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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended June 30, 2005

OR

Commission File No. 000-33471

YAK COMMUNICATIONS INC.

(Exact name of registrant as specified in its charter)

(647) 722-2752

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨     No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨     No x

Non-affiliates of YAK Communications Inc. held 8,129,716 shares of Common Stock as of June 30, 2005. The fair market value of the stock held by non-affiliates is $39.4 million based on the sale price of the shares on June 30, 2005.

As of September 14, 2005, 12,897,250 shares of Common Stock, par value $.01, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders are incorporated by reference into Part III.

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Description

Part I

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EXPLANATORY NOTE

Yak Communications Inc. is filing this Annual Report on Form 10-K for the fiscal year ended June 30, 2005 (the “Report”). In this Report we are restating certain amounts previously reported in our consolidated balance sheets, statements of operations and statements of cash flows for the fiscal years ended June 30, 2004 and 2003, and the notes related thereto as well as the quarterly results of operations for each of the quarters in fiscal 2004 and the first three quarterly periods of fiscal 2005 as found in Note 16 entitled “Quarterly Results of Operations (Unaudited)” to the accompanying consolidated financial statements. As previously disclosed, we reviewed the accounting methodology used with respect to a June 2003 software acquisition transaction and determined to correct and restate our consolidated financial statements for fiscal years 2003 and 2004, along with the quarterly periods contained in fiscal 2004 and the first quarter of fiscal 2005. On May 31, 2005, we filed various amended Annual Reports on Form 10-K/A and Quarterly Reports on Form 10-Q/A for the applicable annual and quarterly periods.

Subsequent to the May 31, 2005 amended periodic filings, and in conjunction with our continued discussions with the Office of the Chief Accountant (“OCA”) of the SEC as part of the guidance requested in connection with the accounting for the subject transaction, we discovered errors in our amended filings. On September 27, 2005, our Board of Directors approved management’s recommendation to correct our accounting related to the software acquisition transaction. The errors originated from:

The changes incorporated into this Form 10-K corrects our financial statements for fiscal years 2003 and 2004, respectively, as well as each of the quarters in fiscal years 2004 and 2005 to reflect the fair value of certain software acquired by us on June 30, 2003, and to revise our assets and liabilities accordingly. All applicable amounts relating to these restatements have been reflected in the consolidated financial statements and disclosed in the notes to the consolidated financial statements contained in this Annual Report on Form 10-K. For a more detailed description of the restatements, see Note 5 entitled “Next Generation Software and Financial Restatements” and Note 16 entitled “Quarterly Results of Operations (Unaudited)” to the accompanying Consolidated Financial Statements.

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PART I

Yak Communications Inc. (“Yak” or the “Company”) was incorporated in Florida in 1998. We are primarily a switch-based reseller providing a variety of discount long distance services primarily in Canada and to a lesser degree the United States, to residential and small business markets, as well as telecommunications management services to large enterprises in Canada. We also provide Voice over Internet Protocol (“VoIP”) services to customers in Canada, the United States and internationally. Yak is a registered reseller of telecommunication services with both the Canadian Radio Television and Telecommunications Commission (“CRTC”) and the U.S. Federal Communications Commission (“FCC”). We began operations in Toronto in July 1999 and embarked on a systematic growth strategy to all of the major urban centers in Canada.

In July 2003, we purchased Argos Telecom Inc. (renamed “Yak for Business”) and Contour Telecom Inc, extending our services to small and medium business customers (“SMEs”) and telecommunications management services to large enterprises. Effective June 2004, Yak was capable of providing long distance services in all states in the continental United States. In September 2004, we launched a voice over high-speed internet service and piloted our own facilities-based VoIP network. Use of this internet based product enables our customers to originate or receive calls from international locations and is a natural extension of our traditional value proposition. Marketing of our VoIP services is expected to expand our market potential by providing a cost effective access to global markets and positioning our Company as an early supplier of this emerging technology.

Our principal offerings are “dial around” services (also known as “casual calling”) with both variable and flat rate pricing. Casual calling allows customers to bypass, or dial around, their existing long distance carrier on a selective basis by entering a few extra digits prior to making a call, without permanently switching carriers. Yak also provides a “1+” service which routes all long distance calls made by the end user to our network. While our early marketing strategy was initially targeted to North American immigrant and ethnic communities, the service has gained acceptance and brand loyalty throughout the general population. As of June 30, 2005 we have approximately 905,000 recurring residential and small business customers measured by unique automatic number identification (“ANIs”).

We lease lines from other carriers and maintain our own switching systems. We buy bulk time from multiple carrier networks and international providers to supply services to customers. All of our long distance calls are routed through our Tekelec/SanteraOne switch located in Toronto, Canada. Our switch is interconnected with several North American and international carriers. These interconnection agreements allow us to both originate and terminate traffic in all geographic locations. The port density and significantly reduced foot print of the SanteraOne switch has enabled us to transition our traffic from our legacy Teltronics/Harris switches, resulting in significant cost savings and enhanced operational efficiencies. The SanteraOne switch acts as a gateway, processing both traditional circuit switched (PSTN) traffic and internet traffic coming from our VoIP network.

We are the largest provider of Canadian, dial-around services, with over 70% market share of the dial around market in Canada according to an IDC Canada report published in 2004. Our principal operation and the majority of our customers and sources of revenue are currently based in Canada. In November 2004, we began a new marketing campaign in the United States to gain share of the $3 billion U.S. dial-around market, as estimated by IDC.

Operating Highlights and Accomplishments in 2005:

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THE INDUSTRY

The resale of long distance calling was first permitted in the North American market (Canada and the United States) in the 1980s. The highly competitive and rapidly changing international telecommunications market (deregulation, privatization, the expansion of the resale market) has created significant opportunity for carriers that can offer high-quality, low cost, international long distance services. This market has been driven by decreased termination costs, a proliferation of call routing options, and increased competition. Meaningful competition in long distance services in Canada has been in effect since the 1990s. Five very large providers of long distance services dominate the Canadian market: Bell Canada, Telus Corporation, Sprint Canada (acquired by Rogers Communications Inc. on July 1, 2005), Allstream (acquired by MTS on June 4, 2005) and Primus Telecommunications Canada Inc. For calendar year 2004, the long distance market in Canada was estimated at $4 billion. Recent regulatory reforms and the growing acceptance of VoIP technologies has seen cable companies, Rogers Communications Inc. and Shaw Communications Inc. enter the Canadian local and long distance markets.

While the Canadian telecommunications sector is still growing, competitive forces have reduced prices and the market revenue has declined from approximately $12 billion to $11 billion. For the three year period ending 2004, non-traditional segments (wireless, Internet and VoIP transmission services) grew from $11 billion to $14 billion. This type of competition has led to service innovation, declining prices and significant industry re-structuring.

According to BMO Telecom Research, the telecommunications sector in the United States has continued to experience a moderate decline in year over year long term growth. However, long distance revenue growth remains relatively strong, with BellSouth and SBC continuing to post double-digit growth rates. With the acquisitions of AT&T (by SBC Communications Inc.) and MCI (by Verizon Communications Inc.) the pricing environment that has affected the Canadian market is expected to stabilize in the United States.

The legacy voice market has not experienced significant entry of new players, and in fact, has witnessed noteworthy consolidation. The five primary providers of long distance services in Canada have maintained their relative market positions. The overall size of the traditional market has been reduced by approximately 9% primarily due to a decline in prices and the nascent entry of VoIP services. Bell Canada and Telus control approximately 55% of the market, while Allstream, Sprint Canada and Primus have an estimated 24% of the market. The other provincial based incumbent telecommunication service providers – Aliant and Sasktel – collectively have an approximate 12% market share. The remaining alternative providers have approximately 9%.

Dial-around long distance services remain a viable and innovative alternative to traditional 1+ long distance services. We believe that our market share has been reinforced by recent consolidation within the industry.

The purchase of Sprint Canada by Rogers, a major Canadian cable, internet and cellular provider, advances Rogers position in the market as a voice service provider. This acquisition further reduces consumer choice, as cable companies and incumbent telephone companies vie for dominance in the traditional and emerging VoIP markets.

The stability of the traditional market is being disrupted by the rapid entry of VoIP providers. VoIP is a telecommunications service that allows customers to make telephone calls over a high-speed internet connection, rather than the traditional analogue telephone line. It is therefore dependent on the end user having access to a high-speed internet connection. Our VoIP product and services are targeted at this user segment and we expect our internet-based telecommunications services to help us maintain and grow our share of the overall market.

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According to a Nielson and Ipsos-Reid survey, North America has significant high-speed internet (cable or DSL) penetration rates. In March 2005, Canadians had a penetration rate of 77% while only 57% of Americans were connected which provides a significant basis for VoIP growth. At the same time, the portion of the North American market that does not have access to high-speed internet services provides an opportunity to resell traditional long distances services, such as dial-around or “1+”.

Major cable operators, telephone companies and independents have entered the voice resale services market using VoIP technology. The current independent North American market leader is Vonage Holdings Corp., which announced that it has more than 1 million lines in service in September 2005. In Canada, the first significant VoIP entrant was Primus Canada which, according to their most recent public filings, currently has 60,000 lines in service. Although these figures represent a small fraction of the total number of lines in service connecting homes and businesses, there is significant potential for growth given the high-speed internet penetration rates in Canada and the United States. Although cost of customer acquisition in the VoIP marketplace is significantly higher than that of traditional markets, analysts are increasingly bullish about VoIP and its potential impact on the telecommunications market. The SeaBoard Group (a Canadian technology research and strategy consulting company) expects that there will be approximately 4 million VoIP lines in Canada by 2008, compared with 418,000 by the end of 2005.

STRATEGY

In the near and medium term, we expect our growth to come from several sources:

We expect to continue to generate increased revenues, positive net income, and strong cash flow from our core Canadian dial-around business. These results will serve to fund our growth of dial-around and 1+ services in the United States, and the expansion of our VoIP product offering. Our goal is to expand the size of the addressable Canadian marketplace by marketing our product suite outside of major urban centers. Through a database marketing plan we intend to target those specific geographical areas where we can increase penetration and cost effectively expand our services to our niche markets.

COMPETITION

In both Canada and the United States there are several other dial-around companies competing in the marketplace.

Canada

In Canada, our key competitors include Alterna-Call, a division of Sprint Canada, and Telehop Communications, Inc., a publicly listed company on the TSX Venture Exchange. Alterna-Call offers dial around services with its principal offering being a domestic (North American) fixed, flat rate calling service. Telehop offers similar dial-around services, including a regional flat rate product. Telehop’s annual revenues were approximately $11 million (USD) for the fiscal year ended December 31 2004. Yak’s “Looney call” product is offered as a direct alternative to our competitors and offers consumers 38 minutes of calling time anywhere in Canada, the U.S., China and Hong Kong for $1 (CAD) and $0.05 per minute thereafter.

United States

In the United States there are many established companies offering dial around services including Americatel Corp., Vartec Telecom, Inc., Sprint Corp., and MCI Corp. There are hundreds of other dial-around companies offering their services on a regional basis. Vartec was recently acquired out of bankruptcy proceedings by Comtel Telecom and Comtel Virginia.

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Current product offerings by our competitors vary with different calling plans and rates which are often dependent on the time of day during which the call is made and are, for the most part, flat rate calling i.e., packaged number of minutes for a set amount of cost. Most of these companies have placed a significant emphasis on North American calling rates (primarily for inter-state and intra-state calling within the U.S.). We believe that there are significant opportunities in the United States for our company to specialize in a “pay as you go” program for international discount calling without the myriad of access and service charges.

VoIP/Broadband

Competition from traditional telecommunication companies and non-traditional start-ups entering the VoIP market is at an early stage, but this market has shown signs of growth which may be indicative of a material change in the telecommunications marketplace. Because this market is at such an early stage of technological development, and because the regulatory agencies are adjusting to the advent of this technology, no models have emerged to properly gauge competition. Despite the start-up nature of this market, several relatively small companies have begun to market VoIP services including Primus Canada and a variety of U.S. based start-ups such as Vonage Holdings Corp., 8x8 Inc., Broadvox Limited LLC and SunRocket, Inc.

No large Canadian incumbent telecommunications company has substantially entered the VoIP marketplace, although all have announced plans to do so. Cable companies, such as Rogers and Shaw offer their services as an alternative to both the local line and long distance service provided by the incumbent telecommunication service providers.

Several large telecommunications service providers have begun to offer VoIP-based products in the United States (including AT&T, Verizon and Qwest) and a number of large cable companies such as Comcast and Time Warner are offering VoIP services as well. Vonage, a private company for which public information is limited, is also a competitor in the VoIP marketplace.

Skype Technologies S.A. (a private company to be acquired by eBay) offers a software application that allows people to talk and instant message for free using PC-to-PC connections. Skype recently launched VoIP services enabling computer users to make phone calls from their PCs and other services that allow users to pay for calls placed to the PSTN. Skype reports that its software has been downloaded nearly 145 million times and claims to have 47 million people using its services with more than 1.8 million of such uses using one of its optional pay services.

We believe that our current business with its existing customer base, brand recognition, network infrastructure, carrier relationships, and our technical and strong management team coupled with our free cash flow will allow us to compete in this marketplace. We plan to target niche markets and provide them with a technologically progressive, feature-rich high-speed internet based product.

DESCRIPTION OF COMPANY’S PRODUCTS AND SERVICES

To meet the changing demands of the telecommunications customer, we are continually developing new products.

Current Products:

Yak Dial-Around

Our dial-around service offers competitively priced long distance services. Customers in Canada and the U.S. dial our 10-10-925 Carrier Identification access Code (“CIC”) before placing domestic or international long distance calls. The charges for the calls appear on the customer’s current phone bill. A customer is not required to switch their carrier, and there are no access and connection fees.

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LooneyCall^™

We offer a flat rate long distance dial-around product aimed at customers who make long duration long distance calls. LooneyCall enables Canadian customers to purchase up to 38 minutes of long distance time for $1 (CAD) per call to anywhere in Canada the United States, China and Hong Kong. The charges for the calls appear on the customer’s current phone bill. A customer is not required to switch their carrier, and there are no access and connection fees.

1+ Program

We also offer a 1+ Billing program for high-volume dial-around customers. The customer can sign up with our 1+ program, essentially giving us the authorization to move the customer from their current long distance provider to our switch. The customer would then receive our lower rates each time he makes a call and would receive a bill directly from Yak. This service requires that the customer dial just 1 or 011 before making long distance calls, without having to dial the normal access code.

Yak Cell

We offer a competitive cellular long distance service that is being sold to residential and business customers across North America. Cell phone users simply need to register their cellular phone online and provide a method of payment in order to start saving on long distance. The customer is not required to switch their cellular provider in order to use this service.

WorldCity™ VoIP

We have developed a range of voice services over high-speed internet access including local, long distance and other value-added services that are designed to help our customers keep in touch more efficiently and economically compared to traditional telephony services. For our customers who currently have a broadband connection, WorldCity™ VoIP combines bundled local and long distance (within North America) calling packages with competitive international rates, plus phone features like Caller ID, Three Way Calling and Voicemail for one flat price in addition to free member-to-member international calling.

Yak Conference

Yak conferencing service enables a business customer to schedule conference calls for themselves anytime, online. There is no internet access needed for the other participants in the call. The only charges that apply are the applicable long distance telephone charges from the phone company of the originator.

Yak Travel

The Yak Travel card allows a customer to enjoy low long distance rates while they travel. Yak Travel enables a customer to call from anywhere in Canada, or the U.S., to anywhere in the world by dialing a local access number and following several voice prompts. This service is billed on either a prepaid or postpaid basis.

Yak for Business

We offer business solutions to small and medium businesses and offer a range of innovative services in the Information Technology and Telecommunications sectors. Our customized business solutions are geared towards companies working in different industries.

We offer a wide array of voice services to help businesses meet the needs of their customers, suppliers and employees. Our extensive, scalable voice network enables us to bring precisely the reach needed for a business—regional, national or international. We offer a full range of voice services including extended area service (“EAS”),

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local line service, toll free service, teleconferencing, long distance, local number portability, telecom system service and support, cabling for both voice and data, and data services.

Contour Telecom

Contour Telecom Inc. is a telecommunications management company specializing in voice, data, network, and cost management, helping organizations implement and administer their diverse communication environments. Contour provides customer-focused telecommunications management to medium and large business. The result is active and objective management that saves our clients money, and provides significant improvement in service. We accomplish this via an ongoing focus on cost reduction, containment and consolidated billing, while continually striving to improve service levels. We introduce advanced telecom practices and discipline to our clients while they focus their internal resources on their core business activity.

SALES & MARKETING ACTIVITIES

Our marketing strategy is focused on identifying and selling to certain “niche markets” or collections of customer profiles that use telecommunication services. We continually reinforce the customer relationship and position the Yak brand by emphasizing services that provide value and quality. We have been successful entering niche ethnic markets across North America by establishing a strong brand presence offering competitively priced services, custom tailored to the international markets we serve. We currently use print media, television, radio, outdoor advertising, and direct mail marketing materials to develop brand recognition and generate new customers. Targeted direct mail coupled with print media advertising in community newspapers and on selected television and radio programs has allowed us to reach customers that make long distance domestic and international calls.

In 2005, we expanded our marketing strategy to include the promotion of our dial-around services in the United States. Multi-media marketing campaigns were initiated in Florida, New York and California and we entered into agreements with celebrity ethnic spokespersons to further grow our United States operations. We expect to continue these campaigns and broaden our use of Internet marketing in conjunction with the development of our Internet-enabled products.

TELECOMMUNICATION SWITCHES

In November 2003, we purchased a state-of-the-art Tekelec/SanteraOne “next generation” switch. This switch has allowed us to accommodate increased telephony volume while creating certain cost efficiencies. These efficiencies include savings on the fixed cost of leasing lines, reducing the amount of lines required, lowering the lease costs on rental space, and decreasing the maintenance costs relating to the switch.

With the convergence of voice and data, and the development of “next generation” technologies such as VoIP, our Harris switches became obsolete. As a result, in April of 2004 we started to transition from our older Harris environment, into our new SanteraOne switching platform. During the current year, we finalized the decommissioning of each of the older switches in a systematic manner. The last of the Harris switches was fully decommissioned in August 2004.

We continue to operate our communications network with our Santera switch in Toronto, Canada that we augmented to 40,000 ports in March 2005. In fiscal year 2005, we initiated a network redundancy plan that will have us deploy a second Santera switch in Miami, Florida during fiscal 2006. This additional switch will carry our U.S. terminating traffic from our U.S. customer base as well as provide disaster recover support and carry overflow traffic from the switch in Toronto. The new site in Miami also contains a mirror copy of all of our network support systems to provide true redundancy. Additionally, we implemented in fiscal 2005 a Geoprobe real-time monitoring system that assists us in troubleshooting and maintaining our network.

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We also made use of the “next generation” capability of the Santera switch and began routing traffic in Internet Protocol (IP) with other carriers. This will assist us in lowering our traffic termination costs and will be a major focus of the Miami switch deployment where we are co-located with numerous other VoIP providers.

NETWORK

Our Tekelec/SanteraOne switch has positioned us to more efficiently accommodate the expansion of our customer base. The switch will act as a gateway to both traditional PSTN networks and IP networks. This switch is connected through leased lines to the Local Exchange Carriers’ (“LECs”) tandem and central offices by long haul diverse fiber, and also to Interexchange Carriers’ (“IXCs”) networks providing customers access to true “coast to coast” networks. Dedicated fiber transport is contracted from different carriers to provide us with the most competitive pricing.

Our coast-to-coast leased line network in Canada allows us to originate and terminate the majority of our traffic on our own network, thereby reducing our overall switching costs. For calls that terminate outside of Canada, we have agreements with other “off net” International and cross border carriers, which are selected by running real time least cost routing algorithms.

In addition, Yak’s network has expanded further into the U.S. by loading our CIC codes in all Regional Bell Operating Companies (“RBOCs”) central offices in all mainland 48 states. U.S. customers can reach this network by dialing our CIC code or signing up to Yak’s “1+” program. U.S. originated calls are hauled to our switch in Toronto and terminated on our Canadian network or routed “off net” if the calls terminate outside of Canada. Further, redundancy has been built in this U.S. network by connecting our switch to two independent major switching centers in New York City.

For our VoIP customers, all calls are routed through our VoIP network, which is then interconnected with other VoIP networks or to our Santera PSTN/IP network.

EMPLOYEES

As of June 30, 2005, we have 151 full-time employees including eight part-time employees, with the following breakdown:

All of our part-time employees are paid for their services on an hourly basis. We consider our relations with our employees to be excellent, and none of our employees are covered by a collective bargaining agreement.

BILLING & COLLECTION AGREEMENTS

We have entered into agreements with the incumbent LECs, Bell Canada and Telus Corporation for the billing and collection of long distance calling charges made by our customers on the Bell Canada local line network in Ontario and Quebec, and by our customers on the Telus local line network in British Columbia and Alberta. We also have a billing and collection agreement with MTS covering our services in Manitoba, with Sasktel covering our services in Saskatchewan, and with Aliant Telecom covering our services in provinces on the East coast. The billing and collection agreements cover all long distance calls made through our dial-around switching long distance service and routing system. We track all such calls made, record information about the source, destination, and duration of the call, rate the call, and provide the LECs with this data electronically. The LEC billing cycles are several times a month and include these charges to customers on their respective invoices termed as “other carrier” charges. The

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LECs then collect these amounts on our behalf. Under the terms of the “Billing & Collection Agreement,” the LECs are obligated to pay us within 45 days following the month in which the LECs receive our billing records (subject to offsets for non-collectible accounts). Canadian telecommunications authorities require that all incumbent LECs provide these billing and collection agreements in perpetuity subject only to our continued compliance with their terms and any changes in applicable regulations.

In addition, we have an agreement with Telus Corporation Clearinghouse Operations (“Telus clearinghouse”) which allows for the handling, transporting and delivery of our billing records generated by our switching and billing system to Bell Canada and Telus for invoicing and collection. In conjunction with this agreement, we have developed software and implemented hardware that allows for electronic encrypted signaling and online transmission of the billable records between our system and that of Telus clearinghouse which will allow them to process the billable records. This online transmission process significantly minimizes delays and errors in the billing. With respect to MTS and Sasktel we handle, transport and deliver our records to them directly and have developed the necessary software to process these records. The advantage of using Telus’ clearinghouse service for the Bell Canada and Telus records is efficiency due to the large volume of records we deliver, since Telus clearinghouse has larger systems in place to process such volume in a timelier manner. The number of records we deliver to MTS and Sasktel is much smaller, and the cost of delivering these records to them directly is lower than through Telus’ clearinghouse.

In the United States we have entered into an agreement with Billing Concepts, Inc., which specializes in inter-carrier clearinghouse operations, for handling, transporting and delivery of our billing records to the LEC for invoicing and collection purposes. Under this U.S. arrangement all amounts invoiced by the LECs on our behalf are paid, less the LECs collection fees, to Billing Concepts, and in turn Billing Concepts pays our company the amounts received, less their processing fees. This billing and collection arrangement in the U.S., is similar to those arrangements we have established in Canada, however this agreement does not apply to most of the competitive local exchange carriers (“CLECs”) in the U.S. As a result, we do not process calls which originate from certain alternative local line carriers in the United States. Unlike in Canada, CLECs represent a larger market share of calls originating in the U.S. We have developed software on our switching systems to block customers of CLECs for which we do not have billing and collection agreements in place.

GOVERNMENTAL REGULATION

As an international communications company providing telecommunications services in Canada and the United States, we are subject to varying degrees of regulation in each of the jurisdictions in which we provide services. Laws and regulations applicable to the provision of telecommunications services, and the interpretation of such laws and regulations, differ significantly among the jurisdictions in which we operate. The summary below describes the primary regulatory developments in the U.S. and Canada that may have a material effect on our business.

In general, the regulation of the telecommunications industry continues to change rapidly both domestically and globally. In both the U.S. and Canada, telecommunications regulations are from time to time subject to judicial and administrative proceedings, as well as legislative and administrative hearings, in which proposals are made that, if adopted, could change the manner in which our industry operates. We cannot predict the outcome of these proceedings or their impact on us. There can be no assurance that future regulatory, judicial and legislative changes will not have a material adverse effect on us, or that domestic or international regulations or third parties will not raise material issues with adverse effect on us.

Canada

Registration and Licensing Requirements. We are registered with the CRTC as a reseller of telecommunications services in Canada. This is a requirement that has been imposed by the CRTC on all persons that resell telecommunications services in Canada. Registration with the CRTC is the only requirement necessary to have the authorization to resell telecommunications services in Canada. The provision of certain services, however,

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requires additional licensing by the Commission or is subject to certain rules and regulations, regardless of whether the services are provided on a resale or a facilities basis.

As of January 1, 1999, new requirements oblige all persons who provide basic international telecommunications services (voice or data) to obtain a license from the CRTC for the provision of such services. Resellers who provide basic international telecommunications services must therefore obtain an international services license, in addition to registering with the CRTC as a reseller.

The international services licensing regime was established in part because of concerns relating to the potential for anti-competitive behavior involving foreign monopolists acting in conjunction with a resale affiliate based in Canada. The CRTC also wished to be able to exercise some supervision over Canadian service providers, especially resale affiliates in Canada.

We are required to hold a Class A license as we operate telecommunications equipment that converts basic international traffic from circuit switched traffic to data. We currently hold a Class A license from the CRTC. The CRTC issues international telecommunications service provider licenses for a period of five years and has indicated that, once it gains more experience with the licensing regime it will consider extending the terms to the maximum permitted length of 10 years. Licensees who maintain their licenses in good standing may expect to have them renewed by the CRTC. Currently, there is no fee payable in order to obtain a basic international telecommunications services license.

Once a Class A license is obtained, the licensee must keep it current, by advising the CRTC of any changes to the information about the licensee that has been filed with the Commission. The licensee must also file an annual affidavit stating that no changes to the information on file have taken place or alternatively describing any such changes and retain all data with respect to basic international traffic that it converts from data to circuit-switched. Licensees are also obliged to comply with the requirements of the Canadian contribution regime (see below) as a condition of their license and to file an annual affidavit attesting to the licensee’s compliance with this requirement. We are currently in full compliance with all filing requirements of our Class A license.

Because we do not provide any services on a monopoly basis and are not a resale affiliate, it is highly unlikely that the CRTC will have any concerns regarding anti-competitive behavior on our part. In addition, because we do not own or operate the underlying transmission facilities used to provide telecommunications services to the public, we are not classified as a Canadian carrier, but rather as a reseller. As such, we are not subject to the Canadian ownership and control requirements that apply to the facilities-based Canadian carriers.

Contribution Requirements. The CRTC established the “contribution” regime (a universal access-type regime) in 1992 when it first opened the long distance market to facilities-based competition. The contribution regime was re-designed in 2000, when the CRTC introduced a revenue-based funding mechanism for subsidizing universal access. The new contribution regime is broadly-based and requires that contribution be paid on the revenue from the widest possible range of services and service providers. Thus, Incumbent Local Exchange Carriers (“ILECs”), long distance operators, CLEC’s, cellular operators, resellers such as our company and others must all make contribution payments based on their Canadian telecommunications service revenues.

Contribution-eligible revenues are defined as total revenues from Canadian telecommunications services less certain allowable deductions. The most important deduction for us is the inter-carrier payments deduction. To prevent “double taxation”, inter-carrier payments to other telecommunications service providers are deducted from the total of Canadian telecommunications service revenues (except where the services are used to provide a contribution-ineligible service, such as the provision of non-Canadian telecommunications services or where the services are used internally by the acquiring service provider).

For fiscal years 2005 and 2004, the contribution charge was 1.1% of “contribution-eligible” revenues. The rate is expected to remain stable or slightly decline in future years. Although we cannot predict whether the CRTC will change its method of contribution assessment and collection in the future, if the current approach remains unchanged and the overall contribution requirement declines as expected, we do not anticipate that our total contribution payments will become material in future years.

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Voice over Internet Protocol (“VoIP”) Regulation.

Earlier this year, the CRTC released two decisions on the Canadian regulatory framework for VoIP services. It affirmed its preliminary position that VoIP services that provide subscribers with access to and/or from the PSTN and the ability to make and/or receive local telephone calls are to be regulated as local exchange services. Therefore, existing regulatory requirements would apply depending on the class of service provider, i.e. ILECs, CLECs and resellers. This approach allows Yak to offer VoIP services as a local reseller with minimal regulatory requirements and Yak’s competitors in Canada, particularly the incumbent carriers, will be regulated to a much greater degree (e.g. ILECs are required to file tariffs and not price their service below cost). As well, the CRTC enunciated that underlying broadband access providers should not discriminate against independent VoIP providers, such as Yak. Although Yak views this decision as positive, we are still required to develop and implement local service features (such as basic 911 and network-based privacy obligations) that will increase Yak’s costs to provide VoIP services. The CRTC has yet to set compliance dates other than the requirement that VoIP service providers provide basic 911 by July, 2005. Yak currently offers basic 911 to our Canadian subscribers, however the CRTC indicated that the requirement to offer basic 911 is only an interim measure and in the future it will require VoIP providers to offer full enhanced 911 once technical obstacles are overcome.

The ILECs have appealed the CRTC’s VoIP decision to the Canadian federal cabinet. The ILECs argue that VoIP services are fundamentally different from current local voice services and it should be unregulated. Should their appeal be successful, ILECs would likely not be required to offer VoIP services pursuant to tariff and would be able to price below cost and/or have greater latitude to discriminate against independent providers, such as Yak.

Other Regulatory Developments

On February 3, 2005, the CRTC released Telecom Decision CRTC 2005-6 (Decision 2005-6) with respect to the ILECs’ Competitive Digital Network services (“CDN”). In Decision 2005-6, the CRTC set the terms and conditions, as well as the rates that competitors will pay the ILECs for digital network services they rely on to provide services to their customers. Rates for access to low-speed services, which are legacy copperbased, were set at cost plus 15 per cent. However, rates for high-speed services, which are generally fibre-based and easier to replicate, were reduced from their prior market level to cost plus a margin of 15 percent. The CRTC found that competitors, such as Yak, still rely heavily on the facilities of telephone companies and that by reducing the prices for underlying facilities, competitors will be able to offer services to more customers and in more regions and growth in their customer base. We regard this decision as positive and expect to enjoy lower network costs as a result.

United States

In the United States we operate as an IXC. Because we offer basic communications services, e.g., “plain old” telephone service between points in two different states (“interstate service”), and between the U.S. and a foreign country (“international services”), these services are subject to the provisions of the Communications Act of 1934, as amended (the “Act”) and the regulations of the FCC. In addition, we offer basic communications services within a specific state (“intrastate service”). Intrastate interexchange services are subject to the telecommunications laws of the state in which the service is provided, as well as subject to regulations made by the state’s public utility commission (“PUC”) pursuant to the relevant telecommunications laws.

Interstate and International Services Regulation. The FCC regulates the provision of interstate and international basic communications services where such services are provided by a “common carrier.” A “common carrier” is an entity that offers basic communications services to the public or to all prospective users on standard rates, terms and conditions. We are considered to be a common carrier. The FCC has substantially deregulated interstate and international common carrier services. Nonetheless, we are required to (1) provide our regulated

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telecommunications services on a non-discriminatory basis upon any reasonable request; (2) charge rates and adopt practices, classifications and regulations that are just and reasonable; (3) avoid unreasonable discrimination in charges, practices, regulations, facilities and services; and (4) file tariffs setting forth the rates, terms and conditions for our services, or establish an Internet web site that lists such rates, terms and conditions. Also, we must comply with a variety of license, rate making, reporting and other requirements in our provision of interstate and international telecommunications services, including but not limited to the payment of annual regulatory fees and other contributions to funds established by the FCC.

In providing international service, we are subject to certain additional rules and requirements. In particular, we must have a license granted by the FCC to provide international service (sometimes called a “Section 214 authorization”). We have obtained a Section 214 authorization from the FCC to provide international switched and private line services to foreign locations using our own facilities or using services we lease from other carriers. Other international service rules also may affect our international business, including rules limiting routes over which U.S. international carriers may be permitted to provide international switched services over private lines interconnected with the public switched network (referred to as International Simple Resale, or “ISR”).

Our costs of providing long distance services will be affected by changes in the rates imposed by ILEC’s as well as CLEC’s for origination and termination of calls over local facilities (“access charges”). Access charges generally comprise a significant portion of the cost of providing interexchange services in the U.S. The FCC has adopted several orders in recent years having the effect of reducing switched access charges imposed by local telephone companies. The FCC is currently considering further changes in its access charge regime; we cannot predict the outcome of these proceedings or how such outcome will affect us.

Other carrier compensation issues similarly may affect our operating expenses as well as our ability to compete with other IXC’s and providers of other competitive services, such as VoIP. The FCC has initiated a broad-ranging rulemaking proceeding in which it has proposed the replacement of various forms of intercarrier compensation; we cannot predict the outcome of this proceeding or its possible effect on our company.

As a provider of interstate and international telecommunications services, we must contribute to the federal universal service fund (“FUSF”) established by the FCC. The FUSF ensures that high quality, affordable telecommunications service is available to all Americans. Pursuant to the FCC’s universal service rules, all telecommunications providers must contribute a percentage of their interstate and international end-user telecommunications revenues to the FUSF. Contributions to federal universal service support mechanisms are determined using a quarterly contribution factor calculated by the FCC. The contribution factor is subject to change quarterly and may be increased or decreased depending upon the needs of the FUSF. The current contribution factor for the fourth quarter of our fiscal year was 11.1%. In July, these rates fell to 10.2% for our first quarter billed revenue amounts. These costs are passed through to our customers.

The FCC currently is conducting a comprehensive review of the rules governing the methodology by which entities contribute to the FUSF. While the outcome of this proceeding and its effect on our business cannot be predicted, if any of these proposals are implemented, the amount of our contributions to the FUSF may increase, and could negatively impact our business, prospects, operating margins, cash flows and financial condition. Changes to federal universal service funding obligations could adversely affect us by increasing the payments owed to support the fund.

As of April 1, 2003, carriers may continue to assess a federal universal service surcharge on their customers, either as a flat amount or a percentage of a customer’s revenue, however, this surcharge may not exceed the total amount of the universal service contribution factor currently in effect. As a result, we are precluded from assessing a federal universal service-related charge on our end user customers in excess of the relevant interstate and international telecommunications portion of customer’s bill times the relevant contribution factor. We remain able to recover legitimate administrative costs relating to our contribution to the FUSF, provided that such cost recovery is made through areas other than our universal service line item surcharge.

In addition to cost of service issues affecting IXC’s in general, regulatory developments affecting the

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RBOC’s may have an impact on our ability to compete. The Telecommunications Act of 1996, which amended the Act, establishes standards for RBOC’s and their affiliates to obtain from the FCC authority to provide long distance telecommunications services originating in their in-region local access and transport areas, or LATAs, to points outside that area. LATAs are geographical regions in the United States within which a Bell Operating Company may offer local telephone service. The FCC has approved the RBOC’s applications to provide in-region interLATA long distance service in most states. Because of their existing base of local telephone service customers and their extensive telecommunications network, the RBOCS have the potential to be significant long distance competitors in each of the states in which they have obtained in-region, interLATA authority from the FCC.

Intrastate Services Regulation. Our intrastate long distance operations are subject to various state laws and regulations, including, in most jurisdictions, certification and tariff filing requirements. Some state PUCs also require the filing of periodic reports, the payment of various fees and surcharges and compliance with service standards and consumer protection rules. State PUCs often require pricing approval or notification for certain stock or asset transfers or, in several states, for the issuance of securities or debt or for name changes. We have received formal commission approvals of applications to provide IXC resale services in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Missouri, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. We are also authorized to provide IXC resale services on a registration, or unregulated basis, in Iowa, New Jersey, Utah, Virginia and the District of Columbia. Applications for authority to provide intrastate service are pending in Oklahoma and Alaska.

Certificates of authority can generally be conditioned, modified, canceled, terminated, or revoked by state regulatory authorities for failure to comply with state laws and/or the rules, regulations, and policies of the state regulatory authorities. Fines and other penalties also may be imposed for such violations. PUCs also regulate access charges and other pricing for telecommunications services within each state. The regional Bell operating companies and other local exchange carriers have been seeking reduced state regulatory requirements, including greater pricing flexibility which, if granted, could subject our long distance services to increased price competition. We may also be required to contribute to intrastate universal service funds in some states.

VoIP Regulation. In the United States, traditional telephony service has been subject to extensive federal and state regulation. In contrast, information services and Internet services have been subject to less or no regulation. To date, the FCC has treated Internet service providers as information service providers and has preempted state jurisdiction (although that ruling has been appealed). Information service providers are currently exempt from federal and state regulations governing common carriers, including the obligation to pay access charges and contribute to the universal service fund. Regulators are struggling to determine the appropriate regulatory treatment of VoIP services given that such services resemble both traditional telephony and information services.

While the classification of computer-to-phone VoIP services is being considered in the FCC’s IP Enabled Services proceeding, the FCC has issued orders concerning the appropriate regulatory classification of certain VoIP services. For example, on February 19, 2004, the FCC granted pulver.com’s Petition for Declaratory Ruling that its service is neither telecommunications nor a telecommunications service and that the service is properly classified as an “information” service under the 1996 Telecommunications Act. The FCC’s Pulver Order addressed only computer-to-computer IP telephony services and was extremely fact specific. Among the factors identified by the FCC as important to its finding were that the pulver.com service required the use of a broadband Internet connection, users must be online in order to utilize the service, the pulver.com service did not allow for users to make calls to PSTN users, and the service is offered for free. In response to a petition filed by AT&T, the FCC issued an order in 2004 concluding that AT&T’s phone-to-phone VoIP service is a telecommunications service under the Act. Users of AT&T’s service described in the petition originate calls using ordinary telephone lines to communicate with other users of ordinary telephone lines and AT&T used VoIP transmission technology for a portion of the call path. The FCC limited its ruling to services like AT&T’s which do not require a user to have a broadband Internet access or an adapter that converts the telecommunications to and from IP format at the user’s premises.

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Obligations to Provide E-911. In June 2005, the FCC released a comprehensive VoIP E-911 Order (the “Order”). The Order applies only to VoIP service offerings that require a broadband connection, enable two-way communications, allow subscribers to receive calls that originate on the PSTN and that can be used to terminate calls to the PSTN. Such service offerings must include full enhanced 911 (“E-911”) services with routing and functionality comparable to the enhanced 911 provided by traditional land-line local exchange carriers. VoIP providers that offer nomadic services, as in the case of Yak, or non-geographic numbers have the additional burden of implementing a nationwide E-911 solution in order to comply with the FCC’s unqualified requirement to ensure that all 911 calls are routed to the appropriate local Public Safety Answering Point (“PSAP”). The FCC rules require that providers ensure that 911 calls are not routed to a PSAP that does not correspond to the location of the VoIP user, VoIP providers must implement a system to allow customers to update their registered location in a timely manner.

The FCC Order applies to a number of our VoIP service offerings. We do not currently provide 911 with any of our U.S. based VoIP service offerings. E-911 service requirements must be in place by November 28, 2005, and the FCC has warned that failure to comply with the rules contained in the Order may be penalized. The FCC indicated that non-compliant VoIP providers will be subject to enforcement action, including substantial proposed forfeitures and, in appropriate cases, cease and desist orders and proceedings to revoke any FCC licenses held by the VoIP provider. The FCC Order also requires VoIP providers to advise new and existing subscribers of any E-911 service limitations, and to obtain and keep records of each subscribers acknowledgement of such notification. We expect to comply with these customer notification requirements.

Numerous similarly situated VoIP providers have argued to the FCC that it is not practical for VoIP providers to meet the FCC’s November 28, 2005 deadline given the absence of a legal obligation on the part of the traditional local exchange carriers to provide access to the E-911 routing system to VoIP providers, the absence of a legal obligation on PSAPs to accept VoIP E-911 calls, the extraordinary expense and effort required to establish the routing and functionalities required, and the inability, to date, of any third-party emergency services provider to offer E-911 solutions to VoIP providers. Several providers have appealed the FCC’s order or have filed petitions for reconsideration of the Order. Several parties in these and other filings have argued that the significant technical and cost barriers make it impractical for VoIP providers to meet the November 28, 2005 deadline and have urged the FCC to extend or modify its requirements. Several parties have urged the FCC to narrow the scope of its requirements or to otherwise modify its rules to reduce the burden of complying with the FCC’s new VoIP E-911 rules. These appeals, petitions for reconsideration, and additional rulemaking are pending and we cannot predict the outcome of those proceedings.

REPORTS TO SECURITY HOLDERS

We may furnish our stockholders with a copy of this Form 10-K and with quarterly or semi-annual reports containing unaudited financial information.

For further information about our company, you may read the materials we have filed with the SEC without charge at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain copies of these materials at prescribed rates from the Public Reference Section of the SEC in Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

Our SEC filings and the registration statement can also be reviewed by accessing the SEC’s internet site at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding registrants that are filed electronically with the SEC.

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As of June 30, 2005 we have a number of leases in place to support our business. In May 2004, we moved from our offices at 55 Town Centre Court to 300 Consilium Place to gain the efficiencies of having the majority of our operations in one location, and consolidating the acquisitions of Yak for Business and Contour business units. During the 2005 fiscal year, we renewed our lease for our Montreal office, which supports the Quebec operations of Yak for Business, through December 2008.

We currently lease space at 151 Front Street, Toronto, Ontario and 50 NE 9^th Street, Miami, Florida, to house our telecommunication switches and cross-connect platforms. Both locations are in buildings which house switches for many other telecommunications carriers. This provides us with the advantage of ease of access to other carriers. These switches are installed in rooms that are environmentally modified, cooled and designed for switching equipment. These facilities have full battery backup for a full 24 hours in the event of a power failure. Our current lease for the facility at 151 Front Street is for five years (which commenced in March 2002) with annual occupancy costs of approximately $75,000, with an option for another 5 years at then-current rates. Our current lease for the facility at 50 NE 9^th Street commenced in June 2005, for a three year term, and provides for annual occupancy costs of approximately $117,600.