holder of the October&nbsp;2004 Note on favorable terms, or obtain an extension of
the existing funding commitment from Counsel or its asset based lender beyond
their respective maturity dates. This circumstance raises substantial doubt
about the Company&#146;s ability to continue as a going concern. The accompanying
condensed consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability of assets and
liquidation of liabilities that may result from this uncertainty.


<P align="left" style="font-size: 10pt"><B>Note 5</B>&nbsp;<B>&#150;</B>&nbsp;<B>Composition of Certain Financial Statements Captions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furniture, fixtures, equipment and software consisted of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31, 2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Telecommunications network equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,196</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Furniture, fixtures and office equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,059</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Building /leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Software and information systems</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,986</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less accumulated depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,923</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,063</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total furniture, fixtures,
            equipment and software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in telecommunications network equipment was $9,752 and $9,739 in
assets acquired under capital leases at September&nbsp;30, 2004 and December&nbsp;31,
2003, respectively. Accumulated amortization on these leased assets was $8,164
and $6,382 at September&nbsp;30, 2004 and December&nbsp;31, 2003, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets consisted of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>September 30, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>period</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>amortization</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Intangible assets subject to amortization:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Customer contracts and relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">12 - 60 months</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(961</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,045</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Agent relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">36 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(944</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,172</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Agent contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">12 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(242</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Patents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">60 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>
          &nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>
          &nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>
          &nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,162</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,302</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,120</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total intangible assets and goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,162</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,422</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">14
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>December 31, 2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>period</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>amortization</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Intangible assets subject to amortization:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Customer contracts and relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">12 - 60 months</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(510</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,496</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Agent relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">36 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(415</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,701</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Agent contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">12 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(242</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Patents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">60 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,297</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,120</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total intangible assets and goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for the three months ended September&nbsp;30, 2004 and
2003 was $298 and $583, respectively. Amortization expense for the nine months
ended September&nbsp;30, 2004 and 2003 was $995 and $980, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities consisted of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,370</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Telecommunications and related accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,840</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Regulatory fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,790</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

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</DIV>



<P align="left" style="font-size: 10pt"><B>Note 6</B>&nbsp;<B>&#150;</B>&nbsp;<B>Investments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to June&nbsp;21, 2004, the Company held an investment in the common stock
of BUI, which investment was acquired as consideration received related to the
sale of the operations of ILC. At the time of the sale of the ILC business, the
purchase price consideration paid by BUI was in the form of convertible
preferred stock, with additional shares of preferred stock received
subsequently based on contingent earn out provisions in the purchase agreement.
In addition, common stock dividends were earned on the preferred stock holding.
On March&nbsp;16, 2004, the Company converted its preferred stock into 1,500,000
shares of BUI common stock, and sold 750,000 shares at $2.30 per share in a
private placement transaction. This sale resulted in a gain of approximately
$565, which is included in interest and other income in the three months ended
March&nbsp;31, 2004 and was based on specific identification of the securities sold
and their related cost basis. Through several open market transactions during
the three months ended June&nbsp;30, 2004, the Company sold the remaining 808,546 of
these shares, resulting in a gain of approximately $811. These gains are
included in other income in the accompanying condensed consolidated statements
of operations for the three and nine months ended September&nbsp;30, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s investments as of September&nbsp;30, 2004 consist of convertible
preferred stock in AccessLine. This stock was received as consideration for a
licensing agreement in the second quarter of 2003 and was reflected in
technology licensing and development revenues for that quarter, at its carrying
value of $1,100.


<P align="left" style="font-size: 10pt"><B>Note 7</B>&nbsp;<B>&#150;</B>&nbsp;<B>Network Service Offering</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company, through its Telecommunications segment (see Note 16 for
further discussion of the Company&#146;s segments), began to sell a network service
offering in November&nbsp;2002. The Company ceased
selling this network service offering in July 2003. Revenues for the
Company&#146;s network service offering


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<P align="left" style="font-size: 10pt">are accounted for using the unencumbered cash receipt
method. The Company determined that collectibility of the amounts billed to
customers was not reasonably assured at the time of billing. Under its
agreements with the LECs, cash collections remitted to the Company are subject
to adjustment, generally over several months. Accordingly, the Company
recognizes revenue when the actual cash collections to be retained by the
Company are finalized and unencumbered. There was no further billing of
customers for the network service offering subsequent to the program&#146;s
termination. During the three and nine months ended September&nbsp;30, 2004, the
Company recognized $161 and $6,714, respectively, as non-recurring revenue from
prior-year sales of this service offering as prior period cash collections were
finalized.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2004, the Company had not paid the service provider
approximately $519 which was previously reserved pursuant to services provided
in July&nbsp;2003, which were expensed as a telecommunications cost in the third
quarter of 2003. During the second quarter of 2004, a settlement was reached
with the service provider whereby the Company paid approximately $300 to the
service provider, rendering all parties free and clear of all future
obligations under the program. The discharge of the remaining $219 obligation
is included as an offset to telecommunications expense in the accompanying
condensed consolidated statements of operations for the nine months ended
September&nbsp;30, 2004.


<P align="left" style="font-size: 10pt"><B>Note 8</B>&nbsp;<B>&#150;</B>&nbsp;<B>Discharge of Obligation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2004, the Company was discharged of an obligation
totaling $767 owed to a consortium of owners of a certain telecommunications asset, to which the Company previously held an indefeasible right
of usage. The discharge of the obligation is included in interest and other income in the accompanying condensed consolidated statements of operations
for the nine months ended September 30, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the third quarter of 2004, the Company entered into a settlement agreement with the estate of WorldxChange Communications, Inc. ("Estate"), which resulted in the offset of a receivable of the Company with an obligation of the Company to the Estate.  The effect was an increase of $204 in other income in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2004.


<P align="left" style="font-size: 10pt"><B>Note 9</B>&nbsp;<B>&#150;</B>&nbsp;<B>Patent Residual Option</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2003, Acceris acquired Patent No.&nbsp;6,243,373 from
a third party. Consideration provided was $100 plus a 35% residual
payable to the third party relating to the net proceeds from future licensing
and or enforcement actions from the combined Acceris VoIP Patents (i.e. Patent
No.&nbsp;6,243,373 and 6,438,124). Net proceeds are defined as amounts collected
from third parties net of the direct costs associated with putting the
licensing or enforcement in place and related collection costs. At the time of
closing, Acceris was granted the right to decrease the residual payable from
35% to 30% on or before June&nbsp;30, 2004 for an additional payment of $614 and,
based upon exercising the right to decrease the residual from 35% to 30%,
Acceris would have the additional right to decrease its residual payable from
30% to 15% for an additional $5,000. In the second quarter, Acceris was granted
an extension through July&nbsp;31, 2004 of its right to decrease the residual from
35% to 30% for no additional consideration by the arms length party. Acceris
has subsequently been granted additional extensions of its right to decrease
its residual from 35% to 30% through November&nbsp;30, 2004 for no additional
consideration. The additional right to decrease the residual from 30% to 15%,
which is preconditioned on the decrease of residual from 35% to 30% remains in
full force and effect.


<P align="left" style="font-size: 10pt"><B>Note 10</B>&nbsp;<B>&#150;</B>&nbsp;<B>Discontinued Operations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;6, 2002, the Company entered into an agreement to sell
substantially all of the assets and customer base of ILC to BUI. The sale
included the physical assets required to operate Acceris&#146; nationwide network
using its patented VoIP technology (constituting the core business of ILC) and
a non-exclusive license in perpetuity to use Acceris&#146; proprietary software
platform. The sale closed on May&nbsp;1, 2003 and provided for a post closing cash
settlement between the parties. The sale price consisted of 300,000 shares
of Series&nbsp;B convertible preferred stock (8% dividend) of BUI, subject to
adjustment in certain


<P align="center" style="font-size: 10pt">16
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<P align="left" style="font-size: 10pt">circumstances, of which 75,000 shares were subject to an
earn-out provision (contingent consideration). The fair value of the 225,000
shares (non-contingent consideration) of BUI convertible preferred stock was
determined to be $1,350 as of December&nbsp;31, 2002. The earn-out took place on a
monthly basis over a fourteen-month period, which began January&nbsp;2003. The
Company recognized the value of the earn-out shares as additional sales
proceeds when earned. During the year ended December&nbsp;31, 2003, 64,286 shares of
the contingent consideration with a fair value of $566 were earned and included
as a component of gain (loss)&nbsp;from discontinued operations. As of December&nbsp;31,
2003, the combined fair value of the 225,000 original shares and the 64,286
shares earned from the contingent consideration was determined to be $1,916.
See Note 6 for a discussion of the disposition of these shares in the nine
months ended September&nbsp;30, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2004, the Company recorded a gain from
discontinued operations of $104. This gain was due to the receipt in January
2004 of the remaining 10,714 shares of common stock as contingent
consideration, which is recorded as additional gain from discontinued
operations. Upon closing of the sale, BUI assumed all operational losses
subsequent to December&nbsp;2002. Accordingly, the gains of $213 and $307 for the
three and nine months ended September&nbsp;30, 2003, respectively, include the
increase in the sales price for the losses incurred after December&nbsp;6, 2002.


<P align="left" style="font-size: 10pt"><B>Note 11</B>&nbsp;<B>&#150;</B>&nbsp;<B>Income Taxes</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognized no income tax benefit from the losses generated in
the nine months ended September&nbsp;30, 2004 and 2003 because of the uncertainty
surrounding the realization of the related deferred tax asset. Pursuant to
Section&nbsp;382 of the Internal Revenue Code, annual usage of the Company&#146;s net
operating loss carryforwards is limited to approximately $6,700 per annum until
2008 and thereafter $1,700 per annum as a result of previous cumulative changes
of ownership resulting in a change of control of the Company. These rules in
general provide that an ownership change occurs when the percentage
shareholdings of 5% direct or indirect shareholders of a loss corporation have
in aggregate increased by more than 50&nbsp;percentage points during the immediately
preceding three years. Restrictions in net operating loss carry forwards
occurred in 2001 as a result of the acquisition of the Company by Counsel.
Further restrictions likely have occurred as a result of subsequent changes in
the share ownership and capital structure of the Company and Counsel. There is
no certainty that the application of these rules may not reoccur resulting in
further restrictions on the Company&#146;s income tax loss carry forwards existing
at a particular time. Any such additional limitations could require the Company
to pay income taxes in the future and record an income tax expense to the
extent of such liability.


<P align="left" style="font-size: 10pt"><B>Note 12</B>&nbsp;<B>&#150;</B>&nbsp;<B>Related Party Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the nine months ended September&nbsp;30, 2004, Counsel, Acceris&#146;
controlling shareholder, advanced $11,702 and converted $3,084 of interest
payable to principal. All loans from Counsel mature on December&nbsp;31, 2005 and
accrue interest at rates ranging from 9% to 10%, with interest compounding
quarterly and some of the loans are subject to an accelerated maturity in
certain circumstances. At September&nbsp;30, 2004, no events resulting in
accelerated maturity had occurred. The Keep Well from Counsel expires on June
30, 2005 and provides a commitment to fund through long-term intercompany
advances or equity contributions, all capital investment, working capital or
other operational cash requirements of the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Chief Executive Officer (&#147;CEO&#148;) of Acceris is an employee of Counsel.
As CEO of Acceris, he is entitled to an annual salary of $275 and a
discretionary bonus of up to 100% of the base salary. Such compensation is
expensed and paid by Acceris.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Counsel provided additional management services through Acceris&#146;
President, Chief Financial Officer, Corporate Secretary, and from time to time
corporate finance staff who are also employees of Counsel. No contractual
arrangement exists for these services so the contribution of these individuals
are considered as a conferred benefit by the controlling shareholder resulting
in the recording of an expense of $198 for the nine months ended September&nbsp;30,
2004. This expense is included in selling, general and administrative expenses
and results in an increase in paid-in capital.





<P align="center" style="font-size: 10pt">17
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 <P align="left" style="font-size: 10pt"><B>Note 13 &#150; Commitments and
Contingencies</B>
<P align="left" style="font-size: 10pt"><I>Legal Proceedings</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;16, 2004, certain shareholders of the Company (the &#147;Plaintiffs&#148;)
filed a putative derivative complaint in the Superior Court of the State of
California in and for the County of San Diego, (the &#147;Complaint&#148;) against the
Company, WorldxChange Corporation (sic), Counsel Communications LLC, and
Counsel Corporation as well as certain present and former officers and
directors of the Company, some of whom also are or were directors and/or
officers of the other corporate defendants (collectively, the &#147;Defendants&#148;).
The Complaint alleges, inter alia, that the Defendants, in their respective
roles as controlling shareholder and directors and officers of the Company
committed breaches of the fiduciary duties of care, loyalty and good faith and
were unjustly enriched, and that the individual Defendants committed waste of
corporate assets, abuse of control and gross mismanagement. The Plaintiffs seek
compensatory damages, restitution, disgorgement of allegedly unlawful profits,
benefits and other compensation, attorneys&#146; fees and expenses in connection
with the Complaint. The Company believes that these claims in their entirety
are without merit and intends to vigorously defend this action. There is no
assurance that this matter will be resolved in the Company&#146;s favor and an
unfavorable outcome of this matter could have a material adverse impact on its
business, results of operations, financial position or liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acceris and several of Acceris&#146; current and former executives and board
members were named in a securities action filed in the Superior Court of the
State of California in and for the County of San Diego on April&nbsp;16, 2004, in
which the plaintiffs made claims nearly identical to those set forth in the
derivative suit above. The Company believes that these claims in their entirety
are without merit and intends to vigorously defend this action. There is no
assurance that this matter will be resolved in the Company&#146;s favor and an
unfavorable outcome of this matter could have a material adverse impact on its
business, results of operations, financial position or liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Company&#146;s efforts to enforce its patent rights,
Acceris Communications Technologies Inc. filed a patent infringement lawsuit
against ITXC Corp. (&#147;ITXC&#148;) in the United States District Court of the District
of New Jersey on April&nbsp;14, 2004. The complaint alleges that ITXC&#146;s VoIP
services and systems infringe the Company&#146;s U.S. Patent No.&nbsp;6,243,373, entitled
&#147;Method and Apparatus for Implementing a Computer Network/Internet Telephone
System.&#148; On May&nbsp;7, 2004, ITXC filed a lawsuit against Acceris Communications
Technologies Inc., and the Company, in the United States District Court for the
District of New Jersey for infringement of five ITXC patents relating to VoIP
technology, directed generally to the transmission of telephone calls over the
Internet and the completion of telephone calls by switching them off the
Internet and onto a public switched telephone network. The Company believes
that the allegations contained in ITXC&#146;s complaint are, in their entirety,
without merit and the Company intends to provide a vigorous defense to ITXC&#146;s
claims. There is no assurance that this matter will be resolved in the
Company&#146;s favor and an unfavorable outcome of this matter could have a material
adverse impact on its business, results of operations, financial position or
liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At our Adjourned Meeting of Stockholders held on December&nbsp;30, 2003, our
stockholders approved an amendment to our Articles of Incorporation, deleting
Article&nbsp;VI thereof (regarding liquidations, reorganizations, mergers and the
like). Stockholders who were entitled to vote at the meeting and advised us in
writing, prior to the vote on the amendment, that they dissented and intended
to demand payment for their shares if the amendment was effectuated, were
entitled to exercise their appraisal rights and obtain payment in cash for
their shares under Sections&nbsp;607.1301 &#150; 607.1333 of the Florida Business
Corporation Act, provided their shares were not voted in favor of the
amendment. In January&nbsp;2004, appraisal notices in compliance with Florida
corporate statutes were sent to all stockholders who had advised us of their
intention to exercise their appraisal rights. The appraisal notices included
our estimate of fair value of our shares, being $4.00 per share on a post-split
basis. These stockholders had until February&nbsp;29, 2004 to return their completed
appraisal notices along with certificates for the shares for which they were
exercising their appraisal rights. Approximately 33 stockholders holding
approximately 74,000 shares of our stock returned completed appraisal notices
by February&nbsp;29, 2004. A stockholder of 20 shares notified us of his acceptance
of our offer of $4.00 per share, while the stockholders of the remaining shares
did not accept our offer. Subject to the qualification that we may not make any
payment to a stockholder seeking appraisal rights if,
at the time of payment, our total assets are less than our total liabilities,
stockholders who accepted our


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<P align="left" style="font-size: 10pt">offer to purchase their shares at the estimated
fair value will be paid for their shares within 90&nbsp;days of our receipt of a
duly executed appraisal notice. If we should be required to make any payments
to dissenting stockholders, Counsel will fund any such amounts through the
purchase of shares of our common stock. Stockholders who did not accept our
offer were required to indicate their own estimate of fair value, and if we do
not agree with such estimates, the parties are required to go to court for an
appraisal proceeding on a individual basis, in order to establish a fair value.
Because Acceris did not agree with the estimates submitted by most of the
dissenting shareholders, Acceris has sought a judicial determination of the
fair value of the common stock held by the dissenting stockholders. On June&nbsp;24,
2004, Acceris filed suit against the dissenting shareholders seeking a
declaratory judgment, appraisal and other relief in the Circuit Court for the
17th Judicial District in Broward County, Florida. There is no assurance that
this matter will be resolved in the Company&#146;s favor and an unfavorable outcome
of this matter could have a material adverse impact on our business, results of
operations, financial position or liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is involved in various other legal matters arising out of its
operations in the normal course of business, none of which are expected,
individually or in the aggregate, to have a material adverse effect on the
Company.


<P align="left" style="font-size: 10pt"><B>Note 14</B>&nbsp;<B>&#150;</B>&nbsp;<B>Agent Warrant Program</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first quarter of 2004, the Company launched the Acceris
Communications Inc. Platinum Agent Program (the &#147;Agent Warrant Program&#148;), which
provides for the issuance of warrants to purchase up to 1,000,000 shares of the
Company&#146;s common stock to independent agents who participate in the Agent
Warrant Program. The Agent Warrant Program was established to encourage and
reward consistent, substantial and persistent production by selected commercial
agents serving the Company&#146;s domestic markets and to strengthen the Company&#146;s
relationships with these agents by granting long-term incentives in the form of
the warrants to purchase the Company&#146;s common stock at current price levels.
The Agent Warrant Program is administered by the Compensation Committee of the
Board of Directors of the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Participants in the Agent Warrant Program will be granted warrants upon
commencement, the vesting of which is based on maintaining certain revenue
levels for a period of 24&nbsp;months. The grants are classified into tiers based on
commissionable revenue levels, the vesting period of which begins upon the
achievement of certain commissionable revenue levels during the eighteen month
period beginning February&nbsp;1, 2004. Vesting of the warrants within each tier
occurs 50% after 12&nbsp;months and 100% after 24&nbsp;months, dependent on the agent
maintaining the associated commissionable revenue levels for the entire period
of vesting.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2004, 600,000 warrants have been issued under the
Agent Warrant Program, none of which have met the requirements to begin
vesting. The warrants issued under the plan are accounted for under the
provisions of the FASB&#146;s Emerging Issue Task Force&#146;s (&#147;EITF&#148;) Issue No.&nbsp;96-18,
<I>Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services </I>(&#147;EITF 96-18&#148;).
Accordingly, the Company will recognize an expense associated with these
warrants over the vesting period based on the then current fair market value of
the warrants calculated at each reporting period. At such time as the vesting
for any warrants begins, the expense will be included in selling, general and
administrative expense. As the vesting period has not commenced for any of the
warrants issued prior to September&nbsp;30, 2004, no expense has been recognized in
the accompanying condensed consolidated statements of operations for the three
and nine months ended September&nbsp;30, 2004.


<P align="left" style="font-size: 10pt"><B>Note 15</B>&nbsp;<B>&#150;</B>&nbsp;<B>Subsequent Event</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, the Company entered into an agreement for the sale by the
Company of a Convertible Term Note in the principal amount of $5,000 due
October&nbsp;14, 2007. The Note provides that the principal amount outstanding
bears interest at the prime rate as published in the Wall Street Journal plus
3% (but not less than 7% per annum) decreasing by 2% (but not less than 0%) for
every 25% increase in the Market Price (as defined therein) above the fixed
conversion price following the effective date of the
registration statement covering the Common Stock issuable upon
conversion of the Note. Should the Company default under the agreement and fail to remedy
the default on a timely basis,

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<P align="left" style="font-size: 10pt"> interest under the note will increase by 2% per
month and the note may become immediately due inclusive of a 20% premium to the
then outstanding principal. Interest is payable monthly in arrears, commencing
November&nbsp;1, 2004. Principal is payable at the rate of approximately $147 per
month commencing January&nbsp;1, 2005, in cash or registered common stock. Payment
amounts will be converted into stock if (i)&nbsp;the average closing price for five
trading days immediately preceding the repayment date is at least 100% of the
Fixed Conversion Price, (ii)&nbsp;the amount of the conversion does not exceed 25%
of the aggregate dollar trading volume for the 22-day trading period
immediately preceding the repayment date, (iii)&nbsp;a registration statement is
effective covering the issued shares and (iv)&nbsp;no Event of Default exists and is
continuing. In the event the monthly payment must be paid in cash, then the
Company shall pay 102% of the amount due in cash. The Company has the right to
prepay the Note, in whole or in part, at any time by giving seven business days
written notice and paying 120% of the outstanding principal amount of the Note.
The holder may convert the Note, in whole or in part, into shares of Common
Stock at any time upon one business day&#146;s prior written notice. The Note is
convertible into shares of the Company&#146;s common stock at a fixed
conversion price of $0.88 per share of common stock (105% of the average
closing price for the 30 trading days prior to the issuance of the Note) not to
exceed, however, 4.99% of the outstanding shares of common stock, of the
Company (including issuable shares from the exercise of the warrants, payments
of interest, or any other shares owned).

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to a Master Security Agreement, the Company granted a blanket lien on all its property and that
of certain of its subsidiaries to secure repayment of the obligation and, pursuant to a Stock Pledge Agreement, Counsel
Communications, LLC and Counsel Corporation (US) pledged the shares of the Company held by it as
further security. In addition, Acceris Communications Technologies, Inc., Acceris Communications Corp., Counsel Corporation and Counsel Communications LLC and Counsel Corporation (US) jointly and severally guaranteed the obligations to the Lender. The Company paid a closing fee of 3.9% of the aggregate principal amount of the Note or $195 and reimbursed
the Purchaser for its expenses in connection with the transaction in the aggregate amount of $31. So long as 25%
of principal amount of the Note is outstanding, the Company agreed that it will not pay dividends on its Common Stock, among other things.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Company issued its Common Stock Purchase Warrant
(the &#147;Warrant&#148;) to the Purchaser,
 entitling the Purchaser to purchase up to one million shares of common stock, subject to adjustment.
The Warrant entitles the Purchaser to purchase the stock through the earlier of (i) October 13, 2009
 or (ii) the date on which the average closing price for any consecutive ten trading dates shall equal
or exceed 15 times the Exercise Price. The Exercise Price shall equal $1.00 per share as to the first
250,000 shares, $1.08 per share for the next 250,000 shares and $1.20 per share for the remaining
 500,000 shares, or 125%, 135% and 150% of the average closing price for ten trading days immediately
prior to the date of the Warrant, respectively. The Company agreed, pursuant to a Registration Rights Agreement, to file, within 30 days, a registration statement under the Securities Act of 1933, as amended, to register the shares issuable upon conversion of the Note as well as those issuable pursuant to the Warrant.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is in the process of assessing the appropriate accounting for this multi-element financial instrument.
<P align="left" style="font-size: 10pt"><B>Note 16</B>&nbsp;<B>&#150;</B>&nbsp;<B>Segment Reporting</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2004, the Company changed the structure of its
internal organization and the method upon which it evaluates its performance.
Previously, the Company had three segments consisting of Enterprise, Retail and
Technologies, which primarily distinguished themselves by the product offerings
available. In the first quarter of 2004, management began to evaluate the
Company as two divisions consisting of Telecommunications and Technologies. The
Company uses the information available by division to evaluate management and
Company performance and to make decisions regarding the allocation of Company
assets. Telecommunications includes the operations of the assets and
liabilities purchased from WorldxChange in June&nbsp;2001 and the Agent and
Enterprise businesses of RSL.Com Inc. (&#147;RSL&#148;), which were acquired in December
2002. This segment offers a dial around telecommunications product, a 1&#043;
product and a local dial tone bundled offering through MLM, commercial agents
and telemarketing channels. This segment also offers voice and data solutions
to business customers through an in-house sales force. The Technologies segment
offers a fully developed network convergence solution for voice and data and
licenses its technology to third party users. Prior period amounts have been
restated to conform to this presentation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no material inter-segment revenues. The Company&#146;s business is
conducted principally in the U.S.; foreign operations are not significant. The
table below presents information about the segments of the Company as of and
for the three and nine months ended September&nbsp;30, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>For the three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>For the nine months</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>ended September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>ended September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Revenues from external customers:</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Telecommunications</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">88,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">101,364</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Technologies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,099</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total revenues from external customers for
reportable segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">89,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">103,463</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Segment income (loss):</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Telecommunications</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,745</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,319</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(8,536</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(17,034</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Technologies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(744</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,169</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total segment income (loss)&nbsp;for reportable segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,081</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,552</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,280</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,865</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unallocated amounts in consolidated net loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of discount on notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(170</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(502</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>For the three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>For the nine months</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>ended September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>ended September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gain on discharge of obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gain on sale of investment in common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Corporate interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,509</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,466</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,282</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,781</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other corporate expenses, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(481</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(619</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,076</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,352</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated net loss from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,807</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16,395</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(25,500</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Item&nbsp;2</B>&nbsp;<B>&#150;</B>&nbsp;<B>Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion should be read in conjunction with the
information contained in the condensed consolidated financial statements of the
Company and the related notes thereto appearing elsewhere herein and in
conjunction with the Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations set forth in the Company&#146;s Form 10-K/A#1
for the year ended December&nbsp;31, 2003 filed with the Securities and Exchange
Commission (&#147;SEC&#148;). All numbers are in thousands of dollars except for share,
per share data and customer counts.


<P align="left" style="font-size: 10pt"><B><I>Forward Looking Information</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This report contains certain &#147;forward-looking statements&#148; within the
meaning of Section&nbsp;27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act of 1934, as amended that are based on management&#146;s
exercise of business judgment as well as assumptions made by and information
currently available to management. When used in this document, the words &#147;may,&#148;</I>
"<I>will,&#148; &#147;anticipate,&#148; &#147;believe,&#148; &#147;estimate,&#148; &#147;expect,&#148; &#147;intend&#148; and words of
similar import, are intended to identify any forward-looking statements. You
should not place undue reliance on these forward-looking statements. These
statements reflect our current view of future events and are subject to certain
risks and uncertainties as noted below. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
our actual results could differ materially from those anticipated in these
forward-looking statements. We undertake no obligation and do not intend to
update, revise or otherwise publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of any unanticipated events. Although we
believe that our expectations are based on reasonable assumptions, we can give
no assurance that our expectations will materialize.</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many factors could cause actual results to differ materially from our
forward-looking statements. Several of these factors, which are more fully
discussed in our Annual Report on Form 10-K/A &#35; 1 for the year ended December&nbsp;31,
2003, include, without limitation:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our ability to:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>finance and manage growth;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>execute on the strategy and the business plans of management;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain our relationship with telecommunications carriers;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide ongoing competitive services and pricing;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>retain and attract key personnel;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>operate effective network facilities;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain favorable relationships with local exchange carriers
(&#147;LECs&#148;), long-distance providers and other vendors, including our
ability to meet our usage commitments;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>attract new subscribers while minimizing subscriber attrition;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>continue to grow the distribution for our Telecommunications segment
through multi level marketing (&#147;MLM&#148;), residential and commercial
agents, and with our direct sales force;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>continue to offer competitive local dial tone, long distance and data
products and to expand the geographic reach of our local dial tone
offering;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>efficiently integrate completed acquisitions;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>address legal proceedings in an effective manner;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain, operate and upgrade our information systems network;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain and operate our networks in a cost effective manner;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>extend our related party debt beyond its December&nbsp;31, 2005 maturity
date or replace such debt on acceptable terms;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtain Counsel&#146;s continued commitment and ability to fund through June
30, 2005, the cash requirements of the business;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>complete third party debt or equity financing;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>extend our asset based lending facility beyond its June&nbsp;30, 2005
maturity or replace the facility on acceptable terms;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain compliance with existing and evolving federal and state
governmental regulation of telecommunications providers;</TD>
</TR>

</TABLE>


  <P>
  <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
    <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
      <TD width="1%" nowrap align="right">&#149;</TD>
      <TD width="1%">&nbsp;</TD>
      <TD>&nbsp;respond to regulatory changes on a timely and cost effective basis;
      </TD>
    </TR>
  </TABLE>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2) Adoption of new, or changes in, accounting principles; and


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3) Other risks referenced from time to time in our filings with the SEC
and the Federal Communications Commission.


<P align="left" style="font-size: 10pt"><B>Restatement</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of the Company have been restated in
each reporting period from the fourth quarter of 2002 through to the first
quarter of 2004 to record additional deemed interest for beneficial conversion
features (&#147;BCF&#148;) embedded in certain of the Company&#146;s indebtedness as required
by Emerging Issues Task Force Issue No.&nbsp;00-27 (&#147;EITF 00-27&#148;). The restated
numbers are included in the year to date results as presented in the
accompanying consolidated financial statements and comparative figures.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;20, 2004, management of the Company concluded that the
accounting principles as set forth in EITF 00-27, regarding BCF, had not been
properly applied in current and prior periods to its convertible debentures
issued in a March&nbsp;2001 loan agreement for which the Company had previously
determined BCF of $1,100. The initial determination of the BCF in 2001 at the
respective issue dates of such debt was correct. However, adjustments to the
conversion price and the number of conversion shares were made under the
debentures&#146; anti-dilution provisions. The various anti-dilution events and
their respective impacts on the number of shares and the conversion price were
disclosed in the Company&#146;s previous public filings. However, the principles
under EITF 00-27 also require a redetermination of the BCF at each date an
anti-dilution event occurred. This redetermination was not completed in prior
reporting periods. Additionally, the accumulation of unpaid interest costs
which are required by the debt terms to be added to principal and which are
payable at maturity on these same convertible debentures has been deemed to be
interest paid in kind (&#147;PIK&#148;); such interest also contains a conversion
feature, and payment of such interest in the form of PIK interest is
non-discretionary requiring the determination of BCF in the PIK interest. This
determination was not made by the Company in its prior reportings.


<P align="center" style="font-size: 10pt">23
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s management then concluded that a restatement was required
and brought these matters for consideration before the Audit Committee and the
full Board of Directors of the Company. Having considered the circumstances
underlying the accounting errors and their effects upon the Company&#146;s prior
filings, and having discussed the matter with the Company&#146;s management, the
Audit Committee concluded that the previously issued financial statements
should not be relied upon and approved and authorized the Company&#146;s management
to amend certain previously filed public reports to reflect deemed interest
expense from such BCF. The refilings were completed on October&nbsp;26, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the error affects 2001, 2002 and 2003, the $23 cumulative effect
on earnings through the third quarter of 2002 was recorded in the fourth
quarter of 2002 as a charge to interest expense. Therefore, the correction is
an increase in deemed interest expense and net loss, in all reporting periods
from the fourth quarter of 2002 through the first quarter of 2004, and a
reduction in reported liabilities and stockholders&#146; deficit in all reporting
periods from the fourth quarter of 2002 through the first quarter of 2004. The
effect of these errors is detailed, by reporting period, below. The restatement
had no effect on loss from discontinued operations or net loss per share from
discontinued operations.


<P align="left" style="font-size: 10pt"><B>Effect of the restatements on the consolidated statements of operations</B>


<P align="left" style="font-size: 10pt"><B>(per share information reported on a post 20:1 stock consolidation basis for
all periods shown. Stock consolidation enacted in the fourth quarter of 2003)</B>


<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three months</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ended</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sept. 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)
as previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(14,895</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,713</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,456</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">594</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Correction of EITF
00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,089</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,337</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,801</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss as
currently reported
on revised Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,418</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(15,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,802</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,594</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,207</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)
per share as
previously reported
on Form&nbsp;10-K or
10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.92</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.64</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.56</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.44</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per share
as currently
reported on revised
Form&nbsp;10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.96</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.82</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.06</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Effect of the restatements on the consolidated balance sheets</B>


<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sept. 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Notes payable to a
related party:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,060</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,109</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,265</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,356</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,834</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,226</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Additional paid-in
capital:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,192</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,043</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">135,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">182,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">183,235</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">24
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As at</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sept. 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(unaudited)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Accumulated deficit</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(194,301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(209,196</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(212,909</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(216,166</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(220,622</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(220,028</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,292</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,629</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,408</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,209</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(194,602</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(210,399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(215,201</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(219,795</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(226,030</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(227,237</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Stockholders&#146;
equity (deficit):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As previously
reported on Form
10-K or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(63,925</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(78,820</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82,468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(85,725</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(49,309</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(47,292</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Correction of
EITF 00-27 errors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,834</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As currently
reported on
revised Form&nbsp;10-K
or 10-Q</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(57,816</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(73,456</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(78,031</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82,460</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42,953</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42,458</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Overview and Recent Developments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a broad-based communications company, servicing residential, small
and medium-sized businesses and corporate accounts in the United States. We
provide a range of products from local dial tone, domestic and international
long-distance voice services to fully managed, integrated data and enhanced
services. We are a US facilities-based carrier with points of presence in 30
major US cities. Our voice network features 11 voice switches and nationwide
Feature Group D (&#147;FGD&#148;) access. Our data network consists of 17 Nortel
Passports that have recently been upgraded to support multi-protocol label
switching (&#147;MPLS&#148;). Finally, we have relationships with multiple tier I and
tier II providers in the U.S. and abroad.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently manage our Company through two business segments. Our
Telecommunications segment offers a broad selection of voice and data
telecommunications products and services to residential and commercial
customers through a network of independent agents, primarily via MLM and
commercial agent programs. Our Technologies segment offers a proven network
convergence solution for voice and data in Voice over Internet Protocol
(&#147;VoIP&#148;) communications technology and holds two foundational patents in the
VoIP space (U.S. Patent Nos. 6,243,373 and 6,438,124, together the &#147;VoIP
Patents&#148;). We are pursuing efforts to license the technology supported by our
patents to carriers and equipment manufacturers and suppliers in the IP
telephony market.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2004, the Company implemented a resizing of the organization
targeted at reducing its operating costs. The cost cutting reflects the
continued efficiencies created by the ongoing integration of the Company&#146;s
operations, related to its four acquisitions over the last three years. As a
result of the resizing, the Company&#146;s work force was reduced by approximately
20&nbsp;percent. The reduction affected staff in the San Diego, Pittsburgh and
Somerset facilities. Management expects to record, in the fourth
quarter, expenses of $1,000 to
$1,500 related to future closure of facilities and the removal of assets from
production.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acceris has been built through the acquisition of predecessor businesses,
which have been and are continuing to be integrated, consolidated and
reorganized. These predecessor businesses are organized into


<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">two segments: Telecommunications and Technologies. Telecommunications has been
assembled through the acquisition of certain assets of WorldxChange
Communications, Inc. (&#147;WorldxChange&#148;) in 2001 and certain assets of RSL COM
USA, Inc. (&#147;RSL&#148;) in 2002. Added to this was the acquisition of the assets of
Transpoint Communications, LLC and the membership interest of Local Telecom
Holdings, Inc., (collectively, &#147;Transpoint&#148;), which closed in 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our development and transition is articulated below:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Telecommunications:</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WorldxChange was a facilities-based telecommunications carrier providing
international and domestic long-distance service to retail customers. The
business we acquired out of the WorldxChange bankruptcy in June&nbsp;2001 consisted
primarily of a dial-around product that allowed a customer to make a call from
any phone by dialing a 10-10-XXX prefix. Since the acquisition, we have
commenced offering a 1&#043; product (1&#043; products are those with which a customer
directly dials a long-distance number from their telephone by dialing 1-area
code-phone number) and have also begun to offer local communications products
to our residential and small business customers. The local dial tone service is
being provided under the terms of the Unbundled Network Element Platform
(&#147;UNE-P&#148;) authorized by the Telecommunications Act of 1996 and was available in
New York and New Jersey in the first quarter of 2004, and has since expanded to
Pennsylvania, Massachusetts and Florida. Historically, WorldxChange marketed
its services through consumer mass marketing techniques, including direct mail
and direct response television and radio. In 2002, we revamped our channel
strategy by de-emphasizing the direct mail channel and devoting our efforts to
pursuing more profitable methods of attracting and retaining customers. We now
use commercial agents as well as a network of independent commission agents
recruited through an MLM program to attract and retain new customers. In 2004
we launched the Acceris Communications Inc. Platinum Agent Program which awards
warrants to certain of our agents based on performance criteria as a means to
attract and incentivize existing and new independent agents. In December&nbsp;2002,
we completed the purchase of certain assets of RSL from a bankruptcy
proceeding. The purchase included the assets used by RSL to provide
long-distance voice and data services, including frame relay, to their
commercial customers and the assets used to provide long-distance and other
voice services to small businesses and the consumer/residential market, which
they referred to as their Agent business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2003, we completed the purchase of Transpoint. The purchase of
Transpoint provided us with further penetration into the commercial agent
channel and a larger commercial customer base.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Telecommunications segment offers a broad range of voice and data
products and services to residential, small office/home office (&#147;SOHO&#148;) and
small-medium sized enterprises (&#147;SME&#148;), and commercial customers through a
network of MLM agents, commercial agents, affinity groups and outbound
telemarketing. Our customers are serviced through direct sales and support
teams who offer fully managed and fully integrated voice and data solutions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have capitalized upon a unique synthesis of marketing and network
capabilities. Through the strength of our agent network we are adding new
customers each month, many of them with a strong international usage component.
Due to our favorable cost structure and network optimization, we offer
competitive rates to selected international regions. We continue to experience
customer attrition particularly with our 10-10-XXX customer base which we have
not marketed directly since 2002. We have also seen the average revenue per
user (&#147;ARPU&#148;) decline. The Company&#146;s domestic telephone network continues to
operate at well below available capacity leading to cost inefficiencies. We
attribute this to increased cellular penetration and deregulation in various
countries which have lower rates per month in those markets. This is most
evident in India in 2004. Additionally, regulatory uncertainty exists in the
domestic telephone markets due to recent court decisions. Future regulatory
changes may penalize or benefit the current operations of the business.


<P align="center" style="font-size: 10pt">26
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We differentiate ourselves to our residential customers by offering
attractively priced bundles of international minutes, both on a stand alone
basis and as part of a local dial tone &#043; long-distance package to preferred
destinations, and by specialized customer service, which includes in-language
customer support. By using this targeted strategy, we have acquired a
substantial number of ethnic users whose monthly spending on telecommunications
services is generally higher than that of the average retail customer. These
subscribers also tend to exhibit higher brand loyalty, resulting in lower
customer turnover (&#147;churn&#148;) than average retail consumers for our type of
products.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our proprietary technology enables us to offer unbundled value-added
services such as voicemail, unified messaging and on-the-fly conferencing at a
low cost, creating another competitive advantage when targeting retail
customers. These features distinguish us from mass-market providers that
typically offer higher priced, &#147;one-size-fits-all&#148; national and international
rate plans. We are in the process of productizing and deploying this
technology.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our direct sales force focuses on multi-location customers with limited
information technology (&#147;IT&#148;) resources. By taking a consultative approach to
network solutions and providing in-depth analysis of our customers&#146; business
needs and operating environments, we are able to design and deliver
competitively priced and customized voice and data solutions. Our commercial
customers also benefit from our relationships with multiple providers, which
ensures superior service with respect to network redundancy, cost and supplier
risk. We are able to offer strong customer service due to easy access to
information and to our engineering, technical and administrative staffs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our voice network features 11 voice switches and nationwide Feature Group
D (&#147;FGD&#148;) access, which enables low cost call origination. Our data network
consists of 17 Nortel Passports that have recently been upgraded to support
multi-protocol label switching (&#147;MPLS&#148;). Finally, we have relationships with
multiple tier I and tier II providers in the U.S. and abroad.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Technologies:</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1994, we began operating as an Internet service provider and quickly
identified that the emerging IP environment was a promising basis for enhanced
service delivery. We soon turned to designing and building an IP
telecommunications platform consisting of our proprietary software, hardware
and leased telecommunications lines. The goal was to create a platform with the
quality and reliability necessary for voice transmission.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1997, we started offering enhanced services over a mixed
IP-and-circuit-switched network platform. These services offered a blend of
traditional and enhanced communication services and combined the inherent cost
advantages of the IP-based network with the reliability of the existing Public
Switched Telephone Network (&#147;PSTN&#148;).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;1997, we acquired MiBridge, Inc. (&#147;MiBridge&#148;), a communications
technology company engaged in the design, development, integration and
marketing of a range of software telecommunications products that support
multimedia communications over the PSTN, LANs and IP networks. The acquisition
of MiBridge permitted us to accelerate the development and deployment of IP
technology across our network platform.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1998, we first deployed our real-time IP communications network
platform. With this new platform, all core operating functions such as
switching, routing and media control became software-driven. This new platform
represented the first nationwide, commercially viable VoIP platform of its
kind. Following the launch of our software-defined VoIP platform in 1998, we
continued to refine and enhance the platform to make it even more efficient and
capable for our partners and customers.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;6, 2002, we entered into a definitive purchase and sale
agreement to sell substantially all of the assets and customer base of our
wholly owned subsidiary I-Link Communications, Inc. (&#147;ILC&#148;) to Buyers United,
Inc. (&#147;BUI&#148;), which closed on May&nbsp;1, 2003. The sale included the physical
assets required to operate our nationwide network using our patented VoIP
technology (constituting the core business of the ILC business) and a fully
paid non-exclusive perpetual license to our proprietary software-based


<P align="center" style="font-size: 10pt">27
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">network convergence solution for voice and data. The sale of the ILC business
removed essentially all operations that did not pertain to our proprietary
software-based convergence solution for voice and data. This sale marked the
final stage of the transformation of our Technologies operations into a
business based principally on the licensing of our proprietary software.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Today, our Technologies segment offers a proven network convergence
solution for the deployment of IP-based voice and data services over a single
network. We have over nine years of experience developing VoIP technologies.
Our proprietary soft-switch solution enables existing telecom service providers
to reduce telecommunications costs and permits new communications service
providers to enter the enhanced communications market with limited capital
investment. In addition, we own four patents and utilize the technology
supported by those patents in providing our proprietary software solutions. We
believe that we hold foundational patents for VoIP in our VoIP Patents. To
date, we have licensed portions of that technology to third parties on a
non-exclusive basis. In addition, we also have several patent applications
pending before the Untied States Patent and Trademark Office and other such
authorities internationally. We are pursuing opportunities to leverage our
patents through a focused licensing strategy that targets carriers, equipment
vendors and customers who are deploying IP for phone-to-phone communication.


<P align="left" style="font-size: 10pt"><B>Business Strategy</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business strategy is to build a large, profitable base of residential,
small and medium sized business and enterprise accounts that purchase bundled
telecom services. As part of our strategy, we have consolidated our high
quality communications networks and restructured our operations in order to
leverage our infrastructure across branded sales channels.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To achieve our goals, through both organic and acquisition growth we plan
to:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Penetrate our distribution channels: </I>Our distribution channels, which we
have built over the last three years, continue to grow and mature. Our recently
launched Platinum Agent Program rewards agents for substantial and persistent
production. Under this program, selected agents who meet specified performance
objectives are eligible to receive stock purchase warrants. The equity
incentives offered under this program are expected to increase both the number
of commercial agents and the revenue contribution per commercial agent. The
program also helps to ensure that the objectives of our agents and the Company
are aligned.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Expand our product portfolio: </I>We have recently expanded our product set to
include local dial tone in order to extend the average life and monthly average
revenues of current and future customers. We are currently delivering local
dial tone services to customers via the UNE-P. In addition, we intend to
roll-out VoIP and related services to our residential, SME and enterprise
customers beginning in the later part of 2004 and continuing into 2005.
Products will include an IP origination service with enhanced features such as
one number capability, find me/follow me, and on the fly conferencing, and VoIP
offerings for the small office- home office, small and medium business market
and enterprise segments that offer robust voice and data communications
features such as call management, personal agent functionality and
collaboration services. We intend to utilize our technologies, applications
and engineered solutions expertise to continue to grow in the VoIP arena.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Enter new geographic markets: </I>In first quarter of 2004, we launched our
local &#043; long-distance bundled product set in New York and New Jersey. In the
second quarter of 2004, we entered the Pennsylvania, Massachusetts and Florida
markets. We currently offer stand alone long-distance services nationwide in
the US.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>License our intellectual property: </I>We have four issued patents and two
pending patent applications, which we utilize to provide our proprietary
solutions. We believe that we hold the foundational patents for the manner in
which a significant portion of VoIP traffic is routed in the marketplace today.
We have licensed portions of our technology to third parties on a non-exclusive
basis. We plan to further monetize our intellectual property by offering
licenses to service providers, equipment companies and end-users who are
deploying VoIP networks for phone-to-phone communications.


<P align="center" style="font-size: 10pt">28
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leverage our existing scalable infrastructure: </I>We have created a network
and back office infrastructure that satisfies the needs of our existing
customers and that will support additional revenue growth without significant
incremental capital investment. We continue to reduce our network costs and are
completing the consolidation of duplicate back office functions. Our IT
strategy is expected to ensure efficiency and integrity internally by
eliminating redundant costs and mitigating strategic risks. We expect to make
significant incremental capital investments pursuant to our expanded product
portfolio outlined above, in addition to the base level of annual capital
investment necessary to keep our infrastructure efficient and maintained.


<P align="left" style="font-size: 10pt"><B>Industry</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, the communications services industry has transmitted voice
and data over separate networks using different technologies. Traditional
carriers have typically built telephone networks based on circuit switching
technology, which establishes and maintains a dedicated path for each telephone
call until the call is terminated.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The communications services industry continues to evolve, both
domestically and internationally, providing significant opportunities and risks
to the participants in these markets. Factors that have been driving this
change include:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>entry of new competitors and investment of substantial capital in
existing and new services resulting in significant price competition</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technological advances resulting in a proliferation of new services
and products and rapid increases in network capacity</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Telecommunications Act of 1996 (the &#147;1996 Act&#148;)</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>growing deregulation of communications services markets in the United
States and in selected countries around the world</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;VoIP is a technology that can replace services provided by the traditional
telephone network. This type of data network is more efficient than a dedicated
circuit network because the data network is not restricted by the one-call,
one-line limitation of a traditional telephone network. This improved
efficiency creates cost savings that can be either passed on to the consumer in
the form of lower rates or retained by the VoIP provider.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The VoIP industry has grown dramatically from the early days of calls made
through personal computers. According to a research study from Insight Research
Corporation, VoIP-based services is projected to grow significantly through
2007, representing a growth opportunity for VoIP service providers.


<P align="left" style="font-size: 10pt"><B>Competition</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the telecommunications industry is based upon pricing,
customer service, billing services and perceived quality. We compete against
numerous telecommunications companies that offer essentially the same services
as we do. Many of our competitors, including the incumbent local exchange
carriers (&#147;ILECs&#148;), are substantially larger and have greater financial,
technical and marketing resources. Our success will depend upon our continued
ability to provide high quality, high value services at prices competitive
with, or lower than, those charged by our competitors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ILECs and the major carriers, including SBC, Verizon, BellSouth, AT&#038;T,
Sprint Corporation and MCI/Worldcom, Inc., have targeted price plans at
residential and small business customers &#151; our primary target market &#151; with
significantly simplified rate structures and with bundles of local services
with long-distance, which may lower overall local and long-distance prices.
Competition is also fierce for the commercial customers that we serve. This
market was typically dominated by AT&#038;T, Sprint and MCI


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<P align="left" style="font-size: 10pt">(national long-distance carriers) but now offers additional growth
opportunities for the incumbent local exchange companies as they are able to
service multi-location customers with offices located outside of their local
calling area.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pricing pressure has existed for several years in the telecommunications
industry and is expected to continue, and this is coupled with the introduction
of new technologies, such as VoIP, which seek to provide voice communications
at a cost below that of traditional circuit-switched service. In addition,
wireless carriers have marketed their services as an alternative to traditional
long-distance and local services, further increasing competition and consumer
choice. Reductions in prices charged by competitors may have a material adverse
effect on us. Cable companies have entered the telecommunications business, and
this development may increase the competition faced by the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ILECs are well-capitalized, well-known companies that have the
capacity to &#147;bundle&#148; other services, such as local and wireless telephone
services and high speed Internet access, with long- distance telephone
services. The ILECs&#146; name recognition in their existing markets, the
established relationships that they have with their existing local service
customers, their ability to take advantage of those relationships, and the
possibility that interpretations of the 1996 Act may be favorable to the ILECs,
also make it more difficult for us to compete with them.


<P align="left" style="font-size: 10pt"><B>Government Regulation</B>



<P align="left" style="font-size: 10pt"><I>Telecommunications industry</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The telecommunications industry is subject to government regulation at
federal, state and local levels. Any change in current government regulation
regarding telecommunications pricing, system access, consumer protection or
other relevant legislation could have a material impact on our results of
operations. Most of our current operations are subject to regulation by the
Federal Communications Commission (&#147;FCC&#148;) under the Communications Act of 1934.
In addition, certain of our operations are subject to regulation by state
public utility or public service commissions. Changes in, or
changes in interpretation of, legislation affecting us could
damage our operations and lower the price of our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 1996 Act, among other things, allows the Regional Bell Operating
Companies (&#147;RBOC&#148;) and others to enter the long-distance business. Entry of the
RBOCs or other entities, such as electric utilities and cable television
companies, into the long-distance business may have a negative impact on our
business or our customers. We anticipate that some of these entrants will prove
to be strong competitors because they are better capitalized, already have
substantial customer bases, and enjoy cost advantages relating to local telecom
lines and access charges. In addition, the 1996 Act provides that state
proceedings may in certain instances determine access charges we are required
to pay to the local exchange carriers. If these proceedings occur, rates could
increase which could lead to a loss of customers and weaker operating results.


<P align="left" style="font-size: 10pt"><I>Overview of Federal Regulation</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a carrier offering telecommunications services to the public, we are
subject to the provisions of the Communications Act of 1934, as amended, and
FCC regulations issued thereunder. These regulations require us, among other
things, to offer our regulated services to the public on a non-discriminatory
basis at just and reasonable rates. We are subject to FCC requirements that we
obtain prior FCC approval for transactions that would cause a transfer of
control of one or more regulated subsidiaries. Such approval requirements may
delay, prevent or deter transactions that could result in a transfer of control
of our company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>International Service Regulation. </I>We possess authority from the FCC,
granted pursuant to Section&nbsp;214 of the Communications Act of 1934, to provide
international telecommunications service. The FCC has streamlined regulation of
competitive international services and has removed certain restrictions against
providing certain services. Presently, the FCC is considering a number of
international service issues that may further alter the regulatory regime
applicable to us. For instance, the FCC is considering revisions to
the rules regarding the rates that international carriers like us pay for
termination of calls to mobile phones located abroad.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to FCC rules, we have cancelled our international and domestic
FCC tariffs and replaced them with a general service agreement and price lists.
As required by FCC rules, we have posted these materials on our Internet web
site. The &#147;detariffing&#148; of our services has given us greater pricing
flexibility for our services, but we are not entitled to the legal protection
provided by the &#147;filed rate doctrine,&#148; which generally provides protections to
carriers from legal actions by customers that challenge the terms and
conditions of service.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interstate Service Regulation. </I>As an inter-exchange carrier (&#147;IXC&#148;), our
interstate telecommunications services are regulated by the FCC. While we are
not required to obtain FCC approval to begin or expand our interstate
operations, we are required to obtain FCC approvals for certain transactions
that would affect our ownership or the services we provide. Additionally, we
must file various reports and pay certain fees and assessments. We are subject
to the FCC&#146;s complaint jurisdiction and must contribute to the federal
Universal Service Fund (&#147;USF&#148;). We must also comply with the Communications
Assistance for Law Enforcement Act (&#147;CALEA&#148;), and certain FCC regulations which
require telecommunications common carriers to modify their networks to allow
law enforcement authorities to perform electronic surveillance.


<P align="left" style="font-size: 10pt"><I>Overview of State Regulation</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through certain of our subsidiaries, we are authorized to provide
intrastate interexchange telecommunications services and, in certain states,
are authorized to provide competitive local exchange services by virtue of
certificates granted by state public service commissions. Our regulated
subsidiaries must comply with state laws applicable to all similarly certified
carriers including the regulation of services, payment of regulatory fees and
preparation and submission of reports. The adoption of new regulations or
changes to existing regulations may adversely affect our ability to provide
telecommunications services. Consumers may file complaints against us at the
public service commissions. The certificates of authority we hold can be
generally conditioned, modified, cancelled, terminated or revoked by state
public service commissions. Further, many states require prior approval or
notification for certain stock or asset transactions, or in some states, for
the issuance of securities, debts, guarantees or other financial transactions.
Such approvals can delay or prevent certain transactions.


<P align="left" style="font-size: 10pt"><I>Overview of Ongoing Policy Issues</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Local Service</I>. Through the 1996 Act, Congress sought to establish a
competitive and deregulated national policy framework for advanced
telecommunications and information technologies. To date, local exchange
competition has not progressed to a point where significant regulatory
intervention is no longer required. Regulators believed that a &#147;hands-off&#148;
policy would drive local exchange service into an adequately competitive
market, but there continues to be a strong need for policy issue clarification
and construction. Some policy changes have been addressed through the court
system, not the regulatory system. For instance, the FCC has attempted several
times to develop a list of Unbundled Network Elements (&#147;UNEs &#147;) which are
portions of the ILEC networks and services that must be sold separately to
competitors. On several occasions, the courts have rejected the FCC&#146;s approach
to defining UNEs. The FCC&#146;s most recent attempt to develop rules, the Triennial
Review Order, was vacated by the U.S. Circuit Court of Appeals in Washington
D.C. on March&nbsp;4, 2004. The Court&#146;s ruling went into effect on June&nbsp;16, 2004.
In response, several competitive carriers filed appeals with the U.S. Supreme
Court, to seek a stay and review of the U.S. Circuit Court&#146;s ruling. Those
requests for appeal have been denied.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;20, 2004, the FCC issued interim UNE rules to replace those vacated
by the DC Circuit Court as well as a Notice of Proposed
Rulemaking (&#147;NPRM&#148;) seeking comments on new UNE rules. The Interim Rules
provide for a twelve-month transition plan consisting of two phases. First, on
an interim basis, ILECs are required to continue providing access to switching,
enterprise market loops, and dedicated transport under the same rates, terms
and conditions that applied under their interconnection agreements as of June
15, 2004. These rates, terms, and conditions shall remain in place until the
earlier of (1)&nbsp;the effective date of final unbundling rules, or (2)&nbsp;March&nbsp;14,
2005. If there are no permanent rules by then, under phase two ILECs will only
be required to lease UNE-P switching at the higher of (1)&nbsp;the rate


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<P align="left" style="font-size: 10pt">charged on June&nbsp;15, 2004 plus one dollar, or (2)&nbsp;the rate a state public
utility commission sets before March&nbsp;14, 2005, plus one dollar. Second, in the
absence of FCC rules on enterprise loops or transport, an ILEC will only be
required to lease them at the higher of (1)&nbsp;115% of the rate paid on June&nbsp;15,
2004, or (2)&nbsp;115% of the rate set by the state public utilities commission.
This transition period applies to existing customers / facilities and does not
permit CLECs to add new customers at these rates.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;23, 2004, a group of ILECs appealed the Interim Rules to the D.C.
Circuit Court claiming that the FCC had impermissibly granted itself a stay of the
effect of the D.C. Circuit Court&#146;s earlier decision. In response, the Court issued
an Order on October&nbsp;6, 2004 holding its proceedings in abeyance until January
4, 2005. This court action ensures that the Interim Rules will remain in place
until at least January&nbsp;4, 2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Universal Service Fund</I>. In 1997, the FCC issued an order implementing
Section&nbsp;254 of the 1996 Act, regarding the preservation of universal telephone
service. Section&nbsp;254 and related regulations require all interstate and certain
international telecommunications carriers to contribute toward the USF, a fund
that provides subsidies for the provision of service to schools and libraries,
rural health care providers, low income consumers and consumers in high cost
areas.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly, the Universal Service Administrative Company (&#147;USAC&#148;), which
oversees the USF, reviews the need for program funding and determines the
applicable USF contribution percentage that interstate telecommunications
carriers must contribute. While carriers are permitted to pass through the USF
charges to consumers, the FCC has strictly limited amounts passed through to
consumers in excess of a carrier&#146;s determined contribution percentage.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed below, the industry is moving from traditional
circuit-switched telephone service to digitized IP-based communications. It is
possible that this trend could threaten the amount of revenues USAC can collect
through the USF system, and that the resulting revenue shortfall could prevent
the system from meeting its funding demands. Separately from the FCC&#146;s inquiry
into the regulation of IP-based voice service, the FCC could exercise its so
called &#147;permissive authority&#148; under the 1996 Act and assess USF contribution on
VoIP providers. To date, only some VoIP providers contribute to the USF. If
VoIP providers were exempted from USF contributions, telecommunications
carriers would likely pay significantly higher USF contributions; conversely,
if VoIP providers were required to contribute, traditional telecommunications
carriers would contribute less. In addition to the FCC, Congress is considering
this issue. Current Congressional debates are divided over whether IP-based
telephony service providers should be required to contribute to the USF. A
decision to require VoIP providers to contribute to the USF may adversely
affect our provision of VoIP services.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>VoIP Notice of Proposed Rule&nbsp;Making. </I>In March&nbsp;2004, the FCC issued the
VoIP Notice of Proposed Rulemaking to solicit comments on many aspects of the
regulatory treatment of VoIP services (the &#147;VoIP NPRM&#148;). The FCC continues to
consider the possibility of regulating access to IP-based services, but has not
yet decided on the appropriate level of regulatory intervention for IP-based
service applications. Should the FCC rule that our software-based solution for
VoIP deployment, and other similar service applications should be regulated,
our VoIP services may be adversely affected.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, the VoIP NPRM will likely address the applicability of access
charges to VoIP services. Access charges provide compensation to local exchange
carriers for traffic that originates or terminates on their networks. Certain
LECs have argued that certain types of VoIP carriers provide the same basic
functionality as traditional telephone service carriers, in that they carry a
customer&#146;s call from an origination point to a termination destination. Any
ruling or decision from the FCC requiring VoIP carriers to pay access charges
to ILECs for local loop use may adversely affect our VoIP services.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The VoIP NPRM is also expected to address the extent to which CALEA will
be applicable to VoIP services. Recently, in a separate proceeding, the Federal
Bureau of Investigation and other federal agencies have asked the FCC to
clarify that VoIP is a telecommunications service, for the purpose of
subjecting VoIP to CALEA&#146;s wiretapping requirements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Broadband Deployment</I>. Broadband refers to any platform capable of
providing high bandwidth-intensive content and advanced telecommunications
capability. The FCC&#146;s stated goal for broadband


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<P align="left" style="font-size: 10pt">services is to establish regulatory policies that promote competition,
innovation and investment in broadband services and facilities. Broadband
technologies encompass evolving high-speed digital technologies that offer
integrated access to voice, high-speed data, video-on-demand or interactive
delivery services. The FCC is seeking to 1) encourage the ubiquitous
availability of broadband access to the Internet, 2) promote competition across
different platforms for broadband services, 3) ensure that broadband services
exist in a minimal regulatory environment that promotes investment and
innovation and 4) develop an analytical framework that is consistent, to the
extent possible, across multiple platforms. The FCC has opened several
inquiries to determine how to promote the availability of advanced
telecommunications capability with the goal of removing barriers to deployment,
encouraging competition and promoting broadband infrastructure investment. For
instance, the FCC is considering the appropriate regulatory requirements for
ILEC provision of domestic broadband telecommunications services. The FCC&#146;s
concern is whether the application of traditional common carrier regulations to
ILEC-provided broadband telecommunications services is appropriate. On October
14, 2004, the FCC adopted an Order concluding that fiber-to-the-curb (&#147;FTTC&#148;)
loops shall be treated in the same manner as fiber-to-the-home (&#147;FTTH&#148;) loops.
Accordingly, ILECs will not be required to offer FTTC to competitors as UNEs.
The FCC defined FTTC as &#147;a local loop consisting of fiber optic cable
connecting to a copper distribution plant that is not more than 500 feet from
the customer&#146;s premises or, in the case of predominantly residential multiple
dwelling units (&#147;MDUs&#148;), not more than 500 feet from the MDU&#146;s.&#148; The FCC also
clarified that ILECs are not required to build TDM capabilities into new
packetized transmission facilities or add them to facilities where they never
existed. Under other existing regulations, ILECs are treated as dominant
carriers absent a specific finding to the contrary for a particular market and,
as dominant carriers, shall still be subject to numerous regulations, such as
tariff filing and pricing requirements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;7, 2002, the FCC released its third biennial report on the
availability of broadband, in which it concluded that broadband is being
deployed in a reasonable and timely manner. The report showed that the advanced
telecommunications services market continues to grow and that the availability
of and subscribership to high-speed services increased significantly since the
last report. Additionally, the report noted that investment in infrastructure
for advanced telecommunications remains strong. The data in the report is
gathered largely from standardized information from providers of advanced
telecommunications capability including wireline telephone companies, cable
providers, wireless providers, satellite providers, and any other
facilities-based providers of 250 or more high-speed service lines (or wireless
channels) in a given state.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Internet Service Regulation</I>. The demand for high-speed Internet access has
increased significantly over the past several years as consumers increase their
Internet use. The FCC is active in reviewing the need for regulatory oversight
of Internet services and to date has advocated less regulation and more
market-based competition for broadband providers. The FCC&#146;s stated policy is to
promote the continued development of the Internet and other interactive
computer-based communications services. We cannot be certain that the FCC will
continue to take a deregulatory approach to the Internet. Should the FCC
increase regulatory oversight of Internet services, our costs could increase
for providing those services.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent legislation in the United States (including the Sarbanes-Oxley Act
of 2002) is increasing the scope and cost of work provided to us by our
independent auditors and legal advisors. Many guidelines have not yet been
finalized and there is a risk that we will incur significant costs in the
future to comply with legislative requirements or rules, pronouncements and
guidelines by regulatory bodies, including the cost of restating previously
reported financial results, thereby reducing profitability.


<P align="left" style="font-size: 10pt"><B>Critical Accounting Estimates</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (&#147;GAAP&#148;). The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to intangible assets, contingencies, collectibility of
receivables and litigation. Management bases its estimates and judgments on
historical experience and various other factors that are believed to be
reasonable under


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<P align="left" style="font-size: 10pt">the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The critical accounting estimates used in the preparation of our
consolidated financial statements are discussed in our Annual Report on Form
10-K/A#1 for the year ended December&nbsp;31, 2003. To aid in the understanding of
our financial reporting, a summary of significant accounting policies are
described in Note 3 of Condensed Consolidated Financial Statements and Notes thereto
included in Item&nbsp;1 of this report. These policies have the potential to have a
more significant impact on our financial statements, either because of the
significance of the financial statement item to which they relate, or because
they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in nature.


<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has incurred substantial operating losses and negative cash
flows from operations since inception. At September&nbsp;30, 2004 the Company had a
stockholders&#146; deficit of $58,190 ($42,953 &#150; December&nbsp;31, 2003), negative
working capital of $22,092 ($26,576 &#150; December&nbsp;31, 2003), amounts due to its
controlling shareholder of $45,946 ($28,717 &#150; December&nbsp;31, 2003) and $7,265
($12,127 &#150; December&nbsp;31, 2003) owing under its revolving credit facility
(included in working capital). There are no additional borrowings available
under the revolving credit facility at September&nbsp;30, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The related party debt is owed to the Company&#146;s controlling shareholder,
Counsel Corporation (collectively with all its subsidiaries &#147;Counsel&#148;) and is
due at December&nbsp;31, 2005, subject to certain contingent acceleration clauses
linked to the raising of capital. The Company has a funding commitment from
Counsel to fund, through long-term intercompany advances or equity
contributions, all capital investment, working capital or other operational
cash requirements (the &#147;Keep Well&#148;) through June&nbsp;30, 2005. During the first
nine months of 2004, Counsel advanced the Company $11,702 under the Keep Well,
and converted $3,084 of accrued interest into principal. In October&nbsp;2004,
Counsel agreed to subordinate all of its debt in the Company in favor of both
the third party revolving credit facility and the newly issued third party
convertible term note (discussed below). Under the subordination agreements,
Counsel further agreed to guarantee the Company&#146;s revolving credit facility and
convertible term note and to pledge all of its shares owned in the Company as
security for the related debts.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revolving credit facility is provided by an asset based lender. The
asset based lender is secured by a first lien on all of the assets of Acceris.
Borrowings under the facility are based on various advance rates of the
accounts receivable base subject to certain reductions and covenants. Amounts
available under the asset based facility are subject to change based upon the
level of receivables and other related factors, such as the aging of accounts,
customer concentrations, etc. Borrowings under this facility are classified as
a current liability due to the demand nature of the borrowings. The facility
matures on June&nbsp;30, 2005. The Company is looking to extend the term of the
facility beyond its current maturity date, or to replace the facility prior to
maturity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2004, the Company implemented a resizing of the organization
targeted at reducing its operating costs. The cost cutting reflects the
continued efficiencies created by the ongoing integration of the Company&#146;s
operations, related to its four acquisitions over the last three years. As a
result of the resizing, the Company&#146;s work force was reduced by approximately
20&nbsp;percent. The reduction affected staff in the San Diego, Pittsburgh and
Somerset facilities. Management has recorded approximately $400 in expenses
related to the August 2004 restructuring, of which
$326 was paid in the third quarter of 2004,
recorded in selling, general and administration expense and anticipates that it
will incur expenses, in the fourth quarter, of $1,000 to $1,500 related to anticipated
exit of facilities and the removal of assets from production.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, the Company entered into a Securities Purchase Agreement
(the &#147;Agreement&#148;) for the sale by the Company of a Convertible Term Note (the
&#147;Note&#148;) in the principal amount of $5,000 due October&nbsp;14, 2007. The Note
provides that the principal amount outstanding bears interest at the prime rate
as published in the Wall Street Journal plus 3% (but not less than 7% per
annum) decreasing by 2% (but


<P align="center" style="font-size: 10pt">34
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">not less than 0%) for every 25% increase in the Market Price (as defined
therein) above the fixed conversion price following the effective date of the
registration statement covering the Common Stock issuable upon conversion of
the Note. Should the Company default under the agreement and fail to remedy the
default on a timely basis, interest under the note will increase by 2% per
month and the note may become immediately due inclusive of a 20% premium to the
then outstanding principal. Interest is payable monthly in arrears, commencing
November&nbsp;1, 2004. Principal is payable at the rate of approximately $147 per
month commencing January&nbsp;1, 2005, in cash or registered common stock. Payment
amounts will be converted into stock if (i)&nbsp;the average closing price for five
trading days immediately preceding the repayment date is at least 100% of the
Fixed Conversion Price, (ii)&nbsp;the amount of the conversion does not exceed 25%
of the aggregate dollar trading volume for the 22-day trading period
immediately preceding the repayment date, (iii)&nbsp;a registration statement is
effective covering the issued shares and (iv)&nbsp;no Event of Default exists and is
continuing. In the event the monthly payment must be paid in cash, then the
Company shall pay 102% of the amount due in cash. The Company has the right to
prepay the Note, in whole or in part, at any time by giving seven business days
written notice and paying 120% of the outstanding principal amount of the Note.
The holder may convert the Note, in whole or in part, into shares of Common
Stock at any time upon one business day&#146;s prior written notice. The Note is
convertible into shares of the Company&#146;s common stock at a fixed
conversion price of $0.88 per share of common stock (105% of the average
closing price for the 30 trading days prior to the issuance of the Note) not to
exceed, however, 4.99% of the outstanding shares of common stock, of the
Company (including issuable shares from the exercise of the warrants, payments
of interest, or any other shares owned.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not expect to generate net cash flow from operating
activities in the remainder of 2004. In the first nine months of 2004, the
Company has been funded primarily by increases in related party debt and with
the proceeds from the sale of its shares of Buyers United Inc. (&#145;BUI&#148;). The
October financing noted above is expected to fund the Company throughout the
remainder of 2004. Should additional funds be required by the Company to
operate the business such funds will be derived from proceeds from additional
third party fund raises which may take the form of debt, equity or a hybrid
instrument, or from the proceeds on the sale of assets or from advances under
the Keep Well.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management intends to raise additional funds from third parties to support
the operating needs of the business beyond 2004. Use of funds from such
arrangements may include such uses as funding operations, improving working
capital, repaying obligations of the business and funding future merger and
acquisition activities. There can be no assurance that the Company&#146;s capital
raising efforts will be successful or can occur on favorable terms to existing
security or debt holders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There continues to be no assurance that the Company will be able to
improve its cash flow from operations, obtain additional third party financing,
extend, repay or refinance its debt with Counsel, its asset based lender or the
holder of the October&nbsp;2004 Note on favorable terms, or obtain an extension of
the existing funding commitment from Counsel or its asset based lender beyond
their respective maturity dates. This circumstance raises substantial doubt
about the Company&#146;s ability to continue as a going concern. The accompanying
condensed consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability of assets and
liquidation of liabilities that may result from this uncertainty.


<P align="left" style="font-size: 10pt"><I>Cash Position</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents as of September&nbsp;30, 2004 were $1,348 compared to
$2,033 at December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt"><I>Cash flows from operating activities</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our working capital deficit decreased to $22,092 as of September&nbsp;30, 2004,
from $26,576 as of December&nbsp;31, 2003. The decrease in our working capital
deficit is primarily related to the decrease in our revolving credit facility
of $4,862 due to payments made to our asset based lender during the first nine
months of the year, and the decrease in our unearned revenue of $4,708 since
December&nbsp;31, 2003 due principally to the recognition of revenue as cash
receipts associated with our non-recurring network service offering became
unencumbered. This was partially offset by a decrease in our accounts
receivable of $3,658 during the first nine months of 2004.


<P align="center" style="font-size: 10pt">35
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash used by operating activities during the nine months ended September
30, 2004 was $7,222 as compared to $2,295 during the same period in 2003. The
net increase in cash used in 2004 was primarily due to a $13,711 change in
unearned revenue offset by a $8,902 decrease in net loss to $16,291 for the first
nine months of 2004 from a net loss of $25,193 for the same period in 2003.


<P align="left" style="font-size: 10pt"><I>Cash flows from investing activities</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by investing activities during the nine months ended
September&nbsp;30, 2004 was $2,911 as compared to net cash used of $1,327 for the
same period in 2003. In the first nine months of 2004, net cash provided by
investing activities relates to $3,581 in proceeds received from the sale of
common stock in BUI received as consideration for the sale of the ILC
operations in May&nbsp;2003, offset by the purchase of equipment in the amount of
$670.


<P align="left" style="font-size: 10pt"><I>Cash flows from financing activities</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financing
activities provided net cash of $3,626 during the nine months
ended September&nbsp;30, 2004 as compared to $3,678 for the same period in 2003. The
decrease from 2003 to 2004 is due primarily to repayment of $4,862 on our
revolving credit facility during the first nine months of 2004, as opposed to
receipt of $4,832 during the same period in 2003, repayment of a note payable
of $1,104 in the second quarter of 2004 as final settlement of the acquisition
of certain assets of RSL, scheduled lease and note payable payments of $2,104,
offset by the receipt of $11,702 in funding from Counsel in the first three
quarters of 2004, compared to receiving $650 from Counsel during the same
period in 2003.


<P align="center" style="font-size: 10pt">36
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Supplemental Statistical and Financial Data</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following data is provided for additional information about our
operations. It should be read in conjunction with the quarterly segment
analysis provided herein. All amounts below are unaudited.


<DIV align="center">
    <TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
      <!-- Begin Table Head -->
      <TR valign="bottom">
        <TD width="30%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
      </TR>
      <TR style="font-size: 8pt" valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="15"><B>2003</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="11"><B>2004</B> <HR size="1" noshade></TD>
      </TR>
      <TR style="font-size: 8pt" valign="bottom">
        <TD nowrap align="left"><B>(In millions of dollars, except where indicated)</B>
          <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q1</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q2</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q3</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q4</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q1</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q2</B> <HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><B>Q3</B> <HR size="1" noshade></TD>
      </TR>
      <!-- End Table Head -->
      <!-- Begin Table Body -->
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Gross revenues&#151;product
            mix</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Domestic long distance</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">7.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">7.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">7.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">7.5</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">6.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">5.6</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">5.4</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">International long
            distance</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">12.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">14.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">15.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">15.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">13.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">11.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">10.5</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Local dial tone</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">1.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.7</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">MRC/USF <SUP>(1)</SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">3.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">3.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.7</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.3</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Dedicated voice</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Direct sales revenues</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">7.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">6.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.9</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.9</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.8</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Total telecommunications
            revenue</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>30.4</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>31.8</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>32.0</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>31.9</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>28.3</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>26.2</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>27.3</B></TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Network service offering</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">4.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">3.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">6.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Technology licensing
            and development</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">1.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">1.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.5</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total revenues</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>30.4</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>37.0</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>36.1</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>32.4</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>35.2</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>26.5</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>27.4</B></TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Telecommunications
            revenue by customer type:</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Dial-around</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">14.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">13.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">13.7</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">13.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">10.3</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">9.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">7.2</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">1 &#043;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">8.5</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">11.6</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">12.2</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">12.7</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">12.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">11.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">11.4</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Local dial tone</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">1.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2.7</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Direct sales</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">7.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">6.8</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.9</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.9</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.4</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.0</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">5.8</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.1</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">0.2</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total telecommunications
            revenues</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>30.4</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>31.8</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>32.0</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>31.9</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>28.3</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>26.2</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>$</B></TD>
        <TD align="right"><B>27.3</B></TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Gross revenue
            &#151; product mix(%):</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Domestic long distance</DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">25.6</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">24.6</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">23.1</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">23.5</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">22.6</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">21.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">19.9</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">International long
            distance</DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">42.1</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">45.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">47.8</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">47.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">45.9</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">43.1</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">38.4</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Local dial tone</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">3.8</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">9.8</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">MRC/USF <SUP>(1)</SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">7.6</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">7.5</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">8.8</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">9.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">10.6</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">10.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">8.5</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Dedicated voice</DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">1.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.9</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">1.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">1.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">1.0</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">1.1</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">1.3</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Direct sales revenues</DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">23.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">21.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">18.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">18.5</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">19.1</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">19.5</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">21.4</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.3</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.6</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.0</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.4</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.8</TD>
        <TD nowrap>%</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">0.8</TD>
        <TD nowrap>%</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total telecommunications
            revenues</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right"><B>100.0</B></TD>
        <TD nowrap><B>%</B></TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Gross revenues&#151;product
            mix (minutes)</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Domestic long-distance
            <SUP>(5)</SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">135,236,248</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">140,798,912</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">134,198,098</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">121,880,023</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">129,293,178</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">134,649,835</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">176,065,320</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">International long-distance</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">83,191,655</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">93,896,850</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">98,873,877</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">98,978,290</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">91,288,985</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">83,923,345</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">79,458,519</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Dedicated voice</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">9,571,155</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">7,772,277</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">9,364,583</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">8,653,038</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">9,653,915</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">9,374,236</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">14,751,696</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Active Retail
            Subscribers (in number of people):</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><u>Dial-around</u>
            <SUP>(2)</SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Beginning of Period</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">199,375</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">228,330</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">215,187</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">206,937</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">192,678</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">164,331</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">138,857</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Adds</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">112,223</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">85,246</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">100,624</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">63,349</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">46,518</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">40,094</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">37,582</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Churn</DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(83,268</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(98,389</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(108,874</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(77,608</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(74,865</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(65,568</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(51,237</TD>
        <TD nowrap>)</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">End of Period</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">228,330</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">215,187</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">206,937</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">192,678</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">164,331</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">138,857</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">125,202</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><u>Local dial tone</u></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Beginning of Period</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2,895</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">14,359</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Adds</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">3,112</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">13,493</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">12,772</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Churn</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(217</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(2,029</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(3,512</TD>
        <TD nowrap>)</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">End of Period</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">2,895</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">14,359</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">23,619</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><u>1 &#043; </u><SUP>(3)</SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Beginning of Period</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">72,008</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">136,896</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">174,486</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">168,242</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">161,570</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">165,847</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">172,162</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Adds</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">109,646</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">81,040</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">43,964</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">25,356</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">25,344</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">27,093</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">23,574</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Chum</DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(44,758</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(43,450</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(50,208</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(32,028</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(21,067</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(20,778</TD>
        <TD nowrap>)</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right">&nbsp;</TD>
        <TD align="right">(31,795</TD>
        <TD nowrap>)</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">End of Period</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">136,896</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">174,486</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">168,242</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">161,570</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">165,847</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">172,162</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">163,941</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="1" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total subscribers
            (End of Period)</B></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>365,226</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>389,673</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>375,179</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>354,248</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>333,073</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>325,378</B></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><B>312,762</B></TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR style="font-size: 1px">
        <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><HR size="4" noshade> &nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><u>Direct Sales</u>
            <SUP>(6)</SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Active Customer Base</DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">276</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">254</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">236</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">227</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">256</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">252</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">238</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:40px; text-indent:-10px">Total top 10 billing</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,243</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,163</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,094</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,050</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">926</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,034</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">1,230</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD align="right">&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD colspan="8"><DIV style="margin-left:10px; text-indent:-10px"><B>Avg monthly revenue
            per user (active subscriptions) in absolute dollars:</B> <SUP><B>(4)</B></SUP></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Dial-around</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">21.61</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">20.60</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">22.07</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">23.01</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">20.89</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">21.61</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">19.15</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom" style="background: #eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px">Local dial tone</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">&#151;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">11.51</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">28.53</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">37.62</TD>
        <TD>&nbsp;</TD>
      </TR>
      <TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px">1 &#043;</DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">20.70</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">22.16</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">24.17</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">26.20</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">24.92</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">21.30</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right">$</TD>
        <TD align="right">23.15</TD>
        <TD>&nbsp;</TD>
      </TR>
      <!-- End Table Body -->
    </TABLE>
</DIV>




  <P align="left" style="font-size: 10pt"><sup>1</sup> MRC/USF represents &#147;Monthly Recurring
    Charges&#148; and &#147;Universal Service Fund&#148; fees charged to the customers.
  <P align="left" style="font-size: 10pt"><sup>2</sup> &#147;Dial- around&#148; refers to a product which allows a customer to make a call
from any phone by dialing a 10-10-XXX prefix.


<P align="left" style="font-size: 10pt"><sup>3</sup> &#147; 1 &#043;&#148; refers to a product which allows a retail customer to directly make a
long- distance call from their own phone by dialing &#147; 1&#148; plus the destination
number.


  <P align="left" style="font-size: 10pt"><sup>4 </sup>Average monthly revenues
    per user (&#147;ARPU&#148;) is calculated as the revenues of the quarter divided
    by the number of users at the end divided by 3 to get monthly amount.
  <P align="left" style="font-size: 10pt"><sup>5</sup> Includes Local Product Line Bulk/Package Rate Domestic Minutes


<P align="left" style="font-size: 10pt"><sup>6</sup> Represents Number of Parent Customers with Revenues greater than $0 in each
calendar month



<P align="center" style="font-size: 10pt">37
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>Management Discussion of Operations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table displays the Company&#146;s unaudited consolidated
quarterly results of operations for the eight quarters ended September&nbsp;30,
2004.

<DIV align="center">
<TABLE style="font-size: 9pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="24%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q4</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q1</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q2</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q3</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q4</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q1</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q2</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Q3</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(as restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Telecommunications
<SUP>1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,229</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Network service
offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Technologies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating costs and
expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Telecommunication
network expense <SUP>2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,349</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Network service
offering <SUP>2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(70</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling, general,
administrative
and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,992</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Provision for
doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">941</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Research and
development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,520</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total
operating
costs and
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,921</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,093</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,607</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,780</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,462</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,055</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,541</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,531</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income
(expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,915</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,398</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,562</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,534</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,487</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,562</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest and
other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total other
income
(expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,960</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,913</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,393</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,345</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,402</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,157</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,675</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,336</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss&nbsp;from
continuing
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,053</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,520</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,173</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,807</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,457</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,312</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,867</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gain (loss)&nbsp;from
discontinued
operations, net of
$0 tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,365</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(277</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,418</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(15,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,802</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,594</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,208</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(8,216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,867</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><sup>1</sup> Excluding network service offering shown separately</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><sup>2</sup> Exclusive of depreciation shown separately</I>


<P align="center" style="font-size: 10pt">38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><I>Three-Month Period Ended September&nbsp;30, 2004 Compared to Three-Month Period
Ended September&nbsp;30, 2003</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to more fully understand the comparison of the results of
continuing operations for the three months ended September&nbsp;30, 2004 as compared
to the same period in 2003, it is important to note the following significant
changes in our operations that occurred:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2002, we began to sell a network service offering
obtained from a new supplier. The sale of that product ceased
in late July&nbsp;2003. Revenue from this offering is recognized
using the unencumbered cash method. In the third quarter of
2004, $161 was recognized in revenue compared to $3,079 in
the same quarter of 2003. Expenses associated with this
offering were recorded when incurred. In the third quarter of
2004 the Company recorded a cost of $nil in
telecommunications network costs compared to incurring a cost
of $807 during the same period in 2003. The cessation of this
product offering did not qualify as discontinued operations
under generally accepted accounting principles.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2004, the Company commenced offering local dial
tone services via the UNE-P. The Company now offers these
services in five states and the Company had approximately
24,000 local customers at the end of September&nbsp;2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In August&nbsp;2004, the Company implemented a resizing of the
organization targeted at reducing its operating costs. The
cost cutting reflects the continued efficiencies created
by the ongoing integration of the Company&#146;s operations,
related to its four acquisitions over the last three years.
As a result of the resizing, the Company&#146;s work force was
reduced by approximately 20&nbsp;percent. The reduction affected
staff in the San Diego, Pittsburgh and Somerset facilities.
Management has recorded approximately $400 in expenses
related to the August 2004 restructuring, of which
$326 was paid in
the third quarter of 2004, recorded in selling, general and
administration expense and anticipates that it will record
expenses in the fourth quarter of $1,000 to $1,500 related to
anticipated exit of facilities and the removal of assets from
production.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><I>Revenues</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services revenue decreased $4,694 to $27,229 in the
third quarter of 2004 as compared to $31,923 during the same period in 2003
(excluding revenues from our network service offering of $161 and $3,079,
respectively). The primary reasons for the decrease related to:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our 10-10-XXX customer base is 125,000 at September&nbsp;30, 2004
representing a 39.5% decline from September&nbsp;2003. The customer
attrition is a result of our decision to not directly market
10-10-XXX services since 2002. We have also seen the dial around monthly
average revenue per user (&#147;ARPU&#148;) decline from $22.07 to $19.15,
in the same period. We attribute this to increased cellular
penetration and deregulation in various countries which have
lower rates per month in those markets and due to greater
competition from 1&#043; and local bundled offerings.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The 1&#043; customer base is 164,000, representing a 2.5% decline in
subscribers from September&nbsp;2003. ARPU declined 4.2% from $24.17
to $23.15 in the same period. Management attributes the decline
in customer base to our decision to lead our sales offering with
a local bundle versus a 1&#043; offering. ARPU has declined primarily
due to continued price compression in the long distance business,
and as a result of the continued migration of people to greater
cellular usage.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our enterprise customer base was 238 (2003-236) customers at the end of
September&nbsp;2004. Our top ten customers account for 19.5% of all
direct sales billings. Included in the third quarter of 2004 is
$1,400 of direct sales revenue from one customer who has
subsequently moved to another carrier.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">39
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our local bundled customers increased to 24,000 as at September
30, 2004, while ARPU was $37.62. The Company commenced
offering a local bundle in five states (NY, NJ, FL, PA, and MA)
during 2004 under the UNE-P platform. Local bundled customers
are expected to have a longer life and higher ARPU than the
Company&#146;s existing 10-10-XXX and 1&#043; customers.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>See supplemental, statistical and financial data disclosed herein.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology licensing and related services revenue was $nil in the third
quarter of 2004 as compared to $1,049 in the third quarter of 2003. The
revenue in 2003 relates to two contracts. The first contract was with
Accessline and was entered into in the first quarter of 2003 for which
acceptance was obtained in the second quarter. The contract involved both
technology licensing and provision of services. We recognized $449 in revenue
from this contract in the third quarter of 2003. The second contract was
entered into with a Japanese company in the third quarter of 2003 when
delivery, acceptance and payment were all completed resulting in the
recognition of $600 during the third quarter of 2003.


<P align="left" style="font-size: 10pt"><I>Operating costs and expenses</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications network expense was $15,349 in the three months ended
September&nbsp;30, 2004 as compared to $19,266 during the same period in 2003
(excluding costs associated with our network service offering of $nil and $807,
respectively).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services margins (telecommunications services revenues
less telecommunications network expenses) continue to fluctuate significantly
from period to period, and are expected to continue to fluctuate significantly
for the foreseeable future. Predicting whether margins will increase or decline
is difficult to estimate with certainty. Factors that have affected and
continue to affect margins include:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Differences in attributes associated with the various long-distance
programs in place at the Company. The effectiveness of each offering
can change margins significantly from period to period. Some factors
that affect the effectiveness of any program include the ongoing
deregulation of phone services in various countries where customer
traffic terminates, actions and reactions by competitors to market
pricing, the trend toward bundled service offerings and the increasing
level of wireline to cellular connections. In addition, changes in
customer traffic patterns also increase and decrease our margins.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our frame relay network and voice network. Each network has a
significant fixed cost element and a minor variable per minute cost of
traffic carried element; significant fluctuations in the number of
minutes carried from month to month can significantly affect the
margin percentage from period to period. Management has reduced the
fixed network monthly costs by approximately $84 per month by
September 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Changes in contribution rates to the USF and other regulatory changes
associated with the fund. Such changes include increases and decreases
in contribution rates, changes in the method of determining
assessments, changes in the definition of assessable revenue, and the
limitation that USF contributions collected from customers can no
longer exceed contributions.</TD>
</TR>

</TABLE>




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
selling, general, administrative and other (&#147;S,G&#038;A&#148;) expense was
$13,992 in the three months ended September&nbsp;30, 2004 as compared to $13,981
during the same period of 2003. The significant changes in S,G&#038;A expense are as
follows:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Compensation expense decreased from approximately $5,700 in the
three months ended September&nbsp;30, 2003 to approximately $5,500 in the
three months ended September&nbsp;30, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Residual third party commissions decreased from approximately
$3,800 in the three months ended September&nbsp;30, 2003 to approximately
$2,300 in the three months ended September&nbsp;30, 2004. The decrease was
a direct result of lower revenues in 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Telemarketing costs increased from approximately $100 in the three
months ended September&nbsp;30, 2003 to approximately $600 in the three
months ended September&nbsp;30, 2004. The Company incurred higher
telemarketing costs relating to our entry into the local dial tone
business throughout 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Billings and collections expenses decreased from approximately
$2,400 in the three months ended September&nbsp;30, 2003 to approximately
$1,600 in the three months ended September&nbsp;30, 2004, due to a reduction
of revenue.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Marketing and advertising expenses increased from approximately
$200 in the three months ended September&nbsp;30, 2003 to approximately $300
in the three months ended September&nbsp;30, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Accounting and tax expenses increased from approximately $300 in
the three months ended September&nbsp;30, 2003 to approximately $600 in the
three months ended September&nbsp;30, 2004, primarily related to costs
related to completing a restatement of accounts.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal and regulatory expenses increased from approximately $200 in
the three months ended September&nbsp;30, 2003 to approximately $1,100 in
the three months ended September&nbsp;30, 2004. In 2004, management have
incurred additional legal costs relating to the legal proceedings
relating to various litigation matters including the direct and
derivative actions, and its patent enforcement strategy.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Facilities expenses remained consistent at $1,300 in the three
months ended September&nbsp;30, 2003 and September&nbsp;30, 2004, respectively.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Restructuring costs related to the August 2004 restructuring, of approximately $400, of which $326 was
paid in the three months ended
September&nbsp;30, 2004, compared to none in 2003.
The cost cutting reflects the continued efficiencies created by the
ongoing integration of the Company&#146;s operations, related to its four
acquisitions over the last three years. As a result of the resizing,
the Company&#146;s work force was reduced by approximately 20&nbsp;percent. The
reduction affected staff in the San Diego, Pittsburgh and Somerset
facilities. Management expects, in the fourth quarter, expenses of $1,000 to $1,500
related to the anticipated exit of facilities and the removal of assets
from production.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Included in three months ended September&nbsp;30, 2003 are Integration
expenses of approximately $200 compared to none in 2004 relating to the
2002 acquisition of the certain assets of the estate of RSL.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for doubtful accounts was $941 in the three months ended
September&nbsp;30, 2004 as compared to $1,466 for the same period of 2003. The
provision for doubtful accounts as a percent of revenue, excluding revenue from
our network service offering, was approximately 3.5% for the three months ended
September&nbsp;30, 2004, versus approximately 4.6% for the three months ended
September&nbsp;30, 2003. Management has been taking steps to bring the bad debt
provision more into line with the Company&#146;s historical averages by tightening the credit
granting process.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s research and development program incurred costs of $119 in
the third quarter of 2004. This program is expected to allow the Company to
provide enhanced telecommunication services to its customer base in the near
term. The Company did not carry out any research and development work in 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization was $1,520 in the three months ended
September&nbsp;30, 2004 compared to $1,993 during the same period of 2003.


<P align="left" style="font-size: 10pt"><I>Other income (expense)</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense totaled $2,562 in the third quarter of 2004, of which
$1,855 is pursuant to related party debt, compared to the third quarter of
2003, when $3,066 of the interest expense of $3,398 was pursuant to related
party debt. Included in the interest expense for the third quarter of 2004 is
BCF of $688, compared to $1,393 for the same period in 2003. Third party
interest is lower in the third quarter of 2004 compared to the same period in
2003, due to lower average outstanding balance on the asset based facility
partially offset by an increase in interest expense on regulatory amounts
owing.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and other income was $226 for the third quarter of 2004 compared
to $53 during the third quarter of 2003. During the third quarter of 2004, $204
of other income relates to the estate of WorldxChange&#146;s agreement to offset an
unrecorded receivable of the Company against a legal obligation to the estate
relating to the 2001 acquisition of the WorldxChange business from bankruptcy,


<P align="left" style="font-size: 10pt"><I>Discontinued Operations</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the third quarter of 2004, there was no gain or loss from discontinued
operations recorded, compared to the $213 gain reported in the third quarter of
2003 related to the sale of the ILC business.


<P align="left" style="font-size: 10pt"><I>Segment Profitability</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the quarter ended September&nbsp;30, 2004, our Telecommunications segment
realized an operating segment loss of $3,745, while our Technologies segment
recorded an operating segment loss of $336. We anticipate that through revenue
growth and continued control of expenses, both segments will report operating
income in future quarters. The measures of operating segment loss discussed
above exclude $2,786 of net expenses that are not allocated to a specific
segment. These consist primarily of selling, general and administrative costs,
as well as $2,509 of interest expense, net of an $204 gain on discharege of
obligation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Nine-Month Period Ended September&nbsp;30, 2004 Compared to Nine-Month Period
Ended September&nbsp;30, 2003</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to more fully understand the comparison of the results of
continuing operations for the nine months ended September&nbsp;30, 2004 as compared
to the same period in 2003, it is important to note the following significant
changes in our operations that occurred:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In July&nbsp;2003, we completed the acquisition of Transpoint. The
operations of Transpoint have been included in the statement of
operations for the nine months ended September&nbsp;30, 2004. However,
there were no such operations in the same period of 2003.</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">41
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2002, we began to sell a network service offering obtained
from a new supplier. The sale of that product ceased in late July
2003. Revenue from this offering is recognized using the unencumbered
cash method. In the first nine months of 2004, $6,714 was recognized
in revenue compared to $7,221 in the same period of 2003. Expenses
associated with this offering were recorded when incurred. In the
first nine month of 2004 the Company recorded a recovery of $203 in
telecommunications network costs compared to incurring a cost of
$9,177 during the same period in 2003. The cessation of this product
offering does not qualify as discontinued operations under generally
accepted accounting principles.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2004, the Company commenced offering local dial tone
services via the UNE-P. By September&nbsp;30, 2004 services were being
offered in five states and the Company had approximately local 24,000
local customers.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In August&nbsp;2004, the Company implemented a resizing of the organization
targeted at reducing its operating costs. The cost cutting reflects
the continued efficiencies created by the ongoing integration of
the Company&#146;s operations, related to its four acquisitions over the
last three years. As a result of the resizing, the Company&#146;s work
force was reduced by approximately 20&nbsp;percent. The reduction affected
staff in the San Diego, Pittsburgh and Somerset facilities.
Management has recorded approximately $400 in expenses related
to the August 2004 restructuring, of which $326 was
paid in the third
quarter of 2004, recorded in selling, general and administration expense and
anticipates that it will record expenses, in the fourth quarter, of $1,000
to $1,500 related to anticipated exit of facilities and the removal of
assets from production.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><I>Revenues</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services revenue decreased $12,325 to $81,818 in the
nine month period ended September&nbsp;30, 2004 as compared to $94,143 in the same
period during 2003 (excluding revenues from our network service offering). The
primary reasons for the decrease related to:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our 10-10-XXX customer base is 125,000 at September&nbsp;30, 2004
representing a 39.5% decline from September&nbsp;2003. The customer
attrition is a result of our decision to not directly market
10-10-XXX services since 2002. We have also seen the dial around monthly ARPU
decline from $22.07 to $19.15, in the same period. We attribute this
to increased cellular penetration and deregulation in various
countries which have lower rates per month in those markets and due to
greater competition from 1&#043; and local bundled offerings.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The 1&#043; customer base is 164,000, representing a 2.5% decline in
subscribers from September&nbsp;2003. ARPU declined 4.2% from $24.17 to
$23.15 in the same period. Management attributes the decline in
customer base to our decision to lead our sales offering with a local
bundle versus a 1&#043; offering. ARPU has declined primarily due to
continued price compression in the long distance business, and as a result
of the continued migration of people to greater cellular usage.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our enterprise customer base was 238 customers at the end of September
2004. Our top ten customers account for 19.5% of all direct sales
billings. Included in the nine months ended September&nbsp;30, 2004 is
$2,800 of direct sales revenue from one customer who has subsequently
moved to another carrier.
</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our local bundled customers increased to 24,000 as at September&nbsp;30,
2004, while ARPU was $37.62. The Company commenced offering
a local bundle in five states (NY, NJ, FL, PA, and MA) during 2004
under the UNE-P platform. Local bundled customers are expected to
have a longer life and higher ARPU than the Company&#146;s existing
10-10-XXX and 1&#043; customers.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>See supplemental, statistical and financial data disclosed herein.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">

    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology licensing and related services revenue was $540 in the first
nine months of 2004 as compared to $2,099 in the same period of 2003. In the
first nine months of 2003, the Company recorded revenue from two contracts: the
AccessLine contract and a contract with a Japanese company. The revenue in 2004
relates to a contract that was entered into with a Japanese company in the
third quarter of 2003. Under the terms of the contract, we earned $540 based on
the receipt of funds related to the delivery of product in 2003. The Company
has no continuing obligation related to this contract. Technology licensing
revenues are project-based and, as such, these revenues will vary from period
to period based on timing and size of technology licensing projects and
payments.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><I>Operating costs and expenses</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications network expense was $47,664 in the nine months ended
September&nbsp;30, 2004 as compared to $57,964 during the same period in 2003
(excluding costs associated with our network service offering of ($203) and
$9,177, respectively).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services margins (telecommunications services revenues
less telecommunications network expenses) continue to fluctuate significantly
from period to period, and are expected to continue to fluctuate significantly
for the foreseeable future. Predicting whether margins will increase or decline
is difficult to estimate with certainty. Factors that have affected and
continue to affect margins include:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Differences in attributes associated with the various long-distance
programs in place at the Company. The effectiveness of each offering
can change margins significantly from period to period. Some factors
that affect the effectiveness of any program include the ongoing
deregulation of phone services in various countries where customer
traffic terminates, actions and reactions by competitors to market
pricing, the trend toward bundled service offerings and the increasing
level of wireline to cellular connections. In addition, changes in
customer traffic patterns also increase and decrease our margins.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our frame relay network and voice network. Each network has a
significant fixed cost element and a minor variable per minute cost of
traffic carried element; significant fluctuations in the number of
minutes carried from month to month can significantly affect the
margin percentage from period to period. Management has reduced the
fixed network monthly costs by approximately $84 per month by
September 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Changes in contribution rates to the USF and other regulatory changes
associated with the fund. Such changes include increases and decreases
in contribution rates, changes in the method of determining
assessments, changes in the definition of assessable revenue, and the
limitation that USF contributions collected from customers can no
longer exceed contributions.</TD>
</TR>

</TABLE>




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our selling, general, administrative and other expense was $42,828 in the
nine months ended September&nbsp;30, 2004 as compared to $42,822 during the same
period of 2003. The significant changes in S,G&#038;A expense are as follows:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Compensation expense decreased from approximately $20,800 in the
nine months ended September&nbsp;30, 2003 to approximately $19,100 in the
nine months ended September&nbsp;30, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Residual third party commissions decreased from approximately
$8,700 in the nine months ended September&nbsp;30, 2003 to approximately
$6,700 in the nine months ended September&nbsp;30, 2004. The decrease was a
direct result of lower revenues in 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Telemarketing costs increased from approximately $500 in the nine
months ended September&nbsp;30, 2003 to approximately $1,600 in the nine
months ended September&nbsp;30, 2004. The Company incurred higher
telemarketing costs relating to our entry into the local dial tone
business throughout 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Billings and collections expenses decreased from approximately
$5,600 in the nine months ended September&nbsp;30, 2003 to approximately
$5,000 in the nine months ended September&nbsp;30, 2004, relating to
reduction in revenue in the respective periods.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Marketing and advertising expenses increased from approximately
$600 in the nine months ended September&nbsp;30, 2003 to approximately $900
in the nine months ended September&nbsp;30, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Accounting and tax expenses increased from approximately $1,000 in
the nine months ended September&nbsp;30, 2003 to approximately $1,500 in the
nine months ended September&nbsp;30, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal and regulatory expenses increased from approximately $600 in
the nine months ended September&nbsp;30, 2003 to approximately $2,700 in the
nine months ended September&nbsp;30, 2004. In 2004, management have incurred
additional legal costs relating to the legal proceedings relating to
various litigation matters including the direct and derivative actions,
and its patent enforcement strategy.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Facilities expenses increased from approximately $3,500 in the nine
months ended September&nbsp;30, 2003 to approximately $3,900 in the nine
months ended September&nbsp;30, 2004. The increase in facilities expense is
due to the opening of the New Jersey office in early 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Restructuring costs related to the August 2004 restructuring of approximately $400, of which $326 was
paid in the nine months ended
September&nbsp;30, 2004, compared to none in 2003.
The cost cutting reflects the continued efficiencies created by the
ongoing integration of the Company&#146;s operations, related to its four
acquisitions over the last three years. As a result of the resizing,
the Company&#146;s work force was reduced by approximately 20&nbsp;percent. The
reduction affected staff in the San Diego, Pittsburgh and Somerset
facilities. Management expects, in the fourth quarter, expenses of $1,000 to $1,500
related to the anticipated exit of facilities and the removal of assets
from production.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Included in nine months ended September&nbsp;30, 2003 are integration
expenses of approximately $700 compared to none in 2004, relating to
the 2002 acquisition of the certain assets of the estate of RSL.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for doubtful accounts was $3,908 in the nine months ended
September&nbsp;30, 2004 as compared to $3,772 for the same period of 2003. The
provision for doubtful accounts as a percent of


<P align="center" style="font-size: 10pt">43
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">revenue, excluding revenue from our network service offering, was approximately
4.8% for the nine months ended September&nbsp;30, 2004, versus approximately 4.0%
for the nine months ended September&nbsp;30, 2003. Management is taking steps to
bring the bad debt provision more into line with the Company&#146;s historical averages by
tightening the credit granting process.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company commenced a research and development program incurring costs
of $225 in the first nine months of 2004. This program is expected to allow the
Company to provide enhanced telecommunication services to its customer base in
the near term. The Company did not carry out any research and development work
in 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization was $4,877 in the nine months ended
September&nbsp;30, 2004 compared to $5,577 during the same period of 2003.


<P align="left" style="font-size: 10pt"><I>Other income (expense)</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense totaled $8,583 in the nine months ended September&nbsp;30,
2004, of which $6,384 is pursuant to related party debt, compared to the same
period in 2003, when $8,632 of the interest expense of $9,707 was pursuant to
related party debt. Included in the interest expense for the nine months ended
September&nbsp;30, 2004 is BCF of $3,240, compared to $2,589 for the same period in
2003. Third party interest is lower in the first nine months of 2004 compared
to the same period in 2003, due to lower average outstanding balance on the
asset based facility partially offset by an increase in interest expense on
regulatory amounts owing.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and other income increased $2,359 to $2,415 for the nine months
ended September&nbsp;30, 2004 from $56 during the same period of 2003. The increase
is primarily due to a gain of $767 related to the discharge of certain
obligations associated with our former participation with a consortium of
owners in an indefeasible right of usage, a gain of $1,376 from our sale of
shares of BUI common stock in the first six months of 2004 and $204 gain in
third quarter 2004 on the estate ofWorldxChange&#146;s agreement to offset an
unrecorded receivable of the Company against a legal obligation to the estate
relating to the 2001 acquisition of the WorldxChange business from bankruptcy.


<P align="left" style="font-size: 10pt"><I>Discontinued Operations</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first nine months of 2004, we recorded a gain from discontinued
operations of $104 related to the sale of our ILC operations to BUI entered
into in December&nbsp;2002. The sale closed on May&nbsp;1, 2003. Contingent shares
(10,714) of BUI stock were earned during the three months ended March&nbsp;31, 2004,
with a value of $104. In the first nine months of 2003, we recorded a gain from
discontinued operations of $307 related to the sale of the ILC business.


<P align="left" style="font-size: 10pt"><I>Segment Profitability</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the nine months ended September&nbsp;30, 2004, our Telecommunications
segment realized an operating segment loss of $8,536, while our Technologies
segment recorded an operating segment loss of $744. We anticipate that through
revenue growth and continued control of expenses, both segments will report
operating income in future quarters. The measures of operating segment income
and loss discussed above exclude $7,115 of net income and expenses that are not
allocated to a specific segment. These consist primarily of selling, general
and administrative costs, as well as $8,282 of interest expense, net of a
$1,376 gain on the sale of our holdings in BUI common stock and a gain of $971
recognized on the discharge of an obligation.


<P align="center" style="font-size: 10pt">44
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<P align="left" style="font-size: 10pt"><B>Item&nbsp;3</B>&nbsp;<B>&#150;</B>&nbsp;<B>Quantitative and Qualitative Disclosures about Market Risk.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our exposure to market risk is limited to interest rate sensitivity, which
is affected by changes in the general level of United States interest rates.
Our cash equivalents are invested with high quality issuers and we limit the
amount of credit exposure to any one issuer. Due to the short-term nature of
the cash equivalents, we believe that we are not subject to any material
interest rate risk as it relates to interest income. As to interest expense, we
have one debt instrument that has variable interest rates based on the prime
rate of interest. Assuming the debt amount on our asset backed facility at
September&nbsp;30, 2004 were constant during the next twelve-month period, the
impact of a one percent increase in the prime interest rate would be an
increase in interest expense of approximately $73 for the next twelve-month
period. However, because the debt instrument is subject to an interest rate
floor of 6.0%, a one percent decrease in the prime interest rate would have no
impact on interest expense during the next twelve-month period. We do not
believe that we are subject to material market risk on our fixed rate debt with
Counsel in the near term.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We did not have any foreign currency hedges or other derivative financial
instruments as of September&nbsp;30, 2004. We do not enter into financial
instruments for trading or speculative purposes and do not currently utilize
derivative financial instruments. Our operations are conducted primarily in the
United States and as such are not subject to material foreign currency exchange
rate risk.


<P align="left" style="font-size: 10pt"><B>Item&nbsp;4</B>&nbsp;<B>&#150;</B>&nbsp;<B>Controls and Procedures.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the end of the period covered by this quarterly report, the Company
carried out, under the supervision and with the participation of the Company&#146;s
management, including the Company&#146;s Chief Executive Officer and Chief Financial
Officer (the &#147;Certifying Officers&#148;), an evaluation of the effectiveness of its
&#147;disclosure controls and procedures&#148; (as the term is defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the &#147;Exchange Act&#148;)). Based on this evaluation, the Certifying
Officers have concluded that the Company&#146;s disclosure controls and procedures
are effective to ensure that material information is recorded, processed,
summarized and reported by management of the Company on a timely basis in order
to comply with the Company&#146;s disclosure obligations under the Exchange Act, and
the rules and regulations promulgated thereunder.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In their evaluation of the Company&#146;s disclosure controls and procedures in
connection with the previous Quarterly Report on Form 10-Q for the quarter
ended June&nbsp;30, 2004, the Certifying Officers concluded that the disclosure
controls and procedures were not effective. The Certifying Officers reached
this conclusion having reviewed the requirements of Emerging Issues Task Force
Issue No.&nbsp;00-27 (&#147;EITF 00-27&#148;) and having determined that the accounting for
Beneficial Conversion Features (&#147;BCF&#148;) on convertible debt and preferred stock
instruments of the Company had not been properly applied in current and prior
years to its convertible debentures issued in March&nbsp;2001 (the &#147;Erroneous
Treatment&#148;). The Certifying Officers further concluded that the matter
constituted a material weakness in all affected prior periods.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After discussions among the Company&#146;s management, BDO Seidman LLP, the
Company&#146;s auditors, and the Company&#146;s prior auditors, PricewaterhouseCoopers,
LLP (&#147;PwC&#148;), the Company&#146;s management concluded that a correction of the prior
accounting on this matter was required. The Company&#146;s management brought the
matter for consideration before the Audit Committee and the full Board of
Directors of the Company. In turn, the Audit Committee concluded that the
previously issued financial statements should not be relied upon and approved
and authorized the Company&#146;s management to amend certain previously filed
public reports. Additionally, management and the Audit Committee considered
what changes, if any, were necessary to the Company&#146;s disclosure controls and
procedures to ensure that the Erroneous Treatment would not recur and to
provide that material information is recorded, processed, summarized and
reported by management of the Company on a timely basis in order to comply with
the Company&#146;s disclosure obligations under the Exchange Act, and the rules and
regulations promulgated thereunder. In its review, the Audit Committee noted
that the Erroneous Treatment (i)&nbsp;related principally to periods that preceded
changes the Company has already made to consolidate and upgrade its accounting
staff and function, and (ii)&nbsp;that the errors did not result from the failure of
the Company&#146;s disclosure controls and procedures to make known to the
appropriate officials and auditors the facts concerning the Company&#146;s
convertible debentures or the occurrence of the anti-dilution events. As a
result, management


<P align="center" style="font-size: 10pt">45
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<P align="left" style="font-size: 10pt">and the Audit Committee determined that education and professional
development of accounting staff on the application of EITF 00-27 would be
sufficient to prevent a recurrence of the matter in the future and that no
additional changes to the Company&#146;s disclosure controls and procedures were
needed to the address the Erroneous Treatment. The Erroneous Treatment was
confirmed on September&nbsp;20, 2004; the Company addressed the
matter by refiling all
affected public reports in October&nbsp;2004, thereby concluding the matter.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, there were no changes in the Company&#146;s internal control over
financial reporting during the third fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company&#146;s internal
control over financial reporting.


<P align="center" style="font-size: 10pt">46
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<P align="left" style="font-size: 10pt"><B>PART II</B>&nbsp;<B>&#150;</B>&nbsp;<B>OTHER INFORMATION</B>



<P align="left" style="font-size: 10pt"><B>Item&nbsp;1</B>&nbsp;<B>&#150;</B>&nbsp;<B>Legal Proceedings</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;16, 2004, certain shareholders of the Company (the &#147;Plaintiffs&#148;)
filed a putative derivative complaint in the Superior Court of the State of
California in and for the County of San Diego, (the &#147;Complaint&#148;) against the
Company, WorldxChange Corporation (sic), Counsel Communications LLC, and
Counsel Corporation as well as certain present and former officers and
directors of the Company, some of whom also are or were directors and/or
officers of the other corporate defendants (collectively, the &#147;Defendants&#148;).
The Complaint alleges, inter alia, that the Defendants, in their respective
roles as controlling shareholder and directors and officers of the Company
committed breaches of the fiduciary duties of care, loyalty and good faith and
were unjustly enriched, and that the individual Defendants committed waste of
corporate assets, abuse of control and gross mismanagement. The Plaintiffs seek
compensatory damages, restitution, disgorgement of allegedly unlawful profits,
benefits and other compensation, attorneys&#146; fees and expenses in connection
with the Complaint. The Company believes that these claims in their entirety
are without merit and intends to vigorously defend this action. There is no
assurance that this matter will be resolved in the Company&#146;s favor and an
unfavorable outcome of this matter could have a material adverse impact on its
business, results of operations, financial position or liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acceris and several of Acceris&#146; current and former executives and board
members were named in a securities action filed in the Superior Court of the
State of California in and for the County of San Diego on April&nbsp;16, 2004, in
which the plaintiffs made claims nearly identical to those set forth in the
derivative suit above. The Company believes that these claims in their entirety
are without merit and intends to vigorously defend this action. There is no
assurance that this matter will be resolved in the Company&#146;s favor and an
unfavorable outcome of this matter could have a material adverse impact on its
business, results of operations, financial position or liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Company&#146;s efforts to enforce its patent rights,
Acceris Communications Technologies Inc. filed a patent infringement lawsuit
against ITXC Corp. (&#147;ITXC&#148;) in the United States District Court of the District
of New Jersey on April&nbsp;14, 2004. The complaint alleges that ITXC&#146;s VoIP
services and systems infringe the Company&#146;s U.S. Patent No.&nbsp;6,243,373, entitled
&#147;Method and Apparatus for Implementing a Computer Network/Internet Telephone
System.&#148; On May&nbsp;7, 2004, ITXC filed a lawsuit against Acceris Communications
Technologies Inc., and the Company, in the United States District Court for the
District of New Jersey for infringement of five ITXC patents relating to VoIP
technology, directed generally to the transmission of telephone calls over the
Internet and the completion of telephone calls by switching them off the
Internet and onto a public switched telephone network. The Company believes
that the allegations contained in ITXC&#146;s complaint are, in their entirety,
without merit and the Company intends to provide a vigorous defense to ITXC&#146;s
claims. There is no assurance that this matter will be resolved in the
Company&#146;s favor and an unfavorable outcome of this matter could have a material
adverse impact on its business, results of operations, financial position or
liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At our Adjourned Meeting of Stockholders held on December&nbsp;30, 2003, our
stockholders approved an amendment to our Articles of Incorporation, deleting
Article&nbsp;VI thereof (regarding liquidations, reorganizations, mergers and the
like). Stockholders who were entitled to vote at the meeting and advised us in
writing, prior to the vote on the amendment, that they dissented and intended
to demand payment for their shares if the amendment was effectuated, were
entitled to exercise their appraisal rights and obtain payment in cash for
their shares under Sections&nbsp;607.1301 &#150; 607.1333 of the Florida Business
Corporation Act, provided their shares were not voted in favor of the
amendment. In January&nbsp;2004, appraisal notices in compliance with Florida
corporate statutes were sent to all stockholders who had advised us of their
intention to exercise their appraisal rights. The appraisal notices included
our estimate of fair value of our shares, being $4.00 per share on a post-split
basis. These stockholders had until February&nbsp;29, 2004 to return their completed
appraisal notices along with certificates for the shares for which they were
exercising their appraisal rights. Approximately 33 stockholders holding
approximately 74,000 shares of our stock returned completed appraisal notices
by February&nbsp;29, 2004. A stockholder of 20 shares notified us of his acceptance
of our offer of $4.00 per share, while the stockholders of the remaining shares
did not accept our offer.


<P align="center" style="font-size: 10pt">47
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">Subject to the qualification that we may not make any payment to a stockholder
seeking appraisal rights if, at the time of payment, our total assets are less
than our total liabilities, stockholders who accepted our offer to purchase
their shares at the estimated fair value will be paid for their shares within
90&nbsp;days of our receipt of a duly executed appraisal notice. If we should be
required to make any payments to dissenting stockholders, Counsel will fund any
such amounts through the purchase of shares of our common stock. Stockholders
who did not accept our offer were required to indicate their own estimate of
fair value, and if we do not agree with such estimates, the parties are
required to go to court for an appraisal proceeding on an individual basis,
in order to establish a fair value. Because Acceris did not agree with the
estimates submitted by most of the dissenting shareholders, Acceris has sought
a judicial determination of the fair value of the common stock held by the
dissenting stockholders. On June&nbsp;24, 2004, Acceris filed suit against the
dissenting shareholders seeking a declaratory judgment, appraisal and other
relief in the Circuit Court for the 17th Judicial District in Broward County,
Florida. There is no assurance that this matter will be resolved in the
Company&#146;s favor and an unfavorable outcome of this matter could have a material
adverse impact on our business, results of operations, financial position or
liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is involved in various other legal matters arising out of its
operations in the normal course of business, none of which are expected,
individually or in the aggregate, to have a material adverse effect on the
Company.


<P align="left" style="font-size: 10pt"><B>Item&nbsp;2</B>&nbsp;<B>&#150;</B>&nbsp;<B>Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the three and nine months ending September&nbsp;30, 2004, approximately
101,500 and 243,600 options, respectively, were issued to employees under the
2003 Employee Stock Option and Appreciation Rights Plan. These options are
issued with exercise prices that equal or exceed fair value on the date of the
grant and vest over a 4-year period subject to the grantee&#146;s continued
employment with the Company. The Company relied on an exemption from
registration under Section&nbsp;4(2) of the Securities Act of 1933.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, during the three months and nine months ended September&nbsp;30,
2004, approximately nil and 600,000 warrants, respectively, have been issued to
a limited number of participants under the Acceris Communications Inc. Platinum
Agent Program at an exercise price of $3.50 per share. See Note 13 to the
condensed consolidated financial statements included in Part&nbsp;I herein for a
description of the vesting provisions of these warrants. The Company relied on
an exemption from registration under Regulation&nbsp;D under the Securities Act of
1933.

<P align="left" style="font-size: 10pt">The Company acquired 25,000 shares of Acceris common stock in the three and
nine months ended September&nbsp;30, 2004, pursuant to a particular non-cash
settlement of a claim. The Company has retired these common shares.



<P align="left" style="font-size: 10pt"><B>Item&nbsp;3</B>&nbsp;<B>&#150;</B>&nbsp;<B>Defaults Upon Senior Securities.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.


<P align="left" style="font-size: 10pt"><B>Item&nbsp;4</B>&nbsp;<B>&#150;</B>&nbsp;<B>Submission of Matters to a Vote of Security Holders.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.


<P align="left" style="font-size: 10pt"><B>Item&nbsp;5</B>&nbsp;<B>&#150;</B>&nbsp;<B>Other Information.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.


<P align="center" style="font-size: 10pt">48
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<P align="left" style="font-size: 10pt"><B>Item&nbsp;6</B>&nbsp;<B>&#150;</B>&nbsp;<B>Exhibits and Report on Form&nbsp;8-K.</B>



<P align="left" style="font-size: 10pt"><B>(a)&nbsp;Exhibits</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification pursuant to Rule&nbsp;13a-14(a) and 15d-14(a) required under
Section&nbsp;302 of the Sarbanes-Oxley Act of 2002 (3)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification pursuant to Rule&nbsp;13a-14(a) and 15d-14(a) required under
Section&nbsp;302 of the Sarbanes-Oxley Act of 2002 (3)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">32.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification pursuant to 18 U.S.C. Section&nbsp;1350 as adopted pursuant
to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (3)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">32.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification pursuant to 18 U.S.C. Section&nbsp;1350 as adopted pursuant
to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (3)</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
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<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Acceris Communications
Inc. <HR noshade size="1">(Registrant)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Allan C. Silber</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: November&nbsp;11, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Allan C. Silber<BR>
Chief Executive Officer and Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Gary M. Clifford</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Gary M. Clifford<BR>
Chief Financial Officer and Vice<BR>
President of Finance</TD>
</TR>
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</DIV>



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<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>w68578exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
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<HEAD>
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<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;31.1</B>



<P align="center" style="font-size: 10pt"><B>OFFICER&#146;S CERTIFICATION PURSUANT TO</B>


<DIV align="center" style="font-size: 10pt"><B>SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</B></DIV>



<P align="left" style="font-size: 10pt">I, Allan C. Silber, certify that:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report on Form 10-Q of Acceris Communications Inc.;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and
procedures, or caused such disclosure
controls and procedures to be designed
under our supervision, to ensure that
material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by
others within those entities,
particularly during the period in which
this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the
registrant&#146;s disclosure controls and
procedures and presented in this report
our conclusions about the effectiveness
of the disclosure controls and
procedures, as of the end of the period
covered by this report based on such
evaluation; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in
the registrant&#146;s internal control over
financial reporting that occurred during
the registrant&#146;s most recent fiscal
quarter that has materially affected, or
is reasonably likely to materially
affect, the registrant&#146;s internal
control over financial reporting; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant&#146;s
auditors and the audit committee of registrant&#146;s board of directors (or persons
performing the equivalent functions):</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and
material weaknesses in the design or
operation of internal control over
financial reporting which are reasonably
likely to adversely affect the
registrant&#146;s ability to record, process,
summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that
involves management or other employees
who have a significant role in the
registrant&#146;s internal control over
financial reporting.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">Date: November&nbsp;11, 2004


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Allan C. Silber</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Allan C. Silber</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>w68578exv31w2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;31.2</B>



<P align="center" style="font-size: 10pt"><B>OFFICER&#146;S CERTIFICATION PURSUANT TO</B>



<P align="center" style="font-size: 10pt"><B>SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</B>



<P align="left" style="font-size: 10pt">I, Gary M. Clifford, certify that:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report on Form 10-Q of Acceris Communications Inc.;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and
procedures, or caused such disclosure
controls and procedures to be designed
under our supervision, to ensure that
material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by
others within those entities,
particularly during the period in which
this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the
registrant&#146;s disclosure controls and
procedures and presented in this report
our conclusions about the effectiveness
of the disclosure controls and
procedures, as of the end of the period
covered by this report based on such
evaluation; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in
the registrant&#146;s internal control over
financial reporting that occurred during
the registrant&#146;s most recent fiscal
quarter that has materially affected, or
is reasonably likely to materially
affect, the registrant&#146;s internal
control over financial reporting; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant&#146;s
auditors and the audit committee of registrant&#146;s board of directors (or persons
performing the equivalent functions):</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and
material weaknesses in the design or
operation of internal control over
financial reporting which are reasonably
likely to adversely affect the
registrant&#146;s ability to record, process,
summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that
involves management or other employees
who have a significant role in the
registrant&#146;s internal control over
financial reporting.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">Date: November&nbsp;11, 2004


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Gary M. Clifford</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Gary M. Clifford</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Vice President of Finance</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>w68578exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;32.1</B>



<P align="center" style="font-size: 10pt"><B>ACCERIS COMMUNICATIONS INC.</B>



<P align="center" style="font-size: 10pt">OFFICER&#146;S CERTIFICATION


<DIV align="center" style="font-size: 10pt">PURSUANT TO</DIV>


<DIV align="center" style="font-size: 10pt">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</DIV>


<DIV align="center" style="font-size: 10pt">(18 U.S.C. 1350)</DIV>



<P align="left" style="font-size: 10pt">November&nbsp;11, 2004



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Allan C. Silber, duly appointed and incumbent officer of
Acceris Communications Inc., a Florida corporation (the &#147;Corporation&#148;), in
connection with the Corporation&#146;s Quarterly Report on Form 10-Q for the three
month period ended September&nbsp;30, 2004, as filed with the Securities and
Exchange Commission on the date hereof (the &#147;Report&#148;), does hereby represent,
warrant and certify pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002,
as amended, that, to the best of his knowledge:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report is in full compliance with
reporting requirements of Section 13(a) of
the Securities Exchange Act of 1934, as
amended; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report
fairly presents, in all material respects,
the financial condition and results of
operation of the Corporation.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="100%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Allan C. Silber
<HR align="left" size="1" noshade width="45%">
Allan C. Silber</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Executive Officer and Director</DIV></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>w68578exv32w2.htm
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;32.2</B>



<P align="center" style="font-size: 10pt"><B>ACCERIS COMMUNICATIONS INC.</B>

<P>
<DIV align="center" style="font-size: 10pt">OFFICER&#146;S CERTIFICATION</DIV>


<DIV align="center" style="font-size: 10pt">PURSUANT TO</DIV>


<DIV align="center" style="font-size: 10pt">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</DIV>


<DIV align="center" style="font-size: 10pt">(18 U.S.C. 1350)</DIV>



<P align="left" style="font-size: 10pt">November&nbsp;11, 2004



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Gary M. Clifford, duly appointed and incumbent officer of
Acceris Communications Inc., a Florida corporation (the &#147;Corporation&#148;), in
connection with the Corporation&#146;s Quarterly Report on Form 10-Q for the three
month period ended September&nbsp;30, 2004, as filed with the Securities and
Exchange Commission on the date hereof (the &#147;Report&#148;), does hereby represent,
warrant and certify pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002,
as amended, that, to the best of his knowledge:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report is in full
compliance with reporting
requirements of Section 13(a)
of the Securities Exchange Act
of 1934, as amended; and 2. The
information contained in the
Report fairly presents, in all
material respects, the
financial condition and results
of operation of the
Corporation.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in
the Report fairly presents, in
all material respects, the
financial condition and results
of operation of the
Corporation.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="100%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Gary M. Clifford
<HR align="left" size="1" noshade width="45%">
Gary M. Clifford</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Financial Officer and Vice President of Finance</DIV></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


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</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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