As filed with the Securities and Exchange Commission on June 8, 2005
                                                     Registration No. 333-123696
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------
                                 AMENDMENT NO. 2
                                       TO
                                    FORM SB-2
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                                   -----------

                            eLEC COMMUNICATIONS CORP.
                 (Name of Small Business Issuer in Its Charter)


                                                               
           New York                            4813                      13-2511270
(State or Other Jurisdiction of     (Primary Standard Industrial      (I.R.S. Employer
 Incorporation or Organization)      Classification Code Number)     Identification No.)


                          75 South Broadway, Suite 302
                          White Plains, New York 10601
                                 (914) 682-0214
          (Address and Telephone Number of Principal Executive Offices)

                          75 South Broadway, Suite 302
                          White Plains, New York 10601
(Address of Principal Place of Business or Intended Principal Place of Business)

                      Paul H. Riss, Chief Executive Officer
                            eLEC Communications Corp.
                          75 South Broadway, Suite 302
                          White Plains, New York 10601
                                 (914) 682-0214
            (Name, address and telephone number of agent for service)
                                   -----------
                                   Copies to:
                              Eric M. Hellige, Esq.
                        Pryor Cashman Sherman & Flynn LLP
                                 410 Park Avenue
                          New York, New York 10022-4441
                            Telephone: (212) 421-4100
                            Facsimile: (212) 326-0806

      Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after this Registration Statement becomes effective.

      If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. |X|

      If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ____________________




      If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ____________________

      If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ____________________

      If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|


                           --------------------------

      The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.




                   Subject to Completion, Dated June __, 2005

PROSPECTUS

                                4,969,046 Shares

                            ELEC COMMUNICATIONS CORP.

                                  Common Stock


      This prospectus relates to the resale of up to 4,969,046 shares of common
stock, of which 4,365,078 shares are issuable upon the conversion of promissory
notes of eLEC Communications Corp. and the payment of the principal amount of,
and interest on, these notes to, or the exercise of outstanding warrants by,
Laurus Master Fund, Ltd., ("Laurus") and 603,918 shares of common stock are
issuable upon the exercise of warrants of eLEC Communications Corp. by certain
selling shareholders identified in this prospectus. All of the shares, when
sold, will be sold by these selling shareholders, including Laurus. The selling
shareholders may sell their common stock from time to time at prevailing market
prices. We will not receive any proceeds from the sale of the shares of common
stock by the selling shareholders.

      Our common stock is traded in the over-the-counter market and prices are
reported on the OTC Bulletin Board under the symbol "ELEC."

      See "Risk Factors" beginning on page 4 for risks of an investment in the
securities offered by this prospectus, which you should consider before your
purchase any shares.

      Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.


                 The date of this prospectus is __________, 2005




      We have not registered the sale of the shares under the securities laws of
any state. Brokers or dealers effecting transactions in the shares of common
stock offered hereby should confirm that the shares have been registered under
the securities laws of the state or states in which sales of the shares occur as
of the time of such sales, or that there is an available exemption from the
registration requirements of the securities laws of such states.

      This prospectus is not an offer to sell any securities other than the
shares of common stock offered hereby. This prospectus is not an offer to sell
securities in any circumstances in which such an offer is unlawful.

      We have not authorized anyone, including any salesperson or broker, to
give oral or written information about this offering, eLEC Communications Corp.,
or the shares of common stock offered hereby that is different from the
information included in this prospectus. You should not assume that the
information in this prospectus, or any supplement to this prospectus, is
accurate at any date other than the date indicated on the cover page of this
prospectus or any supplement to it.


                                TABLE OF CONTENTS
                                                                            Page

Prospectus Summary..........................................................  1
Risk Factors................................................................  4
Special Note Regarding Forward-Looking Statements........................... 15
Use of Proceeds............................................................. 15
Market for Common Equity and Related Stockholder Matters.................... 15
Management's Discussion and Analysis or Plan of Operation................... 17
Business.................................................................... 22
Management.................................................................. 29
Principal Stockholders...................................................... 33
Certain Relationships and Related Transactions.............................. 34
Description of Securities................................................... 35
Selling Shareholders........................................................ 37
Plan of Distribution........................................................ 39
Legal Matters............................................................... 40
Experts..................................................................... 40
Where You Can Find Additional Information................................... 40
Index to Financial Statements............................................... 42




                               PROSPECTUS SUMMARY

      This summary highlights information contained elsewhere in this Prospectus
and may not contain all of the information that you should consider before
investing in the shares. You are urged to read this Prospectus in its entirety,
including the information under "Risk Factors" and our consolidated financial
statements and related notes included elsewhere in this Prospectus.

                                   Our Company

      eLEC Communications Corp. is a telecommunications service holding company
with operations in three wholly-owned subsidiaries that focus on delivering
integrated telephone service by leasing landlines as a competitive local
exchange carrier ("CLEC") and by utilizing high-speed Internet connections to
provide Voice over Internet Protocol ("VoIP") services. We offer small
businesses and residential consumers an integrated set of telecommunications
products and services, including local exchange, local access, domestic and
international long distance telephone, VoIP and a full suite of features and
calling plans.

      Almost all of the local telephone calls made by our customers in fiscal
2004 and the first quarter of fiscal 2005 were routed over a circuit-switched
network that we lease from Verizon Services Corp. ("Verizon"). Although we plan
to increase the number of local access lines that we route over the Verizon
network during fiscal 2005, we also plan to use other networks by offering local
exchange services on the Qwest Corporation ("Qwest") network in some of the 14
states in which Qwest is the incumbent local exchange carrier ("ILEC") and by
offering VoIP services on an Internet network over which our customers will make
telephone calls through a high-speed Internet connection. When we route a
telephone call by our customers over an Internet network, a carrier other than
Verizon or Qwest will terminate the call for us into the public switched
telephone network ("PSTN"). We also are able to terminate some calls ourselves
that are made by our customers, in which cases we do not incur any marginal
costs for such calls.

         We sell virtually all of the additional voice services provided by the
ILECs, such as three-way calling, call waiting, call forwarding and caller ID.
We sell our services at a fee that is at least 10% and as much as 25% less than
the published rate charged by the ILEC. We also offer a bundled package of local
and regional calling minutes with popular voice service features.

      Prior to December 31, 2004, both of our CLEC subsidiaries leased lines
from Verizon, using the unbundled network elements platform ("UNE-P") service
offering. UNE-P allowed us to lease the network elements we needed, such as the
local line and the port on a local switch, so that we could provide local dial
tone service to our customers. Based upon the Order on Remand in WC Docket No.
04-313 and CC Docket No. 01-338, released on February 4, 2005 (the "TRO Remand
Order") by the Federal Communications Commission ("FCC"), one of our CLEC
subsidiaries, Telecarrier Services Inc. ("TSI"), can no longer sell new lines or
offer new services to its embedded customer base. TSI's embedded base of
customers will be subject to transitional rate increases established in the TRO
Remand Order. Thereafter, TSI will have until March 2006 to transfer existing
lines from UNE-P to another platform. TSI currently bills approximately 9,000
lines every month, and we plan to transfer those customers to our other CLEC.

      We plan to rapidly grow our other CLEC, New Rochelle Telephone Corp.
("NRTC"), which will not be impacted by the regulatory rulings relating to
UNE-P. In February 2005, NRTC signed a wholesale advantage services agreement
with Verizon, effective on January 1, 2005, that provides NRTC with all the
features and functionalities of Verizon's UNE-P service offering, plus certain
additional services. While our costs under the wholesale advantage services
agreement are somewhat higher than




our costs were under UNE-P, the agreement locks in this cost structure for five
years and gives us a significant benefit by eliminating any regulatory
uncertainty about the future of our CLEC business. NRTC will no longer be
impacted by rulings of regulatory bodies relating to UNE-P that might
potentially change pricing or availability of network elements to NRTC. The
agreement allows us to plan for steady high-margin growth in a business that has
been our core business since 1999. At June 3, 2005, NRTC had approximately
21,000 local access lines that it billed under the wholesale advantage services
agreement. Pursuant to the agreement, NRTC is required to keep confidential all
additional terms and conditions of the agreement.

      We also provide local and long distance telephone service on a VoIP
platform through our wholly-owned subsidiary, VoX Communications Corp. ("VoX"),
a facilities-based VoIP carrier. Unlike many other CLECs, during the past few
years we avoided buying any circuit-switched equipment and instead leased
circuit-switched lines from ILECs. We believe packet telephony services
represent a significant step in the advancement of telecommunications.
Consequently, we have focused our network building efforts on building packet
telephony technology and, unlike some other VoIP providers, we have written and
own the code to our own software. Ultimately, our goal is to have a wholly-owned
telecommunications network that generates revenues and high margins and does not
require us to lease facilities from an ILEC. By not being dependent upon an
ILEC, we will be able to offer features and services we develop that can be
turned on and off almost instantly without requiring an ILEC employee to
intervene. We will also lower our cost of services when we route a telephone
call over our packet-based network, as we will not be required to pay an ILEC
for line rentals or for call origination, transport and termination.

      For the foreseeable future, we will continue to lease lines from the
ILECs, as we have wholesale agreements with Verizon and Qwest that allow us to
lease lines and provide Plain Old Telephone Service ("POTS"). We anticipate that
these agreements will allow us to continue to obtain an acceptable gross margin
on the POTS services we provide. We plan to attract VoIP-only customers on our
packet-switched network and to eventually offer VoIP services to our POTS
customers in NRTC and TSI. Although we believe many of our future customers will
want VoIP-only services, we are finding that several accounts want VoIP services
for the bulk of their telephony needs but still desire to maintain one or two
POTS lines. We plan to be able to satisfy the needs of our customers for both
VoIP and POTS services by maintaining our CLEC status and by continuously
advancing our VoIP product offerings.

      Our principal executive offices are located at 75 South Broadway, New
York, Suite 302, White Plains, New York 10601, and our telephone number at that
address is (914) 682-0214. We also maintain a regional office in Celebration,
Florida. We maintain an Internet website at www.elec.net. Information on our
website is not part of this prospectus.

                               About This Offering

      This prospectus relates to the resale of up to 4,969,046 shares of common
stock, of which 4,365,078 shares are issuable upon the conversion of promissory
notes and the payment of the principal amount of, and interest on, these notes
to, or the exercise of outstanding warrants by, Laurus Master Fund, Ltd., and
603,918 shares are issuable upon the exercise of outstanding warrants of eLEC
Communications Corp. by certain selling shareholders identified in this
prospectus. All of the shares, when sold, will be sold by these selling
shareholders, including Laurus. The selling shareholders may sell their common
stock from time to time at prevailing market prices. We will not receive any
proceeds from the sale of the shares of common stock by the selling
shareholders.

Common Stock Offered........................... 4,969,046 shares

Common Stock Outstanding at June 3, 2005(1).... 16,779,282 shares


                                       2


Use of  Proceeds............................... We will not receive any of the
                                                proceeds from the sale of the
                                                shares by the selling
                                                shareholders, except upon
                                                exercise of certain common stock
                                                purchase warrants.

OTC Bulletin Board Ticker Symbol............... ELEC

----------------------------

(1) Does not include (i) 2,982,203 shares that are issuable upon the conversion
of outstanding convertible notes, (ii) 4,091,268 shares issuable upon the
exercise of outstanding warrants and non-qualified options, or (iii) 1,796,000
shares issuable upon the exercise of outstanding options granted under our 1995
Equity Incentive Plan.

                         Selected Financial Information

      The selected financial information presented below is derived from and
should be read in conjunction with our consolidated financial statements,
including notes thereto, appearing elsewhere in this prospectus. See "Financial
Statements."

Summary Operating Information



                                                  Fiscal Year Ended             Three Months Ended
                                                    November 30,                   February 28,
                                           ----------------------------    -----------------------------
                                                2004            2003           2005            2004
                                                ----            ----           ----            ----
                                                                               
Net revenues ...........................   $  9,557,600    $  5,568,004    $  3,863,479    $  1,873,992
Income (loss) from operations ..........   $   (642,150)   $ (2,948,352)   $   (414,422)   $     53,413
Net income (loss) ......................   $    170,253    $  8,323,211    $   (401,685)   $     56,140
Net income (loss) per common share .....   $        .01    $        .53    $      (0.02)   $       0.00

Weighted average number of common shares
  Outstanding
   Basic ...............................     16,254,282      15,771,219      16,681,726      16,257,667
   Diluted .............................     16,715,808      15,841,941      16,681,726      16,568,565



Summary Balance Sheet Information

                                          November 30, 2004    February 28, 2005
                                          -----------------    -----------------
                                                                  (Unaudited)

Working capital deficit.................    $ (1,939,147)         $ (1,292,110)
Total assets............................    $  1,903,802          $  3,914,678
Total liabilities.......................    $  3,600,243          $  5,186,477
Stockholders' deficiency................    $ (1,696,439)         $ (1,271,799)


                                       3


                                  RISK FACTORS

      You should carefully consider the risks described below before buying
shares in this offering. The risks and uncertainties described below are not the
only risks we face. These risks are the ones we consider to be significant to
your decision whether to invest in our common stock at this time. We might be
wrong. There may be risks that you in particular view differently than we do,
and there are other risks and uncertainties that are not presently known to us
or that we currently deem immaterial, but that may in fact impair our business
operations. If any of the following risks actually occur, our business, results
of operations and financial condition could be seriously harmed, the trading
price of our common stock could decline and you may lose all or part of your
investment.

Risks Relating to Our Business

We have incurred losses since inception of our telephone business and we may be
unable to achieve profitability or generate positive cash flow.

      We have not generated operating profits since fiscal 1996. While we
reported net income of $170,253 and $8,323,211 in fiscal 2004 and 2003,
respectively, we reported no income from our telecommunications operations.
Furthermore, in the first quarter of fiscal 2005, we reported a net loss of
$401,685. In fiscal 2004, net income of $170,253 resulted primarily from the
gain of approximately $743,000 resulting from a settlement with creditors in the
bankruptcy proceedings of a subsidiary. In fiscal 2003, net income of $8,323,211
resulted primarily from the gain on the disposition of a subsidiary and the
disposition of property of approximately $11,306,000. In the first quarter of
fiscal 2005, and in fiscal 2004 and 2003, we generated operating losses of
approximately ($414,000), ($642,000) and ($2,948,000), respectively, from our
telecommunications operations. We expect to continue to incur operating losses
until we develop our telecommunications operations to a level at which it
generates sufficient revenues to cover operating expenses.

We have an unproven business model and can give no assurance that our business
model and strategy will be successful.

      Our business strategy is unproven and we do not know whether our business
model and strategy will be successful. We intend to lease virtually all of our
telecommunications facilities (such as switches, local loops and other
telecommunications equipment) and to focus on selling directly to residential
consumers and small businesses. In contrast, many of our competitors own their
own facilities or are in the process of building or purchasing such facilities.
To be successful, we must convince prospective customers to entrust their
telephone service to a company without a long and proven track record. We cannot
assure you that our services will be widely accepted. The prices we charge for
services and products may be higher than those charged by our competitors. In
addition, the prices of communications services and products have fallen
historically, and they may continue to fall. We may be required to reduce prices
periodically to respond to competition and to generate adequate sales volume.
Furthermore, our cost of services increased in fiscal 2005 and we anticipate
such costs will continue to rise. The failure to achieve or sustain adequate
pricing levels or to achieve or sustain a profitable business would have a
material adverse effect on our business, financial condition and results of
operations and on the price of our common stock.

We have a need for additional financing.

      Due to our recent operating losses and our additional requirements for
working capital to establish and grow our business, over the past several months
we have sold debt and additional shares of capital stock to fund our working
capital needs. We expect that we will continue to sell our capital stock,


                                       4


incur additional indebtedness or sell marketable securities we currently own to
fund the anticipated growth of our telecommunications business and implement our
business objectives. There can be no assurance that we will be able to obtain
additional funding when needed, or that such funding, if available, will be
available on terms we find acceptable. If we cannot obtain additional funds when
needed, we may be forced to curtail or cease our activities, which may result in
the loss of all or a substantial portion of your investment.

We depend on incumbent carriers as a key component for our business.

      To limit our capital expenditures and support staff, we rely extensively
on third parties. We lease our local exchange network and our long distance
network. As a result, we depend entirely on incumbent carriers for the
transmission of customer telephone calls for our CLEC subsidiaries. The risk
factors inherent in this approach include, but are not limited to, the
following:

      o     the inability to negotiate and renew favorable wholesale agreements;

      o     lack of timeliness of the ILEC in processing our orders for
            customers seeking to utilize our services;

      o     dependence on the effectiveness of internal and external
            telemarketing services to attract new customers;

      o     dependence on third-party contractors to install necessary equipment
            and wiring at our customers facilities; and

      o     dependence on a facilities-based carrier to provide our customers
            with repair services and new installation services.

We depend on a third-party billing system to bill our customers.

      The accurate and prompt billing of our customers is essential to our
operations and future profitability. We utilize a third-party system for
billing, tracking and customer service. The system is designed to provide us
with a high degree of flexibility to handle custom rate plans that provide
consumers discounts from the incumbent local carriers' rate plans or bundled
plans that include various features and long distance services. Although we
believe the system is very functional, it is currently set up to support
approximately 500,000 local lines in six states, and its ability to handle
substantially more customers is not fully tested. In addition, the billing
company we utilize competes with us as a CLEC and may terminate its billing
services at any time. Furthermore, in the most recent audited financial
statements of the billing company we utilize, the report of the independent
public accountants expressed doubt about its ability to continue as a going
concern. This strategy exposes us to various risks that include, but are not
limited to, the following:

      o     the inability to adapt the billing system to process the number of
            customers we are targeting in our marketing plans;

      o     the failure of the system to provide all of the billing services
            that we require;

      o     the possibility that we may want to provide services in a state that
            our billing company has difficulty rating calls and processing data
            for us; and


                                       5


      o     the possibility that we may need to quickly engage a new billing
            company to process our invoices to our customers, and devote a large
            amount of internal resources at one time to work on this transition.

Our business is dependent upon our ability to resell long distance services, for
which we currently rely on only one third-party carrier.

      We offer long distance telephone services as part of our service package.
We currently have a wholesale agreement with only one long distance carrier to
provide transmission and termination services for all of our long distance
traffic. Recently, several long distance carriers have encountered financial
difficulties, including the carrier utilized by us. Financial difficulties
encountered by our current carrier or any other carrier with which we are
negotiating could cause disruption to our operations and loss of customers and
revenues.

We could be liable for breaches of security on our web site, fraudulent
activities of our users, or the failure of third-party vendors to deliver credit
card transaction processing services.

      A fundamental requirement for operating a customer-friendly CLEC and an
internet-based, worldwide voice service is the secure transmission of
confidential information over public networks. Although we have developed
systems and processes that are designed to protect consumer information and
prevent fraudulent credit card transactions and other security breaches, failure
to mitigate such fraud or breaches may adversely affect our operating results.
The law relating to the liability of providers of online payment services is
currently unsettled. We rely on third party providers to process and guarantee
payments made by our customers up to certain limits, and we may be unable to
prevent our users from fraudulently receiving goods and services. Any costs we
incur as a result of fraudulent transactions could harm our business. In
addition, the functionality of our current billing system relies on certain
third-party vendors delivering services. If these vendors are unable or
unwilling to provide services, we will not be able to charge for our services in
a timely or scalable fashion.

We may face difficulties managing our anticipated rapid expansion.

      We are attempting to grow our business rapidly in terms of the number of
services we offer, the number of customers we serve and the regions we serve. In
particular, we are expending substantial sums to expand our POTS business and to
roll out our VoIP initiative. There can be no assurance that our marketing
initiatives will proceed as expected or that they will be successful,
particularly in light of the legal and regulatory and competitive uncertainties
described elsewhere in this report. Furthermore, there is no assurance that we
will successfully manage our efforts to:

      o     expand, train, manage and retain our employee base;

      o     expand and improve our customer service and support systems;

      o     introduce and market new VoIP products and services and new pricing
            plans in addition to expanding the number of states in which we
            offer POTS service;

      o     capitalize on new opportunities in the competitive marketplace; or

      o     control our expenses.


                                       6


      The strains posed by these new demands are magnified by the emerging
nature of our operations. If we cannot manage our growth effectively, our
results of operations could be adversely affected.

The failure of our customers to pay their bills on a timely basis could
adversely affect our cash flow.

      Our target customers consist of residences and small businesses. We
anticipate having to bill and collect numerous relatively small customer
accounts. We may experience difficulty in collecting amounts due on a timely
basis. We have experienced difficulty with residential accounts in the past. Our
failure to collect accounts receivable owed to us by our customers on a timely
basis could have a material adverse effect on our business, financial condition,
results of operations and cash flow.

Acquisitions could divert management's time and attention, dilute the voting
power of existing shareholders and have a material adverse effect on our
business.

      As part of our growth strategy, we may continue to acquire complementary
businesses and assets. Acquisitions that we may make in the future could result
in the diversion of time and personnel from our business. We also may issue
shares of common stock or other securities in connection with acquisitions,
which could result in the dilution of the voting power of existing shareholders
and could dilute earnings per share. Any acquisitions would be accompanied by
other risks commonly encountered in such transactions, including the following:

      o     difficulties integrating the operations and personnel of acquired
            companies;

      o     the additional financial resources required to fund the operations
            of acquired companies;

      o     the potential disruption of our business;

      o     our ability to maximize our financial and strategic position by the
            incorporation of acquired technology or businesses with our product
            and service offerings;

      o     the difficulty of maintaining uniform standards, controls,
            procedures and policies;

      o     the potential loss of key employees of acquired companies;

      o     the impairment of employee and customer relationships as a result of
            changes in management; and

      o     significant expenditures to consummate acquisitions.

      As a part of our acquisition strategy, we may engage in discussions with
various businesses respecting their potential acquisition. In connection with
these discussions, we and each potential acquired business may exchange
confidential operational and financial information, conduct due diligence
inquiries, and consider the structure, terms and conditions of the potential
acquisition. In certain cases, the prospective acquired business may agree not
to discuss a potential acquisition with any other party for a specific period of
time, may grant us certain rights in the event the acquisition is not completed,
and may agree to take other actions designed to enhance the possibility of the
acquisition. Potential acquisition discussions may take place over a long period
of time, may involve difficult business integration and other issues, and may
require solutions for numerous family relationship, management succession and
related matters. As a result of these and other factors, potential acquisitions
that from time to time appear


                                       7


likely to occur may not result in binding legal agreements and may not be
consummated. Our acquisition agreements may contain purchase price adjustments,
rights of set-off and other remedies in the event that certain unforeseen
liabilities or issues arise in connection with an acquisition. These remedies,
however, may not be sufficient to compensate us in the event that any unforeseen
liabilities or other issues arise.

We need to retain key management personnel and hire additional qualified
personnel. We are dependent on the efforts of our executive officers and senior
management and on our ability to hire and retain qualified management personnel.

      A small number of key management and operating employees and consultants
manage our telecommunications business. Our loss of such employees or
consultants or their failure to work effectively as a team could materially
adversely impact our telecommunications business. Competition for qualified
executives in the telecommunications and data communication industries is
intense and there are a limited number of persons with applicable experience. We
believe that our future success in the telecommunications business significantly
depends on our ability to attract and retain highly skilled and qualified
telecommunications personnel. We have not entered into employment agreements
with any of our senior officers. The loss of any of Paul H. Riss, our Chief
Executive Officer, Michael Khalilian, our Chief Technology Officer, or Mark
Richards, our Chief Information Officer and the President of our Vox
Communications subsidiary, could adversely affect our business.

We may be unable to adapt to rapid technology trends and evolving industry
standards.

      The communications industry is subject to rapid and significant changes
due to technology innovation, evolving industry standards, and frequent new
service and product introductions. New services and products based on new
technologies or new industry standards expose us to risks of technical or
product obsolescence. We will need to use technologies effectively, continue to
develop our technical expertise and enhance our existing products and services
in a timely manner to compete successfully in this industry. We may not be
successful in using new technologies effectively, developing new products or
enhancing existing products and services in a timely manner or that any new
technologies or enhancements used by us or offered to our customers will achieve
market acceptance.

The telecommunications industry is highly regulated and amendments to or repeals
of existing regulations or the adoption of new regulations could adversely
affect our business, financial condition or results of operations.

      Federal, state and local regulation may affect our telecommunications
business. Since regulation of the telecommunications industry in general, and
the CLEC industry in particular, is frequently changing, we cannot predict
whether, when and to what extent new regulations will affect us. The following
factors, among others, may adversely affect our business, financial condition
and results of operations:

      o     delays in obtaining required regulatory approvals;

      o     new court decisions;

      o     the enactment of new adverse regulations; and

      o     the establishment of strict regulatory requirements.


                                       8


The communications services industry is highly competitive and we may be unable
to compete effectively.

      The communications industry, including Internet and data services, is
highly competitive, rapidly evolving and subject to constant technological
change and intense marketing by providers with similar products and services. We
expect that new competitors are likely to join existing competitors in the
communications industry, including the market for VoIP, Internet and data
services. Many of our current competitors are significantly larger and have
substantially greater market presence as well as greater financial, technical,
operational, marketing and other resources and experience than we do. In the
event that such a competitor expends significant sales and marketing resources
in one or several markets we may not be able to compete successfully in such
markets. We believe that competition will continue to increase, placing downward
pressure on prices. Such pressure could adversely affect our gross margins if we
are not able to reduce our costs commensurate with such price reductions. In
addition, the pace of technological change makes it impossible for us to predict
whether we will face new competitors using different technologies to provide the
same or similar services offered or proposed to be offered by us. If our
competitors were to provide better and more cost effective services than ours,
our business initiatives could be materially and adversely affected.

Industry consolidation could make it more difficult to compete.

      Companies offering Internet, data and communications services are, in some
circumstances, consolidating. We may not be able to compete successfully with
businesses that have combined, or will combine, to produce companies with
substantially greater financial, sales and marketing resources, larger client
bases, extended networks and infra-structures and more established relationships
with vendors, distributors and partners than we have. With these heightened
competitive pressures, there is a risk that our financial performance could be
adversely impacted and the value of our common stock could decline.

Risks Relating to Our Proposed VoIP Business

      Part of our long-term strategy in building a profitable telephone company
includes the marketing of our technology for VoIP-based telephony applications
through our wholly-owned subsidiary, VoX. VoIP is a new technology that involves
many unique risks, including those set forth below.

The VoIP telephony market is subject to rapid technological change and we depend
on new product introductions in order to grow our VoIP business.

      VoIP telephony is an emerging market that is characterized by rapid
changes in customer requirements, frequent introductions of new and enhanced
products, and continuing and rapid technological advancement. To compete
successfully in this emerging market, we must continue to design, develop and
sell new and enhanced VoIP telephony software products and services that provide
increasingly higher levels of performance and reliability at lower cost. These
new and enhanced products must take advantage of technological advancements and
changes, and respond to new customer requirements. Our success in designing,
developing and selling such products and services will depend on a variety of
factors, including:

      o     the identification of market demand for new products;

      o     the scalability of our VoIP telephony software products;

      o     product and feature selection;


                                       9


      o     timely implementation of product design and development;

      o     product performance;

      o     cost-effectiveness of products under development;

      o     effective manufacturing processes; and

      o     success of promotional efforts.

      Additionally, we may also be required to collaborate with third parties to
develop our products and may not be able to do so on a timely and cost-effective
basis, if at all. We have in the past experienced delays in the development of
new products and the enhancement of existing products, and such delays will
likely occur in the future. If we are unable, due to resource constraints or
technological or other reasons, to develop and introduce new or enhanced
products in a timely manner, if such new or enhanced products do not achieve
sufficient market acceptance, or if such new product introductions decrease
demand for existing products, our operating results would decline and our
business would not grow.

Future legislation or regulation of the Internet and/or VoIP services could
restrict our business, prevent us from offering service or increase our cost of
doing business.

      At present there are few laws, regulations or rulings that specifically
address access to or commerce on the Internet, including Internet Protocol
("IP") telephony. We are unable to predict the impact, if any, that future
legislation, legal decisions or regulations concerning the Internet may have on
our business, financial condition or results of operations. Regulation may be
targeted toward, among other things, assessing access or settlement charges,
imposing taxes related to internet communications, imposing tariffs or
regulations based on encryption concerns or the characteristics and quality of
products and services, imposing additional regulations and requirements related
to the handling of emergency 911 services, any of which could restrict our
business or increase our cost of doing business. The increasing growth of the
broadband IP telephony market and popularity of broadband IP telephony products
and services heighten the risk that governments or other legislative bodies will
seek to regulate broadband IP telephony and the Internet. In addition, large,
established telecommunication companies may devote substantial lobbying efforts
to influence the regulation of the broadband IP telephony market, which may be
contrary to our interests.

      Many regulatory actions are underway or are being contemplated by federal
and state authorities, including the FCC and other state regulatory agencies.
The FCC recently issued regulations requiring VoIP carriers to provide 911
emergency services to their customers within approximately 90 days. There is
risk that a regulatory agency may require us to conform to rules that are
unsuitable for VoIP communications technologies or rules that cannot be complied
with due to the nature and efficiencies of IP routing, or are unnecessary or
unreasonable in light of the manner in which we offer service to our customers.
It is not possible to separate the Internet, or any service offered over it,
into intrastate and interstate components. While suitable alternatives may be
developed in the future, the current IP network does not enable us to identify
the geographic nature of the traffic traversing the Internet. There is also risk
that specific E911 requirements imposed by a regulatory agency may impede our
ability to offer service in a manner that conforms to these requirements. While
we are developing technologies that seek to provide access to emergency services
before the effective date set by the FCC, the existing requirements, which are
tethered to and dependent upon the legacy PSTN network, neither work in an IP
environment nor take advantage of the significantly enhanced capabilities of the
IP network.


                                       10


The success of our planned expansion is dependent upon market developments and
usage patterns.

      Our purchase of network equipment and placement of our VoIP software will
be based in part on our expectations concerning future revenue growth and market
developments. As we expand our network, we will be required to make capital
expenditures, in addition to making financial commitments for DS-3 circuits and
colocation space, and to add additional employees. If our traffic volume were to
decrease, or fail to increase to the extent expected or necessary to make
efficient use of our network, our costs as a percentage of revenues would
increase significantly, which would have a materially adverse effect on our
financial condition and results of operations.

Potential regulation of Internet service providers could adversely affect our
operations.

      To date, the FCC has treated Internet service providers as information
service providers. 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.
The FCC is currently examining the status of Internet service providers and the
services they provide. If the FCC were to determine that Internet service
providers, or the services they provide, are subject to FCC regulation,
including the payment of access charges and contribution to the universal
service funds, it could have a material adverse effect on our business,
financial condition and operating results.

Our success depends on our ability to handle a large number of simultaneous
calls, which our network may not be able to accommodate.

      We expect the volume of simultaneous calls to increase significantly as
our VoIP subscriber base grows. Our network hardware and software may not be
able to accommodate this additional volume. If we fail to maintain an
appropriate level of operating performance, or if our VoIP service is disrupted,
our reputation could be hurt and we could lose customers, which could have a
material adverse effect on our business, financial condition and results of
operations.

Our growth in our VoIP business is dependent upon our ability to build new
relationships with VoIP carriers and to bring on new customers.

      Our ability to grow through quick and cost effective deployment of our
VoIP services is due, in part, to our ability to create new interconnection
agreements with VoIP carriers that can provide us with telephone numbers and
termination service to sign contracts with new customers, and, in many cases, to
enter into joint venture or strategic agreements with local partners, as well as
to satisfy newly enacted regulatory requirements to operate in emerging markets.
While we pursue several opportunities simultaneously, we might not be able to
create the necessary partnerships and interconnections, expand our customer
base, deploy networks and generate profitable traffic over these networks within
the time frame envisioned.

We are pursuing new business lines, which require specialized skill sets. Our
ability to effectuate our business plan is due, in part, to the roll out of new
services, including PC-to-IP Phone, IP Phone-to-IP Phone and IP
Phone-to-POTS-Phone.

      Our ability to deploy new products and services may be hampered by
technical and operational issues which could delay our ability to derive
profitable revenue from these service offerings. These issues include our
ability to competitively price such products and services. In addition, certain
VoIP service offerings are relatively new in our industry and the market
potential is relatively untested. Additionally, our ability to market these
products and service offerings may prove more difficult. To


                                       11


date, we have not significantly focused on selling VoIP services and thus have
derived extremely limited revenue from this offering, and there can be no
assurance that we will increase our current focus and/or derive significant
revenue from this offering.

We rely on third party equipment suppliers.

      We are dependent on third party equipment suppliers for equipment, VoIP
phones and adapter devices, including UTStarcom Inc., Cisco Systems, Inc. and
Motorola, Inc. If these suppliers fail to continue product development and
research and development or fail to deliver quality products or support services
on a timely basis, or we are unable to develop alternative sources, if and as
required, it could result in a materially adverse impact on our financial
condition or results of operations.

Risks Relating to Our Common Stock

Disappointing quarterly revenue or operating results could cause the price of
our common stock to fall.

      Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If our quarterly revenue or
operating results fall below the expectations of investors or security analysts,
the price of our common stock could fall substantially. Our quarterly revenue
and operating results may fluctuate as a result of a variety of factors, many of
which are outside our control, including:

      o     the amount and timing of expenditures relating to the rollout of our
            POTS and VoIP service offerings;

      o     our ability to obtain, and the timing of, necessary regulatory
            approvals;

      o     the rate at which we are able to attract customers within our target
            markets and our ability to retain these customers at sufficient
            aggregate revenue levels;

      o     our ability to deploy our network on a timely basis;

      o     the availability of financing to continue our expansion;

      o     technical difficulties or network downtime;

      o     the availability of incumbent carrier's wholesale service program
            for the establishment of our own full-service platform and timing of
            the implementation of our VoIP platform; and

      o     the introduction of new services or technologies by our competitors
            and resulting pressures on the pricing of our service.

We do not intend to pay dividends on our common stock in the foreseeable future,
which could cause the market price of our common stock and the value of your
investment to decline.

      We expect to retain earnings, if any, to finance the expansion and
development of our business. Our Board of Directors will decide whether to make
future cash dividend payments. Such decision will depend on, among other things,
the following factors:


                                       12


      o     our earnings;

      o     our capital requirements;

      o     our operating condition;

      o     our financial condition; and

      o     our compliance with various financing covenants to which we are or
            may become a party.

The market for our common stock is thinly traded, which could result in
fluctuations in the value of our common stock.

      Although there is a public market for our common stock, the market for our
common stock is thinly traded. The trading prices of our common stock could be
subject to wide fluctuations in response to, among other events and factors, the
following:

      o     variations in our operating results;

      o     sales of a large number of shares by our existing shareholders;

      o     announcements by us or others;

      o     developments affecting us or our competitors; and

      o     extreme price and volume fluctuations in the stock market.

Our common stock price is likely to be highly volatile, which could cause the
value of your investment to decline.

      The market price of our common stock is likely to be highly volatile as
the stock market in general, and the market for small cap and micro cap
technology companies in particular, has been highly volatile. For example,
during the last 12 months our common stock has traded at prices ranging from
$0.14 to $0.75 per share. Investors may not be able to resell their shares of
our common stock following periods of volatility because of the market's adverse
reaction to volatility. We cannot assure you that our common stock will trade at
the same levels of our stocks in our industry or that our industry stocks in
general will sustain their current market prices. Factors that could cause such
volatility may include, among other things:

      o     actual or anticipated fluctuations in our quarterly operating
            results;

      o     large purchases or sales or our common stock;

      o     announcements of technological innovations;

      o     changes in financial estimates by securities analysts;


                                       13


      o     investor perception of our business prospects;

      o     conditions or trends in the telecommunications industry;

      o     changes in the market valuations of other industry-related
            companies;

      o     the acceptance of market makers and institutional investors of our
            business model and our common stock; and

      o     worldwide economic or financial conditions.

Effect of certain charter provisions.

      Authority of Board of Directors to Issue Preferred Stock. Pursuant to the
terms of our charter, our Board of Directors has the authority to issue up to
1,000,000 shares of preferred stock in one or more series. Our Board of
Directors may also determine the prices, rights, preferences, privileges and
restrictions, including voting rights, of the shares within each series without
any further shareholder vote or action. The rights of the holders of our
preferred stock may adversely affect the rights of the holders of common stock.
While the issuance of such preferred stock could facilitate possible
acquisitions and other corporate activities, it could also impede a third
party's ability to acquire control of our company.

      Limitation of Liability of Directors. Pursuant to the terms of our charter
and to the extent New York law permits, we and our shareholders may not hold our
directors personally liable for monetary damages in the event of a breach of
fiduciary duty.

Provisions of New York law may discourage a takeover attempt even if doing so
may be beneficial to our shareholders.

      Certain anti-takeover provisions of New York law could delay or hinder a
change of control of our company. While such provisions generally facilitate our
Board of Directors' ability to maximize shareholder value, they may discourage
takeovers that could be in the best interest of certain shareholders. Such
provisions could adversely affect the market value of our stock in the future.

We are exposed to potential risks from recent legislation requiring companies to
evaluate internal controls under Section 404 of the Sarbanes Oxley Act of 2002.

      We are evaluating and documenting our internal controls systems so that
when we are required to do so, our management will be able to report on, and our
independent auditors to attest to, our internal controls, as required by this
legislation. We will be performing the system and process evaluation and testing
(and any necessary remediation) required in an effort to comply with the
management certification and auditor attestation requirements of Section 404 of
the Sarbanes Oxley Act. As a result, we expect to incur additional expenses and
diversion of management's time. In March 2005, we were advised by our
independent auditors that we have a material weakness in our internal controls
because of a deficiency in the number of qualified personnel in our accounting
department. While we anticipate being able to rectify this weakness and to fully
implement the requirements relating to internal controls and all other aspects
of Section 404 in a timely fashion, we cannot be certain as to the timing of
completion of our evaluation, testing and remediation actions or the impact of
the same on our operations. If we are not able to implement the requirements of
Section 404 in a timely manner or with adequate compliance, we might be subject
to sanctions or investigation by regulatory authorities, such as the Securities
and Exchange


                                       14


Commission. Any such action could adversely affect our financial results and
could cause our stock price to decline.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve risks known to us,
significant uncertainties, and other factors which may cause our actual results,
levels of activity, performance, or achievements to be materially different from
any future results, levels of activity, performance, or achievements expressed
or implied by those forward-looking statements.

      You can identify forward-looking statements by the use of the words "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "intends," "potential," "proposed," or "continue" or
the negative of those terms. These statements are only predictions. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined above. These factors may cause our actual results
to differ materially from any forward-looking statement.

      Although we believe that the exceptions reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.

                                 USE OF PROCEEDS

      We will not receive any proceeds from the sale of the shares of our common
stock by the selling shareholders.

      We will receive proceeds of up to a maximum of $650,793 upon the due
exercise, if any, of the seven-year warrants granted by us exercisable for an
aggregate of 793,650 shares of common stock. We will receive proceeds up to a
maximum of $656,250 upon the due exercise, if any, of the five-year warrants
granted by us exercisable for an aggregate of 350,000 shares of common stock. We
will receive proceeds of up to a maximum of $160,000 upon the due exercise, if
any, of the four-year warrants granted by us exercisable for an aggregate of
253,968 shares of common stock. We intend to use any such proceeds for working
capital and general corporate purposes.

      Further, to the extent that any of our obligations under our credit
facilities with Laurus are converted into, or paid in the form of, shares of our
common stock, we will be relieved of such obligations to the extent of such
conversion or payment.

            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

      Our common stock is traded on the OTC Bulletin Board under the symbol
"ELEC."

      The following table contains information about the range of high and low
bid prices for our common stock for each full quarterly period in our last two
fiscal years and for the first three fiscal quarters of 2005 (through June 6),
based upon reports of transactions on the OTC Bulletin Board.


                                       15


                                                  High       Low
                                                  ----       ---
      Fiscal 2003
      -----------
               1st Quarter                      $   0.08  $   0.04
               2nd Quarter                          0.16      0.05
               3rd Quarter                          0.14      0.08
               4th Quarter                          0.21      0.08

      Fiscal 2004
      -----------
               1st Quarter                      $   0.25  $   0.13
               2nd Quarter                          0.26      0.14
               3rd Quarter                          0.36      0.14
               4th Quarter                          0.40      0.21

      Fiscal 2005
      -----------
               1st Quarter                      $   0.74  $   0.28
               2nd Quarter                      $   0.72  $   0.35
               3rd Quarter (through June 6)     $   0.60  $   0.51

      The source of these high and low prices was the OTC Bulletin Board. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions. The high and low prices
listed have been rounded up to the next highest two decimal places.

      The market price of our common stock is subject to significant
fluctuations in response to variations in our quarterly operating results,
general trends in the market for the products we distribute, and other factors,
over many of which we have little or no control. In addition, board market
fluctuations, as well as general economic, business and political conditions,
may adversely affect the market for our common stock, regardless of our actual
or projected performance. On June 3, 2005, the closing bid price of our common
stock as reported by the OTC Bulletin Board was $0.55 per share.

Holders

      As of June 3, 2005, there were approximately 225 holders of record of our
common stock and approximately 4,000 beneficial holders.

Dividend Policy

      We have never paid dividends on our common stock and do not expected to do
so in the foreseeable future. Our loan agreement with Laurus Master Funds, Ltd.
("Laurus") does not allow us to directly or indirectly declare or pay any
dividends so long as our secured convertible term note to Laurus remains
outstanding.


                                       16


            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

General

      When used in this discussion, the words "believes", "anticipates",
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected.

      Our business and results of operations are affected by a wide variety of
factors, including those we discuss under the caption "Risk Factors" and
elsewhere in this prospectus, that could materially and adversely affect us and
our actual results. As a result of these and other factors, we may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect our business, financial
condition, operating results and stock price.

      Any forward-looking statements herein speak only as of the date hereof. We
undertake no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Business Outlook

      Our financial condition was significantly improved in February 2005, when
we sold to Laurus our fixed rate convertible term note in the principal amount
of $2,000,000 and entered into a wholesale services agreement with Verizon. The
promissory note issued to Laurus has a three-year term, is payable in
thirty-three equal monthly principal installments of $60,606, plus monthly
interest at the rate of prime plus 3% per annum, beginning on May 1, 2005, and
is convertible into shares of our common stock at a conversion price of $0.63
per share, subject to adjustment. As a result of these two transactions, we now
have cash balances that we can use for new customer acquisitions, and a
five-year agreement that will allow us to continue our core business of selling
POTS lines on a leased network.

      Our primary methods of obtaining new customer accounts will continue to be
through telemarketing and outside sales agents. We believe these are effective
low-cost methods of building new accounts, and our past history with these
customer acquisition methods is helpful in planning and budgeting our operations
on a going-forward basis. While we believe our cash balances are adequate for
continued growth, our cash balances may not be sufficient to generate the growth
we desire for our VoIP subsidiary. We plan to reassess our cash requirements for
VoIP on a regular basis as we begin adding customers to our platform.

      We expect to have controlled capital expenditures for our VoIP products
during the next 12 months. The amount expended will depend on demand for our
products. If we experience higher demand and strong sales growth, we will
require additional equipment expenditures. We believe we will be able to make
such expenditures as we grow our business so that the utilization percentages of
our network equipment will remain high. We do not see a need to purchase network
assets that may remain idle or underutilized.

      The following discussion and analysis of financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and


                                       17


liabilities. These estimates are based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.

Results of Operations

Three Months Ended February 28, 2005 Compared To Three Months Ended February 29,
2004

      Our revenue for the three-month period ended February 28, 2005 increased
by approximately $1,989,000, or approximately 106%, to approximately $3,863,000
as compared to approximately $1,874,000 reported for the three-month period
ended February 29, 2004. The growth in revenues was directly related to the
growth in our customer base or number of local access lines that we served. We
anticipate revenues for NRTC to continue to increase during fiscal 2005 as we
work to add new customers. On the other hand, we anticipate a decrease in
revenue for TSI as we do not plan to add new customers in TSI as discussed
earlier. However, our revenue growth in NRTC many not be as rapid as in the past
as we are re-evaluating our telemarketing strategy and may determine to call
only businesses and residential prospects who are home owners.

      Our gross profit for the three-month period ended February 28, 2005
increased by approximately $814,000 to approximately $1,808,000 from
approximately $994,000 reported in the three-month period ended February 29,
2004. During the same fiscal periods, our gross profit percentage decreased to
46.8% from 53%. The increase in our dollars of gross profit resulted from the
increase in our customer base in first quarter of fiscal 2005 over the first
quarter fiscal 2004. The decrease in our gross profit percentage during the 2005
period resulted from the higher cost of services that we are now incurring under
our wholesale services agreement with Verizon, as compared to the costs we
previously incurred under the UNE-P service offering. Our selling strategy in
fiscal 2005 is to continue to penetrate states that offer the opportunity to
achieve higher margins.

      Selling, general and administrative expenses ("SG&A") increased by
approximately $1,284,000, or approximately 137%, to approximately $2,221,000 for
the three-month period ended February 28, 2005 from approximately $937,000
reported in prior year fiscal period. Of this increase, approximately $730,000
was for bad debt expense, approximately $150,000 was for telemarketing costs,
approximately $73,000 was for billing costs, and approximately $212,000 was for
increased personnel costs, of which approximately $80,000 was related to VoX.
Although our marketing has been directed to consumers with acceptable credit
scores, we recently adjusted our marketing strategy for the future in order to
reduce our bad debt expense. We are now telemarketing more actively to small
businesses and have changed our requirements for residential customers so that
we are marketing only to consumers who are homeowners and have proven records of
good credit history. Although this strategy will most likely increase our
acquisition costs per line, we anticipate the extra cost associated with
purchasing homeowner-only leads of credit-worthy customers will decrease our bad
debt expense, which in the most recent quarter was unacceptable to us.

      Depreciation expense decreased to approximately $1,000 for the three-month
period ended February 28, 2005 as compared to approximately $4,000 for the
three-month period ended February 29, 2004. Although we have limited VoIP
revenues and are confident that our VoIP platform is functional, we have just
started to amortize the capitalized costs of our VoIP platform in the third
quarter of fiscal 2005, as we have co-located our final live platform in a major
data center.

      Interest expense increased by approximately $49,000 to approximately
$52,000 for the three-month period ended February 28, 2005 as compared to
approximately $3,000 for the three-month period


                                       18


ended February 29, 2004, as a result of our recent financing agreements (See
Note 1 to our Unaudited Condensed Consolidated Financial Statements for the
periods ended February 28, 2005 and 2004). Interest and other income decreased
by approximately $12,000, to approximately $17,000 for the three-month period
ended February 28, 2005 as compared to approximately $29,000 for the three-month
period ended February 29, 2004. The decrease resulted primarily from a reduction
in commission income.

      For the three-month period ended February 28, 2005, we recorded income of
approximately $47,000, which resulted from the change in the market value of the
warrants issued to Laurus as part of the Laurus financing (See Note 2 to our
Unaudited Condensed Consolidated Financial Statements for the periods ended
February 28, 2005 and 2004). No such income was recorded in the three-month
period ended February 29, 2004.

      For the three-month period ended February 29, 2004, reorganization items
included a gain of approximately $51,000 as a result of a court-stipulated
reduction in post-petition liabilities(See Note 6 to our Unaudited Condensed
Consolidated Financial Statements for the periods ended February 28, 2005 and
2004) and approximately $120,000 in professional fees reported by TSI (See Note
6 to our Unaudited Condensed Consolidated Financial Statements for the periods
ended February 28, 2005 and 2004). No such transactions occurred in the
three-month period ended February 28, 2005.

      For the three-month period ended February 29, 2004, we recorded a tax
benefit of $45,000, which resulted from the reduction of an estimated accrual of
corporate tax expense for fiscal 2003. No such benefit was recorded for the
three-month period ended February 28, 2005.

Fiscal Year 2004 Compared to Fiscal Year 2003

      Our revenues for fiscal 2004 increased by approximately $3,990,000, or
approximately 72%, to approximately $9,558,000 as compared to approximately
$5,568,000 reported for fiscal 2003. The growth in revenues is directly related
to the growth in our customer base or number of local access lines that we
served. We ended fiscal 2004 with 24,034 billed lines, as compared to 10,835
billed lines at November 30, 2003. Although the line count increased by 13,199
lines, or 122%, in fiscal 2004, due to insufficient cash flow to support our
telemarketing costs in the first half of fiscal 2004, most of the increase came
in the second half of our fiscal year. Therefore, annual revenues did not
increase by the same percentage as the percentage increase in our line count.
Several large CLECs that sell in New Jersey, New York and Pennsylvania have
indicated to the public that they are decreasing or discontinuing their selling
efforts to new customers because of the TRO Remand Order. We anticipate that the
reduced competition in these states will be a factor that will help us to retain
our current selling prices in those states, which currently average monthly
revenues of approximately $50 per line. We also believe the decrease in the
number of competitors may make our selling efforts somewhat easier than we have
experienced in the past.

      Our gross profit for fiscal 2004 increased by approximately $2,018,000 to
approximately $4,820,000 from approximately $2,802,000 reported in fiscal 2003,
while our gross profit percentage of 50.4% in fiscal 2004 as compared to 50.3%
in fiscal 2003 essentially remained the same from fiscal period to fiscal
period. The increase in our dollars of gross profit resulted from the increase
in our customer base in fiscal 2004 over fiscal 2003. Our gross profit
percentage of approximately 50.4% reflects our sales strategy to sell only in
those states in which we believe we will be able to achieve a gross margin of
over 40%. Our selling strategy in fiscal 2005 is to continue to sell in states
that offer the opportunity to achieve higher margins. However, we do not
anticipate achieving a 50% gross margin in fiscal 2005 because our cost of
services are higher under our wholesale services agreement with Verizon than we
previously experienced while operating under UNE-P. We have passed on this
increase in cost to new customers beginning on October 1, 2004, but we have not
raised our prices to our existing customers


                                       19


and do not intend to do so in the near future. During fiscal 2005, we also plan
to begin selling in localities serviced by Qwest. Although we will begin selling
in areas in which we believe we can achieve a gross margin greater than 40%, we
do not believe we will achieve gross margins of 50%. In addition, we plan to
sell VoIP services nationwide in fiscal 2005. The margins for such services will
be dependent on the cost structures we negotiate with carriers for wholesale
services or to terminate calls made by our VoIP customers to a traditional
landline telephone. Gross margins may also be impacted by product mix in 2005.
If we have success in selling our VoIP to wholesale VoIP customers, our gross
margins will be lower than if we only sell directly to individual end-users.

      SG&A decreased by approximately $215,000, or approximately 3.8%, to
approximately $5,447,000 for fiscal 2004 from approximately $5,662,000 reported
in the prior year fiscal period. Although we grew our revenues significantly in
fiscal 2004, we were able to limit our SG&A. Our occupancy costs were
substantially lower in fiscal 2004, as we incurred rental expense of
approximately $6,000 per month under our existing headquarters lease as compared
to the occupancy costs of approximately $22,000 per month we incurred in
operating our former headquarters building, which we sold in the fourth quarter
of fiscal 2003.

      Depreciation expense decreased by approximately $74,000, to approximately
$14,000 for fiscal 2004 as compared to approximately $88,000 for fiscal 2003.
The decline in depreciation expense was primarily attributable to the sale of
our headquarters building in the fourth quarter of fiscal 2003 and to the sale
of certain assets to EAC in the first quarter of fiscal 2003.

      Interest expense decreased by approximately $172,000, to approximately
$3,000 for fiscal 2004 as compared to approximately $175,000 for fiscal 2003.
The decrease in interest expense was primarily attributable to the repayment of
a mortgage note in conjunction with the sale of our headquarters building in the
fourth quarter of fiscal 2003. We anticipate interest expense for fiscal 2005
will increase due to the interest that we project we will pay on the debt that
we have incurred in 2005.

      Other income, net for fiscal 2004 was approximately $46,000 as compared to
approximately $164,000 for fiscal 2003. The income for fiscal 2004 resulted
primarily from commission income of approximately $88,000, which was partially
offset by charges for environmental costs of approximately $45,000 directly
related to the sale of our headquarters building in the fourth quarter of fiscal
2003. The income for fiscal 2003 resulted primarily from rental and commission
income of approximately $210,000, which was partially offset by the write-down
of our investment in Cordia Corporation of approximately $71,000.

      In fiscal 2004, we reported income of approximately $904,000 from debt
reduction related to the TSI bankruptcy. No such income was reported in fiscal
2003. Bankruptcy reorganization costs for fiscal years 2004 and 2003 of
approximately $161,000 and $70,000, respectively, represented legal cost
associated with the TSI bankruptcy.

      In fiscal 2003, we sold assets of our former subsidiary, Essex
Communications, Inc. ("Essex"), Essex stock and our headquarters building. The
sales netted a gain of approximately $11,306,000. We had no such asset sales in
fiscal 2004.

      In fiscal 2004, gain on the sale of investment securities and other
investments of approximately $1,000, resulted from the sale of Cordia
Corporation ("Cordia") shares as compared to the gain of approximately $122,000
in fiscal 2003, which resulted from the sale of shares of Cordia and Talk
America Holdings Inc. ("Talk").


                                       20


      In fiscal 2004, we recorded a net tax benefit of approximately $48,000
offset by a current year provision of $22,000, which resulted from the reduction
of an estimated accrual of corporate tax expense for fiscal 2003. In fiscal,
2003, we recorded estimated corporate tax expense of approximately $75,000.

Liquidity and Capital Resources

      At February 28, 2005, we had cash and cash equivalents of approximately
$1,552,000 and negative working capital of approximately $1,292,000.

      Net cash used in operating activities aggregated approximately $771,000
and $59,000 in the three-month periods ended February 28, 2005 and February 29,
2004, respectively. The principal use of cash in fiscal 2005 was the increase in
accounts receivable of approximately $1,157,000, offset by an increase in the
provision for doubtful accounts of approximately $745,000 and the loss for the
period of approximately $402,000. The principal use of cash in fiscal 2004 was
the net change in operating assets and liabilities, which was partially offset
by the income for the period of approximately $56,000.

      Net cash used in investing activities in the three-month period ended
February 28, 2005 aggregated approximately $101,000, resulting primarily from
expenditures related to our VoIP initiative. There were no investing activities
in the three-month period ended February 29, 2004.

      Net cash provided by (used in) financing activities aggregated
approximately $2,052,686 and ($2,000) in the three-month periods ended February
28, 2005 and February 29, 2004, respectively. In fiscal 2005, net cash provided
by financing activities resulted from the proceeds of short-term and long-term
notes, warrants and stock issuances and the exercise of stock options in the
amounts of approximately $2,018,000 and $34,500, respectively. In fiscal 2004,
net cash used in financing activities resulted from the repayment of debt.

      For the three-month period ended February 28, 2005, we had approximately
$101,000 in capital expenditures primarily related to our VoIP initiative. We
made equipment purchases of approximately $100,000 in the second fiscal quarter
of 2005. We expect that other capital expenditures over the next 12 months will
relate primarily to a continued roll-out of VoIP services and will only be
required to support a growing customer base of VoIP subscribers.

      We have stock purchase warrants that entitle us to purchase approximately
95,000 shares of Talk America Holdings Inc. ("Talk"). The warrant exercise price
is $6.30 per share and, at June 3, 2005, our warrants were in-the-money, as Talk
common stock was trading at approximately $8.86 per share at such date. We are
currently exploring ways in which we can monetize the gain in these warrants.

      We have reported profits in the last two fiscal years, but we have also
sustained net losses from operations during those periods, as we have worked to
build our customer base. Our operating losses have been funded through the sale
of non-operating assets, the issuance of equity securities and borrowings. We
believe that current cash and cash equivalents will be sufficient to finance our
operations through at least the next twelve months. However, we continually
evaluate our cash needs and growth opportunities and we anticipate seeking
additional equity or debt financing in order to achieve our overall business
objectives. There can be no assurance that such financing will be available, or,
if available, at a price that would be acceptable to us. Failure to generate
sufficient revenues, raise additional capital or reduce certain discretionary
spending could have an adverse impact on our ability to achieve our longer-term
business objectives.


                                       21


                                    BUSINESS

Overview

      eLEC Communications Corp. is a telecommunications service holding company
with operations in three wholly-owned subsidiaries that focus on delivering
integrated telephone service by leasing landlines as a competitive local
exchange carrier ("CLEC") and by utilizing high-speed Internet connections to
provide Voice over Internet Protocol ("VoIP") services. We offer small
businesses and residential consumers an integrated set of telecommunications
products and services, including local exchange, local access, domestic and
international long distance telephone, VoIP and a full suite of features and
calling plans.

      Almost all of the local telephone calls made by our customers in fiscal
2004 and the first quarter of fiscal 2005 were routed over a circuit-switched
network that we lease from Verizon Services Corp. ("Verizon"). Although we plan
to increase the number of local access lines that we route over the Verizon
network during fiscal 2005, we also plan to use other networks by offering local
exchange services on the Qwest Corporation ("Qwest") network in some of the 14
states in which Qwest is the incumbent local exchange carrier ("ILEC") and by
offering VoIP services on an Internet network over which our customers will make
telephone calls through a high-speed Internet connection. When we route a
telephone call by our customers over an Internet network, a carrier other than
Verizon or Qwest will terminate the call for us into the public switched
telephone network ("PSTN"). We also are able to terminate some calls ourselves
that are made by our customers, in which cases we do not incur any marginal
costs for such calls.

      We sell virtually all of the additional voice services provided by the
ILECs, such as three-way calling, call waiting, call forwarding and caller ID.
We sell our services at a fee that is at least 10% and as much as 25% less than
the published rate charged by the ILEC. We also offer a bundled package of local
and regional calling minutes with popular voice service features.

      Prior to December 31, 2004, both of our CLEC subsidiaries leased lines
from Verizon, using the UNE-P service offering. UNE-P allowed us to lease the
network elements we needed, such as the local line and the port on a local
switch, so that we could provide local dial tone service to our customers. Based
upon the TRO Remand Order in WC Docket No. 04-313 and CC Docket No. 01-338,
released on February 4, 2005 by the FCC, one of our CLEC subsidiaries, TSI, can
no longer sell new lines or offer new services to its embedded customer base.
TSI's embedded base of customers will be subject to transitional rate increases
established in the TRO Remand Order. Thereafter, TSI will have until March 2006
to transfer existing lines from UNE-P to another platform. TSI currently bills
approximately 9,000 lines every month, and we plan to transfer those customers
to our other CLEC.

      We plan to rapidly grow our other CLEC, NRTC, which will not be impacted
by the regulatory rulings relating to UNE-P. In February 2005, NRTC signed a
wholesale advantage services agreement with Verizon, effective on January 1,
2005, that provides NRTC with all the features and functionalities of Verizon's
UNE-P service offering, plus certain additional services. While our costs under
the wholesale advantage services agreement are somewhat higher than our costs
were under UNE-P, the agreement locks in this cost structure for five years and
gives us a significant benefit by eliminating any regulatory uncertainty about
the future of our CLEC business. NRTC will no longer be impacted by rulings of
regulatory bodies relating to UNE-P that might potentially change pricing or
availability of network elements to NRTC. The agreement allows us to plan for
steady high-margin growth in a business that has been our core business since
1999. At June 3, 2005, NRTC had approximately 21,000 local access lines that it
billed under the wholesale advantage services agreement. Pursuant to the
agreement, NRTC is required to keep confidential all additional terms and
conditions of the agreement.


                                       22


      We also provide local and long distance telephone service on a VoIP
platform through our wholly-owned subsidiary, VoX, a facilities-based VoIP
carrier. Unlike many other CLECs, during the past few years we avoided buying
any circuit-switched equipment and instead leased circuit-switched lines from
ILECs. We believe packet telephony services represent a significant step in the
advancement of telecommunications. Consequently, we have focused our network
building efforts on building packet telephony technology and, unlike some other
VoIP providers, we have written and own the code to our own software.
Ultimately, our goal is to have a wholly-owned telecommunications network that
generates revenues and high margins and does not require us to lease facilities
from an ILEC. By not being dependent upon an ILEC, we will be able to offer
features and services we develop that can be turned on and off almost instantly
without requiring an ILEC employee to intervene. We will also lower our cost of
services when we route a telephone call over our packet-based network, as we
will not be required to pay an ILEC for line rentals or for call origination,
transport and termination.

      For the foreseeable future, we will continue to lease lines from the
ILECs, as we have wholesale agreements with Verizon and Qwest that allow us to
lease lines and provide Plain Old Telephone Service ("POTS"). We anticipate that
these agreements will allow us to continue to obtain an acceptable gross margin
on the POTS services we provide. We plan to attract VoIP-only customers on our
packet-switched network and to eventually offer VoIP services to our POTS
customers in NRTC and TSI. Although we believe many of our future customers will
want VoIP-only services, we are finding that several accounts want VoIP services
for the bulk of their telephony needs but still desire to maintain one or two
POTS lines. We plan to be able to satisfy the needs of our customers for both
VoIP and POTS services by maintaining our CLEC status and by continuously
advancing our VoIP product offerings.

Development of Business

      We were incorporated in the State of New York under the name Sirco
Products Co. Inc. in 1964 and developed a line of high quality handbags, totes,
luggage and sport bags. Between 1995 and 1999, we divested our handbag and
luggage operations, which had experienced several years of operating losses.

      We commenced operations in the telecommunications industry in fiscal 1998
by acquiring Essex Communications, Inc. ("Essex"), a newly-formed CLEC formed to
attract and retain a geographically concentrated customer base in the
metropolitan New York region, primarily through the resale of products and
services of incumbent and alternative facilities-based local providers.

      In January 2000, we acquired TSI, a CLEC that operated in the states of
Massachusetts, New Jersey, New York and Rhode Island and provided long distance
service in 13 states. Most of TSI's operations were merged into Essex after the
acquisition was completed, and we maintained TSI's licenses even though it was
an inactive subsidiary. On July 29, 2002, TSI commenced a case under chapter 11
of the Bankruptcy Code. In February 2004, TSI filed a plan of reorganization
pursuant to which the capital stock of a reorganized TSI would be sold by
competitive bid and the proceeds from the sale of such stock would be used to
make distributions to creditors of TSI. In April 2004, the court accepted our
plan to purchase all the stock of a reorganized TSI for a price of $325,000.

      In October 2000, we acquired Line One, Inc. ("Line One"), a telemarketing
firm with approximately 70 seats. We believe telemarketing is a particularly
effective marketing strategy to utilize because of the ubiquitous reach that
wholesale leasing arrangements give us. Due to our limited financial resources,
we decreased the operations of Line One at the beginning of 2003 to 15 seats. At
this level of operations, our line acquisition cost became higher than the cost
we would pay if we outsourced our telemarketing operation. We consequently
discontinued internal telemarketing in June 2003. Line One is


                                       23


now an inactive subsidiary and we outsource all of our telemarketing activities
on a successful efforts basis.

      On September 3, 2002, we entered into a definitive purchase agreement to
sell certain of the assets of Essex to Essex Acquisition Corp. ("EAC"), a
wholly-owned subsidiary of BiznessOnline.com, Inc. ("Biz"). The sale to EAC was
completed on December 31, 2002. EAC purchased selected assets and assumed
certain liabilities in conjunction with this transaction. The remaining shell of
Essex was sold to Glad Holdings, LLC on September 11, 2003. As a result of such
sale, we recorded a gain of approximately $7,314,000 in the fourth quarter of
the fiscal 2003.

      In November 2002, we began the operations of NRTC, as a start-up CLEC.
Since the intellectual know-how and internal systems we had developed in
creating Essex were still owned by us, we were able to rebuild our customer base
to a total of approximately 27,000 lines in NRTC and TSI combined, as of
February 28, 2005.

      On August 4, 2004, we incorporated VoX as our wholly-owned VoIP
subsidiary. VoX owns technology that enables voice communications over the
Internet through the compression of voice into data packets that are transmitted
over data networks and then converted back into voice signals at the other end
of a telephone conversation.

      On February 8, 2005, we sold a $2,000,000 convertible note and we have
used a substantial portion of the cash proceeds of approximately $1,744,000 from
such sale for line growth in NRTC and the completion of our first VoIP
Point-of-Presence in Orlando, Florida.

eLEC's Telecommunications Services

      We tailor our service offerings to meet the specific needs of small
business and residential customers in our target markets. We primarily market
our services through two different distribution channels. We use third-party
telemarketers to attract small business and residential accounts (typically less
than five telephone lines for each account), and we use agents and direct
marketing to attract small business and residential accounts (typically one to
20 lines in size for each account). Based upon feedback received from our
customers and analysis of the types of services the entities in each of these
groups typically utilize, we tailor a basic telecommunications service package,
which can be promptly adjusted to the specific needs of individual customers. To
further help our customers manage their accounts, our customers can view our
invoices, including unbilled telephone calls in the current month, and make
payments to us of their invoices, on a secure customer web site. Customers can
also input requests for repair orders, moves, adds and changes via the web site,
and check their voice mail. We creatively package our services to provide
"one-stop shopping" solutions for our customers, so they can purchase directly
from us all of their communications requirements. Listed below are the basic
categories of services that we offer:

            o Local Exchange Services. We offer local exchange services,
      starting with local dial tone, plus numerous features, the most common of
      which are call waiting, call forwarding, caller ID and dial back features.
      By offering local dial tone, when we utilize the UNE-P service offering,
      we also receive originating and terminating access charges for
      interexchange calls placed or received by our subscribers.

            o Long Distance and International. In addition to our local
      telephone service, we offer long distance and international services as
      part of a bundled product to customers through agreements we have with a
      national long distance carrier. The long distance services include
      domestic service, such as interLATA, which are calls that pass from one


                                       24


      "Local Access and Transport Area" or "LATA" to another LATA, and
      intraLATA, which are calls that stay within the LATA in which they
      originated, but are beyond the distance limits of the local calling plan.
      Our services also include toll-free services (800, 888, 877, 866), calling
      card and other enhanced services.

            o VoIP Calling. Through our wholly-owned subsidiary, VoX, we offer
      VoIP services to the small business, residential and wholesale
      marketplace. In addition to low prices, our VoIP calling plans offer a
      variety of features, such as Call Hold, Call Waiting, Caller ID, Call
      Transfer, Hunt Groups, Do Not Disturb, Call Forward, International Call
      Blocking, Call Return, Repeat Dialing/Redial, Extension Dialing, Anonymous
      Call Rejection and email notification of voicemail, all at no additional
      charge. Add-on features include: Multibox Voicemail, Music on Hold,
      Corporate Conference calling, Reassign Phone, Find me/Follow me, and Auto
      Attendant, among others.

Business Strategy

      Our objective is to build a profitable telephone company with minimal
network costs and a stable and scalable platform. Our strategies to accomplish
this objective encompass the proper management of our core CLEC
telecommunications services on leased networks and the development and marketing
of our own technology for VoIP-based telephony applications.

      VoIP is a new technology that is threatening the established
circuit-switched businesses of the ILECs. We are looking to be a rapidly-growing
second-mover in the VoIP marketplace. We believe the first-movers have helped to
validate the technology and create the market, and that some of the initial VoIP
providers have exited the market as quickly as they have entered it. Other
first-movers have demonstrated rapid market entry and unique product variants as
they rush to capture market share.

      We believe a normal speed second-mover into a market is often an imitator,
and in lieu of innovation, tends to offer lower pricing. We do not intend to be
a normal speed or slow speed second-mover into the VoIP market. We plan to be
fast, owning and mastering our own technology, adjusting product designs and
marketing efforts and doing many things that a first-mover does, all while
continuing to run our CLEC business, which is currently our core business. We
believe we have the resources and know-how, and the contractual commitments with
two ILECs, to continue operating a CLEC business that can generate acceptable
gross margins and cash flow for further growth. We plan to continue in this
fashion while we develop our VoIP business.

      In establishing our VoIP business, we do not plan to compete on price, as
we believe we have a stable product, and that there is enough demand for the
feature-rich service we can provide so as to allow us to distinguish ourselves
from lower-priced VoIP alternatives. Furthermore, a VoIP line offers substantial
savings to any customer who is switching from a circuit-switched line. In
addition to enjoying a retail price for an unlimited local and national calling
plan of approximately $20 less per month than the cost of a POTS line, the VoIP
consumer also can save approximately $10 a month in telecom taxes, as VoIP
generally is considered data communications and is subject to substantially
fewer taxes than a POTS line. If we need to lower our prices in the future to
capture market share, we believe that option will be available to us.

      We are taking the following actions to grow our CLEC and our VoIP
businesses:

            o Target Small-Business and Residential Customers for CLEC Services.
      We focus our CLEC sales efforts for local and long distance services on
      small business and


                                       25


      residential consumers having one to five local access lines in any one
      location. We have elected to focus on this segment because of our ability
      to obtain an ample gross margin on the services provided to these
      customers, and because we can rapidly sell, provision and bill these
      accounts with electronic feeds from third-party verification companies. We
      also believe that the ILECs and facilities-based CLECs may be less likely
      to apply significant resources to obtaining or retaining these smaller
      customers. We expect to attract and retain these customers through
      telemarketers and agents, by offering bundled local and long distance
      services, as well as enhanced telecommunication services, at competitive
      long distance rates, by responsive customer service and support and by
      offering new and innovative products.

            o Achieve Market Share with Competitive Pricing. We always price our
      CLEC services at a discount to the same services provided by an ILEC. We
      can ascertain the prices the ILECs charge by accessing the rates they have
      filed with the various state public service commissions. Our two largest
      CLEC competitors have announced they are in the process of being purchased
      by an ILEC. We anticipate that these purchases may help to eliminate some
      of our competition as a CLEC.

            o Market VoIP Services to ILEC Customers. We believe we are very
      good at selling POTS lines one at a time. We generally can provision and
      bill these lines within approximately three days of the sale. Similarly,
      we plan to sell VoIP lines one at a time to residential consumers, as
      there are many advantages in both speed and simplicity when we only have
      to provision one line per location.

            o Offer VoIP on a Wholesale Basis. We believe our VoIP platform is
      scalable and stable. We designed and built our platform with the intention
      of carrying more than one million customers. We plan to allow other
      entities that want to offer VoIP to an existing customer base to use our
      platform on a wholesale basis. An independent cable company, for example,
      may not have the technological expertise to build its own VoIP platform,
      or may realize that any efforts to do so would take more than a year to
      accomplish. We plan to attract several wholesale accounts by offering our
      platform on a private label basis.

            o Utilize our Technological Expertise in VoIP to Add New Products.
      We have developed a robust VoIP platform that we intend to use to develop
      further product enhancements. By adding new features and technologically
      innovative products, we believe we can continue to attract new customers
      and provide additional incentives for current customers to continue using
      our services.

Competition in the Telecommunications Industry

      The local telecommunications market is a highly competitive environment
and is dominated by ILECs. Based upon the geographical locations in which we
currently sell services, Verizon is our largest competitor. Verizon has a
"win-back" program through which it approaches former customers lost to a CLEC
or other competitor in an attempt to have the former customers switch back to
its services. Most of our actual and potential competitors have substantially
greater financial, technical, marketing and other resources (including brand
name recognition) than we do. Furthermore, our established competitors, such as
the ILECs, are able to compete effectively because they have long-term existing
relationships with their customers, strong name recognition, abundant financial
resources, and the ability to cut prices of certain services by subsidizing such
services with revenues generated from other products. Although the
Telecommunications Act of 1996 reduced barriers to entry into the local market,
future regulatory


                                       26


decisions could increase the rates that CLECs must pay ILECs for use of ILEC
facilities, which would result in lower margins for CLECs and lessen the ability
of CLECs to offer consumers a significant percentage savings on their telephone
bill. Our CLEC subsidiary, TSI, is facing some of these regulatory challenges.
However, our other CLEC subsidiary, NRTC, has commercial agreements with two
ILECs and should not be subject to future regulatory decisions involving the
prices that these ILECs can charge.

      In addition to competition from ILECs and other CLECs, several other
entities currently offer or are capable of offering local service, such as
wireless service providers, long distance carriers, cable television companies
and electric utilities. These entities, upon entering into appropriate
interconnection agreements or resale agreements with ILECs, can offer single
source local and long distance services like those we offer. For example, long
distance carriers, such as AT&T, MCI and Sprint Corporation, among other
carriers, have each successfully implemented local telecommunications services
in major U.S. markets using UNE-P or by reselling the ILECs' services.

      The long distance market, in comparison to the local market, has
relatively insignificant barriers to entry and has been populated by numerous
entities that compete for the same customers by frequently offering promotional
incentives and lower rates. We compete with many such companies that do not
offer any service other than long distance, and we compete with established
major carriers, such as AT&T and MCI. We believe our bundled package of local
services and our attentive customer service department will help us compete in
this market. We will also have to maintain high quality and low cost services to
compete effectively. In many instances, we must be in a position to reduce our
rates to remain competitive. Such reductions could adversely impact our results
of operations if we do not also provide other services to our long distance
customers.

      We also compete with wholesale DSL carriers, including companies such as
Covad Communications Group, Inc., that offer DSL services and other data related
products. Many DSL carriers have significant strategic equity investors,
marketing alliances and product development partners, and have obtained licenses
to operate as a CLEC. Additionally, many of these competitors are offering, or
may soon offer, VoIP services that may take business away from our CLECs or from
VoX. VoIP competitors include the brands AT&T, Lingo, Net2phone, Packet8 and
Vonage, as well as several ILECs.

Government Regulation

      Local and long distance telecommunications services provided by CLECs are
subject to regulation by the FCC and by state regulatory authorities. Among
other things, these regulatory authorities impose regulations governing the
rates, terms and conditions for interstate and intrastate telecommunications
services and require us to file tariffs and obtain approval for intrastate
service provided in the states in which we currently market our services. We
must obtain and maintain certificates of public convenience and necessity from
regulatory authorities in the states in which we operate. We are also required
to file and obtain prior regulatory approval for tariffs and intrastate
services. In addition, we must update or amend the tariffs and, in some cases,
the certificates of public convenience and necessity, when rates are adjusted or
new products are added to the local and long distance services we offer. Changes
in existing laws and regulations, particularly regulations resulting in
increased price competition, may have a significant impact on our business
activities and on our future operating results. We are also subject to Federal
Trade Commission regulation and other federal and state laws relating to the
promotion, advertising and direct marketing of our products and services.

      Certain marketing practices, including the means to convert a customer's
local or long distance telephone service from one carrier to another, have
recently been subject to increased regulatory review of both federal and state
authorities. Even though we have implemented procedures to comply with
applicable regulations, increased regulatory scrutiny could adversely affect the
transitioning of customers


                                       27


and the acquisition of new customer bases. Amendments to existing statutes and
regulations, adoption of new statutes and regulations and expansion of our
operations into new geographic areas and new services could require us to alter
our methods of operation or obtain additional approvals, at costs which could be
substantial. There can be no assurance that we will be able to comply with
applicable laws, regulations and licensing requirements. Failure to comply with
applicable laws, regulations and licensing requirements could result in civil
penalties, including substantial fines, as well as possible criminal sanctions.

      The use of the Internet and VoIP networks as a way of providing voice
services is a relatively recent development. Although the provisioning of such
services is currently permitted by United States law and is largely unregulated
within the United States, several foreign governments have adopted laws and/or
regulations that could restrict or prohibit the provisioning of voice
communications services over the Internet. Various regulatory actions are
underway or are being contemplated by federal, state and local authorities,
including the FCC, state regulatory agencies and local governments. To date, the
FCC has treated Internet service providers as information service providers.
Information service providers are currently exempt from federal and state
regulations governing legacy telecommunication carriers, including the
obligation to pay access charges and contribute to the universal service fund.
More aggressive domestic or international regulation of the Internet in general,
and Internet telephony providers and services specifically, may materially and
adversely affect our business plan, financial condition and future prospects,
particularly if increased numbers of governments impose regulations restricting
the use and sale of Internet telephony services.

Employees

      At June 3, 2005, we employed 56 employees, of whom 46 were employed on a
full-time basis and ten were employed on a part-time basis. We are not subject
to any collective bargaining agreement and we believe our relationship with our
employees is good.

Properties

The following table sets forth pertinent facts concerning our office leases at
June 3, 2005.


      Location                   Use      Approximate Square Feet    Annual Rent
      --------                   ---      -----------------------    -----------

75 South Broadway               Office            4,000                $72,000
White Plains, NY 10601

118 Celebration Avenue          Office            2,000                $51,600
Celebration, FL 34747

      The lease for our office space in White Plains, New York is a five-year
lease that began on December 1, 2003 and our lease for our office space in
Celebration, Florida is a three-year lease that began on February 1, 2005. We
believe we need additional space for our current operating needs. We have no
other leased or owned properties.


                                       28


                                   MANAGEMENT

Management And Board Of Directors

      The following sets forth the name, age and position of each of our
directors and executive officers as of June 3, 2005.

                               Principal Occupation for Past Five Years and
Name                   Age     Current Public Directorships or Trusteeships
----                   ---     --------------------------------------------

Paul H. Riss           49      Director since 1995; acting Chairman of our
                               Board of Directors since March 2005; our Chief
                               Executive Officer since August 1999 and our
                               Chief Financial Officer and Treasurer since
                               November 1996.

Greg M. Cooper         46      Director since April 2004; partner for more than
                               five years of Cooper, Neiman & Co., CPAs, LLP,
                               certified public accountants; and member of the
                               board of directors of Mid Hudson Cooperative
                               Insurance Company in Montgomery New York, a
                               privately-held insurance company.

Gayle Greer            64      Director since January 2005; Ms. Greer retired
                               in 1998 from Time Warner Entertainment after
                               serving over 20 years in a number of executive
                               positions, including most recently Senior Vice
                               President of Time Warner Cable; co-founder of
                               GS2.Net, a business service provider, and served
                               as its Chairwoman from 1999 to April 2001;
                               co-founder of the National Association of
                               Minorities in Cable and Telecommunications and
                               served as its Chairwoman from 1981 to
                               1985;director of ING North America Financial
                               Services Company, an insurance and financial
                               services company since 1997.

Michael H. Khalilian   42      Director and Chief Technology Officer since
                               October 2004; director and Chief Technology
                               Officer of eLEC and VoX Communications, Inc.,
                               our wholly-owned subsidiary, since October 2004;
                               Chairman of the Board of Directors and President
                               of International Packet Communications
                               Consortium, an industry VoIP forum of which Mr.
                               Khalilian is a founding member, since July 2001;
                               Chief Technology Officer and director of Volo
                               Communications Inc., a wholesale VoIP service
                               provider, from January 2003 to July 2004; Chief
                               Technologist and advisor for the Telecom
                               Business Groups at NTT from January 2002 to June
                               2003; Senior Engineer and Senior Director for
                               the Cable, Communications and Telecom business
                               groups at Time Warner Communications from March
                               1996 to May 2002.

Mark Richards          45      President of our wholly-owned subsidiary, VoX
                               Communications, Inc., since October 2004; Acting
                               Chief Executive Officer of Epicus Communications
                               Inc., a publicly-held CLEC, from January 2002 to
                               January 2004; Chief Information Officer of
                               Epicus Communications Inc. from 2000 to January
                               2002.

      All directors serve for one year and until their successors are elected
and qualified. All officers serve at the pleasure of the Board of Directors.
There are no family relationships among any of the officers and directors.


                                       29


Executive Compensation

      The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to Mr. Paul H. Riss, our Chief
Executive Officer, Mr. Michael H. Khalilian, our Chief Information Officer, and
Mr. Mark Richards, the President of Vox Communications, Inc., our wholly-owned
subsidiary (collectively, the "Named Executives"). None of our other executive
officers received more than $100,000 in compensation during fiscal 2004.



                                                        Compensation Table

                                                                                                        Long-Term
                               Annual Compensation                                                 Compensation Awards
                                                                                                   -------------------

Name and                       Fiscal                                  Other Annual                             All Other
Principal Position              Year      Salary($)      Bonus($)      Compensation ($)       Options(#)       Compensation
------------------             ------     ---------      --------      ----------------       ----------       ------------
                                                                                            
Paul H. Riss                   2004        $150,000        None              None                100,000          None
  Chief Executive Officer,     2003         150,000        None              None                250,000          None
  Chief Financial Officer      2002         150,000        None              None                   None          None
  and Treasurer

Michael H. Khalilian(1)        2004       $ 12,000         None              None                900,000          None
  Chief Technology             2003           None         None              None                   None          None
   Officer                     2002           None         None              None                   None          None

Mark Richards(2)               2004       $ 22,569         None              None              1,000,000          None
  President of Vox             2003           None         None              None                   None          None
  Communications, Inc.         2002           None         None              None                   None          None


-----------------------------

(1)   Mr. Khalilian became our Chief Technology Officer in October 2004 and
      receives an annual salary of $120,000 for such services.

(2)   Mr. Richards became the President of our wholly-owned subsidiary, Vox
      Communications, Inc., in October 2004 and receives an annual salary of
      $120,000 for such services.


                                       30


                               Stock Option Grants

      The following table sets forth individual grants of stock options and
stock appreciation rights ("SARs") made during fiscal 2004 to the Named
Executives.



                               Option/SAR Grants In Last Fiscal Year

                              Number of       Percent of Total
                              Securities        Options/SARs
                              Underlying         Granted to
                             Options/SARs       Employees in      Exercise or Base        Expiration
Name                          Granted(1)       Fiscal Year(2)     Price ($/Share)            Date
----                          ----------       --------------     ---------------            ----

                                                                                  
Paul H. Riss...........        100,000              4.6%               $0.18               04/08/09

Michael Khalilian......        900,000              41.2%              $0.23               10/26/09

Mark Richards..........       1,000,000             45.8%              $0.25               10/14/09


---------------

(1)   No SARs were granted in fiscal 2004.

(2)   In fiscal 2004, we granted options to seven employees, certain members of
      our board of directors and the former Chairman of our Board of Directors
      to purchase an aggregate of 2,185,000 shares of our common stock.

                             Stock Option Exercises

      The following table contains information relating to the exercise of our
stock options by the Named Executives in fiscal 2004, as well as the number and
value of their unexercised options as of November 30, 2004.



                                  Aggregated Option Exercises in Last Fiscal Year
                                          and Fiscal Year-End Option Values

                                                       Number of Securities              Value of Unexercised
                            Shares                     Underlying Unexercised            In-the-Money Options at Fiscal
                         Acquired on        Value      Options at Fiscal Year-End(#)(1)  Year-End ($)(2)
Name                     Exercise (#)    Realized($)   Exercisable      Unexercisable    Exercisable      Unexercisable
----                     ------------    -----------   -----------      -------------    -----------      -------------
                                                                                              
Paul H. Riss                  --             --           370,000          450,000          $47,500         $ 11,000

Michael Khalilian             --             --                --          900,000               --           54,000

Mark Richards                 --             --                --        1,000,000               --           40,000


----------------

(1)   The sum of the numbers under the Exercisable and Unexercisable column of
      this heading represents the Named Executives' total outstanding options to
      purchase shares of common stock.

(2)   The dollar amounts shown under the Exercisable and Unexercisable columns
      of the heading represent the number of exercisable and unexercisable
      options, respectively, that were "In-the-Money" on November 30, 2004,
      multiplied by the difference between the closing price of the common stock
      on


                                       31


      November 30, 2004, which was $0.29 per share, and the exercise price of
      the options. For purposes of these calculations, In-the-Money options are
      those with an exercise price below $0.29 per share.




                                       32


                             PRINCIPAL STOCKHOLDERS


      The following table sets forth, as of March 15, 2005, the names, addresses
and number of shares of our common stock beneficially owned by all persons known
to us to be beneficial owners of more than 5% of the outstanding shares of our
common stock, and the names and number of shares beneficially owned by all of
our directors and all of our executive officers and directors as a group (except
as indicated, each beneficial owner listed exercises sole voting power and sole
dispositive power over the shares beneficially owned). As of March 15, 2005, we
had a total of 16,759,282 shares of common stock outstanding:



                                                  Number of Shares     Percent of Shares
Name and Address                                 Beneficially Owned    Beneficially Owned
----------------                                 ------------------    ------------------
                                                                    
Paul H. Riss
eLEC Communications Corp.                             1,470,000(1)            8.5%
75 South Broadway, Suite 302
White Plains, New York  10601

Joel Dupre
Cordia Communications Corp.                             999,668(2)            5.4%
445 Hamilton Avenue
White Plains, New York  10601

Greg M. Cooper
Cooper, Neiman & Co., CPAs, LLP                          65,000(3)             *
PO Box 190
Mongaup Valley, New York  12762

Michael H. Khalilian                                      125,000              *
478 E. Altamonte Drive, Suite 108-480
Altamonte Springs, Florida  32701

Gayle Greer                                                   -0-              -
75 South Broadway, Suite 302
White Plains, New York  10601

Mark Richards                                           100,000(4)             *
610 Sycamore Street
Celebration, Florida  34747

All directors and executive officers
  as a group (five individuals)                         1,760,000              10.8%


------------------
*  Less than 1%.

(1)   Includes 470,000 shares of common stock subject to options that are
      presently exercisable or exercisable within 60 days after March 15, 2005.

(2)   Includes 130,000 shares of common stock subject to options that are
      presently exercisable or exercisable within 60 days after March 15, 2005.


                                       33


(3)   Includes 25,000 shares of common stock subject to options that are
      exercisable within 60 days after March 15, 2005.

(4)   Represents shares of common stock subject to options that are presently
      exercisable.


                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


      We believe all purchases from or transactions with affiliated parties were
on terms and at prices substantially similar to those available from
unaffiliated third parties.




                                       34


                            DESCRIPTION OF SECURITIES

      Our authorized capital stock consists of 50,000,000 shares of common
stock, par value $.10 per share, and 1,000,000 shares of preferred stock, par
value $.10 per share. As of June 3, 2005, 16,779,282 shares of common stock were
issued and outstanding and no shares of preferred stock were issued and
outstanding. In addition, at such date, 8,659,046 shares of common stock were
reserved for issuance upon the exercise of outstanding options and warrants and
the conversion of outstanding convertible indebtedness.

Common Stock

      Voting, Dividend and Other Rights. Each outstanding share of common stock
will entitle the holder to one vote on all matters presented to the shareholders
for a vote. Holders of shares of common stock will have no preemptive,
subscription or conversion rights. All shares of common stock to be outstanding
following this offering will be duly authorized, fully paid and non-assessable.
Our Board of Directors will determine if and when distributions may be paid out
of legally available funds to the holders. We have not declared any cash
dividends during the past fiscal year with respect to the common stock. Our
declaration of any cash dividends in the future will depend on our Board of
Directors' determination as to whether, in light of our earnings, financial
position, cash requirements and other relevant factors existing at the time, it
appears advisable to do so. In addition, our loan agreement with Laurus does not
allow us to directly or indirectly declare or pay any dividends so long as our
secured convertible term note to Laurus remains outstanding.

      Rights Upon Liquidation. Upon liquidation, subject to the right of any
holders of the preferred stock to receive preferential distributions, each
outstanding share of common stock may participate pro rata in the assets
remaining after payment of, or adequate provision for, all our known debts and
liabilities.

      Majority Voting. The holders of a majority of the outstanding shares of
common stock constitute a quorum at any meeting of the shareholders. A plurality
of the votes cast at a meeting of shareholders elects our directors. The common
stock does not have cumulative voting rights. Therefore, the holders of a
majority of the outstanding shares of common stock can elect all of our
directors. In general, a majority of the votes cast at a meeting of shareholders
must authorize shareholder actions other than the election of directors.
However, the Business Corporation Law of the State of New York provides that
certain extraordinary matters, such as a merger or consolidation in which we are
a constituent corporation, a sale or other disposition of all or substantially
all of our assets, and our dissolution, require the vote of the holders of
two-thirds of all outstanding voting shares. Most amendments to our certificate
of incorporation require the vote of the holders of a majority of all
outstanding voting shares.

Preferred Stock

      Authority of Board of Directors to Create Series and Fix Rights. Under our
certificate of incorporation, as amended, our Board of Directors can issue up to
1,000,000 shares of preferred stock from time to time in one or more series. The
Board of Directors is authorized to fix by resolution as to any series the
designation and number of shares of the series, the voting rights, the dividend
rights, the redemption price, the amount payable upon liquidation or
dissolution, the conversion rights, and any other designations, preferences or
special rights or restrictions as may be permitted by law. Unless the nature of
a particular transaction and the rules of law applicable thereto require such
approval, the Board of Directors has the authority to issue these shares of
preferred stock without shareholder approval. Our Board of Directors has not
authorized the issuance of any shares of preferred stock.


                                       35


      Potential Dilution of Share Value; Preferences. Any issuance of shares of
preferred stock could dilute the earnings per share and book value of existing
shares of common stock. Because our Board of Directors has the authority to fix
the voting rights for any series of preferred stock, the holders of shares of a
series of preferred stock could be entitled to vote separately as a class in
connection with the approval of certain extraordinary corporate transactions
where New York law does not require such class vote, or might be given a
disproportionately large number of votes. The issuance of shares of preferred
stock could also result in a class of securities outstanding that would have
certain preferences (for example, with respect to dividends or liquidation), or
would enjoy certain voting rights in addition to those of the common stock.

      Potential Frustration in Change of Control. Although we currently have no
such intention, we could use authorized but unissued shares of preferred stock
to hinder a change in control of our company. Any issuance of shares of
preferred stock could dilute the stock ownership of persons seeking to gain
control. Shares of a new series of preferred stock could also be convertible
into a large number of shares of common stock or have other terms that might
make more difficult or costly the acquisition of a controlling interest in our
company. Under certain circumstances, such shares could be used to create voting
impediments or to frustrate persons attempting to effect a takeover or otherwise
gain control. Such shares could be privately placed with purchasers who might
side with the Board of Directors in opposing a hostile takeover bid. In
addition, the Board of Directors could authorize holders of a series of
preferred stock to vote as a class, either separately or with the holders of the
common stock, on any merger, sale or exchange of assets by us or any other
extraordinary corporate transactions. The ability of the Board of Directors to
take such actions might be considered as having an effect of discouraging any
attempt by another person or entity to acquire control of our company.

Transfer Agent and Registrar

      The registrar and transfer agent for our common stock is Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016.


                                       36


                              SELLING SHAREHOLDERS

      The following table sets forth information with respect to the maximum
number of shares of common stock beneficially owned by the selling shareholders
named below and as adjusted to give effect to the sale of the shares offered
hereby. The shares beneficially owned have been determined in accordance with
rules promulgated by the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose. The information in the table
below is current as of March 25, 2005. All information contained in the table
below is based upon information provided to us by the selling shareholders and
we have not independently verified this information. The selling shareholders
are not making any representation that any shares covered by the prospectus will
be offered for sale. The selling shareholders may from time to time offer and
sell pursuant to this prospectus any or all of the common stock being
registered.

      For purposes of this table, beneficial ownership is determined in
accordance with SEC rules, and includes voting power and investment power with
respect to shares and shares owned pursuant to warrants exercisable within 60
days. The "Number of Shares Beneficially Owned After Offering" column assumes
the sale of all shares offered.

      As explained below under "Plan of Distribution," we have agreed with the
selling shareholders to bear certain expenses (other than broker discounts and
commissions, if any) in connection with the registration statement, which
includes this prospectus.



                                      Number of Shares                                Number of Shares
                                     Beneficially Owned        Number of Shares      Beneficially Owned
 Selling Shareholder                 Prior to Offering(1)          Offered           After Offering(2)
 -------------------                 --------------------      ----------------      -------------------
                                                                                  
Laurus Master Fund, Ltd.(3)               836,288(4)              4,365,078                  -0-
Kaufman Bros., L.P.                       350,000(5)                350,000                  -0-
W. Todd Coffin                             63,492                    63,492(6)               -0-
Ted Flomenhaft                            121,492                    63,492(6)             58,000
David Harris                                5,079                     5,079(6)               -0-
Russell Newton                             22,857                    22,857(6)               -0-
Bruce Ryan                                 22,857                    22,857(6)               -0-
Jeffrey Silverman                          82,699                    12,699(6)             70,000
TT Capital, LLC                            63,492                    63,492(6)               -0-


(1)   Unless otherwise indicated, the selling shareholders have sole voting and
      investment power with respect to its shares of common stock. The inclusion
      of any shares in this table does not constitute an admission of beneficial
      ownership for the selling shareholders. Includes shares of common stock
      that the selling shareholder has the right to acquire beneficial ownership
      of within 60 days.

(2)   Assumes the sale of all shares of common stock offered hereby and no other
      transactions in the common stock by the selling shareholders or their
      affiliates. Shareholders are not required to sell their shares.

(3)   Laurus Master Fund, Ltd. ("Laurus") is a New York City-based institutional
      fund specializing in providing financing to small capitalization
      publicly-traded companies. Control of all investment 


                                       37


      decisions are vested with its investment manger, Laurus Capital Management
      LLC. The directors of Laurus Capital Management LLC are David and Eugene
      Grin. By virtue of their position as directors of Laurus Capital
      Management LLC, Messrs. Grin exercise voting control over the shares of
      our common stock owned by Laurus.

(4)   Laurus holds a note that is convertible into 3,174,603 shares of common
      stock and warrants to purchase 793,650 shares of common stock. The note
      and warrants contain provisions known as "exercise caps," which prohibit
      the holder of the note and warrants (and its affiliates) from converting
      such note or exercising such warrants to the extent that giving effect to
      such conversion or exercise, such holder would beneficially own in excess
      of 4.99% of our outstanding common stock. The holder can waive the 4.99%
      limit, but such waiver will not become effective until the 76th day after
      such notice is delivered to us. The figures set forth above as the
      ownership prior to the offering and the ownership after the offering
      reflect the operation of such exercise caps in that we have not included
      3,131,965 shares of common stock issuable pursuant to such convertible
      note and warrants as Laurus has advised us that it does not beneficially
      own such shares due to the fact that it cannot exercise its right to
      receive these shares at this time. In the absence of such caps, Laurus
      would have the right to receive all the shares issuable upon conversion of
      the note and exercise of the warrants and would have a beneficial
      ownership percentage of 19.14%.

(5)   Represents 100,000 shares issuable upon the exercise of outstanding
      warrants that expire on July 21, 2005 and are exercisable at a price of
      $2.50 per share, subject to certain anti-dilution adjustments and 250,000
      shares issuable upon the exercise of outstanding warrants that expire on
      February 22, 2006 and are exercisable at a price of $1.63 per share,
      subject to certain anti-dilution adjustments.

(6)   Represents shares issuable upon the exercise of outstanding warrants that
      expire on February 8, 2009 and are exercisable at a price of $0.63 per
      share, subject to certain anti-dilution adjustments.

      Kaufman Bros., L.P. provided us investment banking services during our
2000 and 2001 fiscal years, for which it received warrants as a portion of its
compensation for services rendered. We currently utilize Source Capital Group,
Inc. ("Source Capital") as a financial advisor under the terms of an agreement
that expires on July 31, 2005. Source Capital instructed us to grant the
253,9687 options to which it was entitled as part of its advisory fee to the
seven selling shareholders listed above who received warrants expiring on
February 8, 2009.

      Except as provided above, no affiliate of any of the selling shareholders
has held any position or office with us or any of our affiliate and none of the
selling shareholders has had any other material relationship with us or any of
our affiliates within the past three years other than as a result of its
ownership of shares of equity security.

      No affiliate of any of the selling shareholders has held any position or
office with us or any of our affiliates and none of the selling shareholders has
had any other material relationship with us or any of our affiliates within the
past three years other than as a result of its ownership of shares of equity
securities.


                                       38


                              PLAN OF DISTRIBUTION

         The selling shareholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling shareholders may use any one or more of
the following methods when selling shares:

      o     ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;
      o     block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;
      o     purchases by a broker-dealer as principal and resale by the
            broker-dealer for its account;
      o     an exchange distribution in accordance with the rules of the
            applicable exchange; o privately negotiated transactions;
      o     short sales after this registration statement becomes effective;
      o     broker-dealers may agree with the selling shareholders to sell a
            specified number of such shares at a stipulated price per share;
      o     a combination of any such methods of sale; and o any other method
            permitted pursuant to applicable law.

      The selling shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.

      The selling shareholders may also engage in short sales against the box
after this registration statement becomes effective, puts and calls and other
transactions in our securities or derivatives of our securities and may sell or
deliver shares in connection with these trades.

      Broker-dealers engaged by the selling shareholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act of 1933. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling shareholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act of 1933.

      The selling shareholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling shareholders to include the pledgee, transferee or other
successors in interest as selling shareholders under this prospectus.

      The selling shareholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus and may sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable 


                                       39


provision of the Securities Act of 1933 amending the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus.

      We are required to pay all fees and expenses incident to the registration
of the shares of common stock. We have agreed to indemnify the selling
shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act of 1933.

      Each of the selling shareholders acquired the securities offered hereby in
the ordinary course of business and has advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling shareholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act.

      The anti-manipulation rules of Regulation M under the Securities Exchange
Act of 1934 may apply to sales of our common stock and activities of the selling
shareholders.

                                  LEGAL MATTERS

      The legality of the issuance of the shares offered in this prospectus will
be passed upon for us by Pryor Cashman Sherman & Flynn LLP, New York, New York
10022. Pryor Cashman Sherman & Flynn LLP holds options to purchase 55,000 shares
of our common stock at an exercise prices ranging from $0.10 to $0.97 per share.
In addition, a member of Pryor Cashman Sherman & Flynn LLP holds 233,000 shares
of our common stock.

                                     EXPERTS

      The consolidated financial statements as of November 30, 2004 and for the
years ended November 30, 2004 and 2003 included in this prospectus have been
audited by Nussbaum Yates & Wolpow, P.C., independent registered pubic
accountants, as stated in its report appearing herein and elsewhere in this
Registration Statement, and have been so included in reliance upon the report of
this firm given upon their authority as experts in auditing and accounting.

                       WHERE YOU CAN FIND MORE INFORMATION

      We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 (including exhibits) under the Securities Act, with
respect to the shares to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to our company and the common stock offered in this
prospectus, reference is made to the registration statement, including the
exhibits filed thereto, and the financial statements and notes filed as a part
thereof. With respect to each such document filed with the SEC as an exhibit to
the registration statement, reference is made to the exhibit for a more complete
description of the matter involved.


                                       40


      We file quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
public reference facilities of the SEC in Washington, D.C. You may call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's website at
http//www.sec.gov.




                                       41




                            eLEC COMMUNICATIONS CORP.
                          INDEX TO FINANCIAL STATEMENTS

                                                                                         Page
                                                                                      
Unaudited Condensed Consolidated Balance Sheet for the period ended
February 28, 2005.......................................................................  F-1

Unaudited Condensed Consolidated Statements of Operations for the periods
ended February 28, 2005 and February 29, 2004...........................................  F-2

Unaudited Condensed Consolidated Statements of Cash Flows for the periods
ended February 28, 2005 and February 29, 2004...........................................  F-3

Notes to Unaudited Condensed Consolidated Financial Statements for the periods
ended February 28, 2005 and February 29, 2004...........................................  F-4

Reports of Independent Public Accountants............................................... F-11

Consolidated Balance Sheet as of November 30, 2004...................................... F-12

Consolidated Statements of Operations for the years ended November 30, 2004
and 2003................................................................................ F-13

Consolidated Statements of Stockholders' Equity Deficiency for the years ended
November 30, 2004 and 2003.............................................................. F-14

Consolidated Statements of Cash Flows for the years ended November 30, 2004
and 2003................................................................................ F-15

Notes to Consolidated Financial Statements for the years ended November 30, 2004
and 2003................................................................................ F-17



                                       42


                         PART 1. FINANCIAL INFORMATION
                         -----------------------------

Item 1.  Financial Statements
-------  --------------------

                   eLEC Communications Corp. and Subsidiaries
                      Condensed Consolidated Balance Sheet



                                                                         Feb. 28, 2005
                                                                         -------------
                                                                           (Unaudited)
                                                                       
Assets
Current assets:
 Cash and cash equivalents                                                $  1,552,349
 Accounts receivable, net                                                    1,660,152
 Prepaid expenses and other current assets                                      12,849
                                                                          ------------
Total current assets                                                         3,225,350

Property, plant and equipment, net                                             291,967

Other assets                                                                    55,204

Deferred finance costs                                                         342,157
                                                                          ------------
Total assets                                                              $  3,914,678
                                                                          ============

Liabilities and stockholders' equity deficiency
Current liabilities:
 Short-term borrowings                                                    $    280,320
 Current maturities of long-term debt and capital lease obligations            638,161
 Accounts payable and accrued expenses                                       2,399,209
 Taxes payable                                                                 755,741
 Due to related party                                                           36,363
 Deferred revenue                                                              407,666
                                                                          ------------
Total current liabilities                                                    4,517,460
                                                                          ------------

Long-term debt                                                                 669,017

Stockholders' equity deficiency:
 Common stock $.10 par value, 50,000,000 shares authorized,
   16,759,282 shares issued                                                  1,675,928
 Capital in excess of par value                                             26,400,644
 Deficit                                                                   (29,345,535)
 Accumulated other comprehensive loss, unrealized loss on securities            (2,836)
                                                                          ------------
   Total stockholders' equity deficiency                                    (1,271,799)
                                                                          ------------
Total liabilities and stockholders' equity deficiency                     $  3,914,678
                                                                          ============


See notes to the condensed consolidated financial statements.


                                       F-1


                   eLEC Communications Corp. and Subsidiaries
 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
                                   (Unaudited)



                                                               For the Three Months Ended
                                                             Feb. 28, 2005      Feb. 29, 2004
                                                             -------------      -------------
                                                                           
Revenues                                                      $  3,863,479       $  1,873,992
                                                              ------------       ------------

Costs and expenses:
  Costs of services                                              2,055,539            880,075
  Selling, general and administrative                            2,221,007            936,646
  Depreciation and amortization                                      1,355              3,858
                                                              ------------       ------------
         Total costs and expenses                                4,277,901          1,820,579
                                                              ------------       ------------

Income (loss) from operations                                     (414,422)            53,413
                                                              ------------       ------------

Other income (expense):
  Interest expense                                                 (51,616)            (2,762)
  Change in warrant valuation                                       47,089                 --
  Interest and other income                                         17,264             29,081
                                                              ------------       ------------
         Total other income                                         12,737             26,319
                                                              ------------       ------------

Income (loss) before bankruptcy reorganization items and
income tax benefit                                                (401,685)            79,732
                                                              ------------       ------------

Reorganization items:
   Gain on settlement with creditors                                    --             51,474
   Professional fees                                                    --           (120,066)
                                                              ------------       ------------
                                                                        --            (68,592)
                                                              ------------       ------------

Income (loss) before income tax benefit                           (401,685)            11,140

Income tax benefit                                                      --            (45,000)
                                                              ------------       ------------

Net income (loss)                                                 (401,685)            56,140

Other comprehensive loss - unrealized
loss on marketable securities                                         (585)                --
                                                              ------------       ------------

Comprehensive income (loss)                                      ($402,270)      $     56,140
                                                              ============       ============

Basic and diluted earnings (loss) per share                         ($0.02)      $       0.00
                                                              ============       ============

Weighted average number of common shares outstanding
    Basic                                                       16,681,726         16,257,667
                                                              ============       ============
    Diluted                                                     16,681,726         16,568,565
                                                              ============       ============


See notes to the condensed consolidated financial statements.


                                       F-2


                   eLEC Communications Corp. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)



                                                                  For the Three Months Ended
                                                                Feb. 28, 2005    Feb. 29, 2004
                                                                -------------    -------------
                                                                             
Net cash used in operating activities:                             ($771,279)       ($58,581)
                                                                 -----------       ---------

Cash flows used in investing activities:
   Purchase of property and equipment                               (100,910)             --
                                                                 -----------       ---------
Net cash used in investing activities                               (100,910)             --
                                                                 -----------       ---------

Cash flows from financing activities:
   Repayment of long-term debt                                                        (1,731)
   Proceeds form the exercise of options                              34,500              --
   Proceeds from notes, warrants and common stock issuances        2,018,186              --
                                                                 -----------       ---------
   Net cash provided by (used in) financing activities             2,052,686          (1,731)
                                                                 -----------       ---------

Increase (decrease) in cash and cash equivalents                   1,180,497         (60,312)
Cash and cash equivalents at beginning of period                     371,852         669,022
                                                                 -----------       ---------
Cash and cash equivalents at the end of period                   $ 1,552,349       $ 608,710
                                                                 ===========       =========


See notes to the condensed consolidated financial statements.


                                       F-3


                            eLEC COMMUNICATIONS CORP.
                            -------------------------

        Notes To Condensed Consolidated Financial Statements (Unaudited)
        ----------------------------------------------------------------

Note 1-Basis of Presentation
----------------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and with the  instructions  to Form 10-QSB of Regulation
S-B.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements. In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating results for the three-month  period ended February 28, 2005
are not necessarily  indicative of the results that may be expected for the year
ended  November 30, 2005.  For further  information,  refer to the  consolidated
financial statements and footnotes thereto included in our Annual Report on Form
10-KSB for the year ended November 30, 2004.

Note 2-Principal Financing Arrangements
---------------------------------------

On December 17, 2004,  we sold a promissory  note (the "Note") in the  principal
amount of  approximately  $328,767 and 160,000 shares of our  restricted  common
stock to an unaffiliated  party for $300,000 of which $32,000 has been allocated
to common  stock  issuances.  The Note is payable on  December  17,  2005 and is
unsecured.  The Note  requires us to spend the proceeds of the Note on sales and
marketing efforts.  We recorded costs of $36,314 in connection with the issuance
of the Note which are being amortized over the term of the Note. Amortization of
these costs for the three-month  period ended February 28, 2005 was $13,850,  of
which $7,362 was included in our selling,  general and  administrative  expenses
("SG&A") as financing  costs and $6,488  allocated to the $32,000 debt  discount
was included in interest expense using the effective interest method.

On February 8, 2005, we entered into a secured financing arrangement with Laurus
Master Fund,  Ltd.  ("Laurus").  The financing  consists of a $2 million secured
convertible term note (the  "Convertible  Note") that bears interest at the rate
of prime (as published in the Wall Street Journal),  plus three percent (8.5% as
of February 28, 2005) that was initially scheduled to mature on February 8, 2006
but was  subsequently  extended  to February 8, 2008.  The  Convertible  Note is
convertible  into shares of our common stock at an initial  fixed price of $0.63
per share.  The fixed  conversion  price of the  Convertible  Note is subject to
anti-dilution  protection,  on a  weighted-average  basis,  upon our issuance of
additional  shares of our  common  stock at a price  that is less than the fixed
conversion price.

In connection with the financing, Laurus was also issued warrants to purchase up
to 793,650 shares of our common stock.  The warrants are exercisable as follows:
264,550  shares at $0.72 per  share;  264,550  shares at $0.79 per share and the
balance  at  $0.95  per  share.  The  underlying   contracts  contained  certain
provisions  where  there  is a  provision  for a  cash  settlement.  EITF  00-19
precludes classifying the warrants as equity, since all of the conditions stated
in  paragraphs  14-32 of EITF 00-19 were not  satisfied,  and  accordingly,  the
warrants have been classified as debt. The proceeds of the Convertible Note were
allocated first to the fair value of the warrants  (liability) and the remainder
to the debt instrument.  We computed the beneficial  conversion feature embedded
in


                                       F-4


the debt instrument using the effective conversion price in accordance with EITF
98-5,  EITF 00-19 and EITF 00-27. We recorded (i) debt discounts of $504,128 for
the valuation of the 793,650 warrants issued with the Convertible Note (computed
using a Black-Scholes model with an interest rate of 2.31%,  volatility of 158%,
zero  dividends  and  expected  term of  seven  years);  (ii)  $610,628  for the
beneficial  conversion  feature  inherent  in the  Convertible  Note  and  (iii)
$106,500 for debt issue costs paid to affiliates of the lender. In addition,  we
issued to Source  Capital Group Inc., an  investment  banking firm,  warrants to
purchase  up to 253,968  shares of our  common  stock as  additional  debt issue
costs.  These warrants were valued at $149,783 using the Black-Scholes  model as
above.  Total debt  issuance  costs  incurred to third parties for arranging the
financing  aggregated  $313,363,  including  the value of the warrants to Source
Capital Group Inc.  Amortization of these costs for the three-month period ended
February  28,  2005  was  $57,452,  of which  $18,157  was  included  in SG&A as
financing  costs and $39,295 was  included in interest  expense.  Discounts  are
being amortized over one year, the initial term of the Convertible  Note,  using
the  effective  interest  method.  The  warrant  liability  is  adjusted at each
reporting  date to fair  market  value  using  the  Black-Scholes  model  with a
corresponding charge or credit to income.

To secure the payment of all  obligations  to Laurus,  we entered  into a Master
Security  Agreement  that  assigns  and grants to Laurus a  continuing  security
interest in all of the  following  property now owned or at any time acquired by
us or our  subsidiaries,  or in which any assignor now has or at any time in the
future may acquire any right,  title or interest:  all cash,  cash  equivalents,
accounts, deposit accounts, inventory, equipment, goods, documents,  instruments
(including,  without  limitation,  promissory notes),  contract rights,  general
tangibles,   chattel  paper,   supporting   obligations,   investment  property,
letter-of-credit  rights,  trademarks,  trademark applications,  patents, patent
applications,  copyrights,  copyright  applications,  and any other intellectual
property,  in each case, in which any assignor now has or may acquire any right,
title or  interest,  all  proceeds  and  products  thereof  (including,  without
limitation,   proceeds  of  insurance)   and  all   additions,   accessions  and
substitutions. In the event any assignor wishes to finance an acquisition in the
ordinary course of business of any hereafter-acquired equipment and has obtained
a commitment from a financing source to finance such equipment from an unrelated
third  party,  Laurus  has  agreed to  release  its  security  interest  on such
hereafter-acquired equipment so financed by such third party financing source.

The Convertible Note is to be repaid using cash or an equity conversion  option;
the details of both methods for  repayment  are as follows:  Beginning on May 1,
2005,  which is the first  scheduled  payment  date,  we are  obligated  to make
monthly  payments to Laurus on each repayment date until the maturity date, each
in the amount of $60,606, together with any accrued and unpaid interest to date.
By the fifth business day prior to each amortization date, Laurus may deliver to
us a written  notice  directing  that the  monthly  amount  payable  on the next
repayment  date shall be paid in either  shares of common stock or a combination
of cash and common stock. If a repayment notice is not delivered by Laurus on or
before the applicable  notice date for any repayment date, then we are obligated
to pay the monthly amount due in cash. Any portion of the monthly amount paid in
cash shall be paid to Laurus in an amount equal to 102% of the principal portion
of the monthly  amount due. If Laurus  elects to receive all or a portion of the
monthly  amount in shares of our common  stock,  the number of such shares to be
issued by us will be determined by dividing the portion of the monthly amount to
be paid in shares of common stock,  by the applicable  fixed  conversion  price,
which is presently $0.63 per share.

A registration rights agreement was executed requiring us to register the shares
of our common stock underlying the Convertible Note and warrants so as to permit
the  public  resale  thereof.


                                       F-5


Liquidated damages in the amount of 2% of the Convertible Note balance per month
accrue if the  registration  statement  has not been  declared  effective by the
Securities and Exchange  Commission by June 8, 2005. The registration  statement
was filed with the Securities and Exchange  Commission on March 31, 2005 but has
not yet been declared effective.

Note 3-Major Customer
---------------------

During the three-month periods ended February 28, 2005 and February 29, 2004, no
one customer accounted for more than 10% of revenue.

Note 4-Income Taxes
-------------------

At November 30, 2004, we had net operating loss carryforwards for Federal income
tax  purposes of  approximately  $20,850,000  expiring in the years 2008 through
2024. There is an annual limitation of approximately $187,000 on the utilization
of approximately  $2,450,000 of such net operating loss carryforwards  under the
provisions of Internal Revenue Code Section 382.

Note 5- Earnings (Loss) Per Common Share
----------------------------------------

Basic  earnings  (loss) per common share are  calculated  by dividing net income
(loss) by the weighted  average number of common shares  outstanding  during the
period.  Diluted  earnings per share is calculated by dividing net income by the
sum of the  weighted  average  number  of  common  shares  outstanding  plus all
additional  common  shares  that  would  have been  outstanding  if  potentially
dilutive  securities had been issued unless such inclusion  reduced the loss per
share. A  reconciliation  of the shares used in the computation of our basic and
diluted earnings per common share is as follows:

                                                           Three Months Ended
                                                        2/28/05         2/29/04
                                                        -------         -------

Weighted average common shares outstanding            16,681,726      16,257,667
Dilutive effect of securities                                 --         310,898
                                                      ----------      ----------
                                                      16,681,726      16,568,565
                                                      ==========      ==========

Approximately 8,125,000 and 1,500,000 of our stock options,  warrants and shares
issuable upon the potential  conversion  of the  Convertible  Note were excluded
from the  calculation of diluted  earnings (loss) per share for the three months
ended  February  28, 2005 and February 29, 2004 because the effect would be anti
dilutive.

Note 6-Subsidiary's Plan of Reorganization
------------------------------------------

On April 8, 2004, the United States  Bankruptcy Court for the Southern  District
of New York  confirmed  a Plan of  Reorganization  (the  "Bankruptcy  Plan") for
Telecarrier  Services,  Inc.  ("TSI").  On July 29,  2002,  TSI, a  wholly-owned
subsidiary,  had filed a voluntary  petition for relief under  Chapter 11 of the
Federal  Bankruptcy Code in the United States  Bankruptcy Court for the Southern
District of New York. The Bankruptcy Plan authorized us to disburse  $325,000 to
creditors in full satisfaction of claims amounting to approximately  $1,229,000.
For the year ended


                                       F-6


November  30,  2004,  TSI  reported  a gain of  $904,027  as a  result  of being
judicially released from these claims.

For the  three-month  period ended  February  29,  2004,  TSI reported a gain of
approximately   $51,000  as  a  result  of  a   court-stipulated   reduction  in
post-petition   liabilities  (See  Note  10)  and   approximately   $120,000  in
professional  fees.  These items are included under the heading  "Reorganization
items" in our Condensed  Consolidated  Statement of Operations and Comprehensive
Income (Loss).  No such  transactions  occurred in the three-month  period ended
February 28, 2005.


                                       F-7


Note 7-Risks and Uncertainties
------------------------------

We buy  substantially all of our  telecommunication  services from Regional Bell
Operating Companies ("RBOCs"),  and are, therefore,  highly dependent upon them.
We believe our  relationship  with the RBOCs from which we purchase  services is
satisfactory.  We also believe  there are other  suppliers of  telecommunication
services  in the  geographical  locations  in  which  we  conduct  business.  In
addition,  we are at risk to regulatory  changes that govern the rates we are to
be charged and the  obligations  of the RBOCs to  interconnect  with, or provide
unbundled  network  elements  to their  competitors.  The FCC and  state  public
utility   commissions   have   adopted   extensive   rules  to   implement   the
Telecommunications  Act of 1996, which sets standards for relationships  between
communications  providers, and they revisit such regulations on an ongoing basis
in response to the evolving  marketplace  and court  decisions.  In light of the
foregoing,  it is possible  that the loss of our  relationship  with the primary
RBOC  that  supplies  us with  wholesale  telephone  services  or a  significant
unfavorable  change in the regulatory  environment would have a severe near-term
impact on our ability to conduct our  telecommunications  business.  In order to
reduce regulatory risks going forward,  our main operating subsidiary has signed
a commercially negotiated wholesale services agreement with two of the RBOCs.

Future  results  of  operations  involve a number  of risks  and  uncertainties.
Factors  that could  affect  future  operating  results and cash flows and cause
actual results to vary materially from historical  results include,  but are not
limited to:

      -     Our  business  strategy  with  respect  to  bundled  local  and long
            distance services may not succeed.

      -     Failure  to  manage,  or  difficulties  in  managing,   our  growth,
            operations  or  restructurings  including  attracting  and retaining
            qualified  personnel and opening up new  territories for its service
            with favorable gross margins.

      -     Dependence on the  availability or  functionality of incumbent local
            telephone  companies'  networks,  as they  relate  to the  unbundled
            network element platform or the resale of such services.

      -     Increased price competition in local and long distance service.

      -     Failure or interruption in our network and information systems.

      -     Changes in government policy, regulation and enforcement.

      -     Failure of our  collection  management  system  and credit  controls
            efforts for customers.

      -     Inability to adapt to technological change.

      -     Competition in the telecommunications industry.

      -     Inability to manage customer attrition and bad debt expense.

      -     Adverse change in our relationship with third party carriers.

      -     Failure or bankruptcy  of other  telecommunications  companies  upon
            whom we rely for services and revenues.

      -     Lack of capital or  borrowing  capacity,  and  inability to generate
            cash flow.


                                       F-8


Note 8- Stock-Based Compensation Plans
--------------------------------------

We issue  stock  options to our  employees  and  outside  directors  pursuant to
stockholder-approved  and non-approved stock option programs. We account for our
stock-based  compensation  plans under the intrinsic value method of accounting,
as defined by Accounting  Principles Board Opinion No. 25,  Accounting for Stock
Issued to  Employees,  and  related  interpretations.  No  stock-based  employee
compensation  cost was  reflected  in net  income  for the  three  months  ended
February  28, 2005 and February 29,  2004,  as all options  granted  under these
plans had an exercise  price equal to the fair  market  value of the  underlying
common stock on the date of the grant. For pro forma disclosures,  the estimated
fair value of the option was  amortized  over the vesting  periods,  which range
from  immediate  vesting to three years.  The following  table  illustrates  the
affect on net income  (loss) per share if we had  accounted for our stock option
and stock  purchase  plans  under the fair  value  method  of  accounting  under
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based  Compensation",   as  amended  by  SFAS  No.  148,  "Accounting  for
Stock-Based Compensation - Transition and Disclosure":

                                           For the Three Months Ended
                                            2/28/05          2/29/04
                                            -------          -------
Net income (loss), as reported             ($401,685)      $    56,140
Deduct: Total stock-based employee
    compensation expense determined
    under fair value-based method
    for all awards, net of related
    tax effects                              (99,426)          (58,986)
                                         -----------       -----------
Pro forma net income (loss)                ($501,111)          ($2,846)
                                         -----------       -----------
Earnings (loss) per share
  Basic, as reported                           ($.02)      $       .00
  Basic, pro forma                             ($.03)      $       .00

  Diluted, as reported                         ($.02)      $       .00
  Diluted, pro forma                           ($.03)      $       .00

Note 9 Related Party Transactions
---------------------------------

TSI had an  agreement,  effective  January 2, 2002,  with Telco  Services,  Inc.
("Telco"),  a  corporation  owned by a former  shareholder,  under  which  Telco
provided  TSI with  collection,  sales  and  other  services.  As a result  of a
court-stipulated  agreement  between TSI and Telco,  entered into on February 6,
2004,  the amount  owed Telco for such  services  was  reduced by  approximately
$51,000.  Such reduction was reported as a gain for the three-month period ended
February 29, 2004 (See Note 6).

During the three-month periods ended February 28, 2005 and February 29, 2004, we
billed Cordia  Corporation  ("Cordia"),  a related party,  $23,403 and $135,322,
respectively,  for telecommunications services, commissions and other costs, and
Cordia  billed us $137,807 and  $51,099,  respectively,  for  telecommunications
services and other costs. As of February 28, 2005, we owed Cordia $36,363.


                                       F-9


Note 10-Reclassification
------------------------

Certain 2004 amounts related to the bankruptcy of TSI have been  reclassified to
conform to the 2005 presentation.

Note 11-Defined Benefit Plan
----------------------------

We sponsor a defined benefit plan covering two active  employees and a number of
former employees. Our funding policy with respect to the defined benefit plan is
to contribute  annually not less than the minimum required by applicable law and
regulation to cover the normal cost and to fund supplemental costs, if any, from
the date each  supplemental  cost was  incurred.  Contributions  are intended to
provide  not only for  benefits  attributable  to service to date,  but also for
those expected in the future.

For the  three-month  periods ended  February 28, 2005 and February 29, 2004, we
recorded pension expense of $24,000 for each fiscal period.  We did not make any
pension  contributions  in the  first  fiscal  period  of 2005 but we  expect to
contribute  $100,000 to our defined  benefit plan in fiscal  2005.  In the first
fiscal period of 2004, we contributed  $26,000 to our defined  benefit plan. The
current  investment  strategy  for the  defined  benefit  plan is to  invest  in
conservative debt and equity  securities.  The expected long-term rate of return
on plan assets is 8%. -


                                      F-10


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

The Board of Directors
eLEC Communications Corp.
White Plains, New York

We have audited the consolidated  balance sheet of eLEC Communications Corp. and
subsidiaries  as of  November  30,  2004,  and the  consolidated  statements  of
operations,  stockholders' equity deficiency, and cash flows for the years ended
November 30, 2004 and 2003. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the Standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of eLEC
Communications  Corp.  and  subsidiaries  as  of  November  30,  2004,  and  the
consolidated  results of their  operations  and cash  flows for the years  ended
November  30,  2004  and  2003,  in  conformity  with  U.S.  generally  accepted
accounting principles.


                                        NUSSBAUM YATES & WOLPOW, P.C.

Melville, New York
March 4, 2005


                                      F-11


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                NOVEMBER 30, 2004


                                     ASSETS
                                                                  2004
                                                              ------------
Current assets
     Cash and cash equivalents                                $    371,852
     Accounts receivable, net of allowance of
         $547,768                                                1,247,063
     Prepaid expenses and other current assets                      42,179
                                                              ------------

                     Total current assets                        1,661,094

Property and equipment, net                                        192,413

Other assets                                                        50,295
                                                              ------------

                     Total assets                             $  1,903,802
                                                              ------------

                 LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

                                                                  2004
                                                              ------------
Current liabilities:
     Current portion of capital
         lease obligations                                    $     32,100
     Accounts payable and accrued expenses                       2,445,947
     Taxes payable                                                 721,108
     Due to related parties                                         59,384
     Deferred revenues                                             341,702
                                                              ------------

                     Total current liabilities                   3,600,241
                                                              ------------

Stockholders' equity deficiency:
     Common stock, $.10 par value; 50,000,000 shares
         authorized; 16,254,282 shares issued                    1,625,428
     Capital in excess of par value                             25,624,234
     Deficit                                                   (28,943,850)
     Accumulated other comprehensive loss, unrealized
         loss on securities                                         (2,251)
                                                              ------------

                     Total stockholders' equity deficiency      (1,696,439)
                                                              ------------

                     Total liabilities and stockholders'
                          equity  deficiency                  $  1,903,802
                                                              ------------


          See accompanying notes to consolidated financial statements.


                                      F-12


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003



                                                                        2004             2003
                                                                    ------------     ------------
                                                                               
Revenues                                                            $  9,557,600     $  5,568,004
                                                                    ------------     ------------

Cost and expenses:
     Cost of services                                                  4,738,038        2,765,811
     Selling, general and administrative                               5,447,232        5,662,085
     Depreciation                                                         14,480           88,460
                                                                    ------------     ------------

                     Total costs and expenses                         10,199,750        8,516,356
                                                                    ------------     ------------

Loss from operations                                                    (642,150)      (2,948,352)
                                                                    ------------     ------------

Other income (expense):
     Interest expense                                                     (3,126)        (174,800)
     Other income, net                                                    45,795          163,528
     Gain on sale of investment securities and other investments             770          121,687
     Gain on disposition of subsidiary                                        --       10,825,332
     Gain on sale and disposal of property, plant and equipment               --          480,574
                                                                    ------------     ------------

                     Total other income                                   43,439       11,416,321
                                                                    ------------     ------------

Income (loss) before bankruptcy reorganization
    items and income tax (benefit) expense                              (598,711)       8,467,969
                                                                    ------------     ------------

Reorganization items:
    Gain on settlement with creditors                                    904,027               --
    Professional fees                                                   (161,000)         (69,758)
                                                                    ------------     ------------

                                                                         743,027          (69,758)
                                                                    ------------     ------------

Income before income tax (benefit) expense                               144,316        8,398,211

Income tax (benefit) expense                                             (25,937)          75,000
                                                                    ------------     ------------

Net income                                                          $    170,253     $  8,323,211
                                                                    ------------     ------------

Basic income per share                                              $        .01     $        .53
                                                                    ------------     ------------
Diluted income per share                                            $        .01     $        .53
                                                                    ------------     ------------

Weighted average number of common shares outstanding:
        Basic                                                         16,254,282       15,771,219
                                                                    ------------     ------------
        Diluted                                                       16,715,808       15,841,941
                                                                    ------------     ------------


          See accompanying notes to consolidated financial statements.


                                      F-13

                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DEFICIENCY

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003


                                                 Preferred Stock                  Common Stock              Capital
                                          ----------------------------    ----------------------------    in Excess of
                                             Shares          Amount          Shares          Amount        Par Value
                                          ------------    ------------    ------------    ------------    ------------
                                                                                           
Balance, December 1, 2002                           16    $          2      15,619,282    $  1,561,928    $ 25,671,342


     Net income

     Less reclassification
         adjustment for gains realized
         in net income


     Comprehensive income

     Stock issued for interest
         expense                                                               630,000          63,000         (19,110)

     Conversion of Series B
          preferred stock to common
          stock                                    (16)             (2)         16,000           1,600          (1,598)
                                          ------------    ------------    ------------    ------------    ------------

Balance, November 30, 2003                          --              --      16,265,282       1,626,528      25,650,634


     Net income

    Unrealized holding loss


     Comprehensive income

     Retirement of treasury stock                                              (11,000)         (1,100)        (26,400)
                                          ------------    ------------    ------------    ------------    ------------

Balance, November 30, 2004                          --              --      16,254,282    $  1,625,428    $ 25,624,234
                                          ============    ============    ============    ============    ============


                                                                            Accumulated        Total
                                                                               Other        Stockholders'
                                                             Treasury      Comprehensive       Equity
                                             Deficit          Stock        income (Loss)     Deficiency
                                          ------------     ------------    -------------    -------------
                                                                                
Balance, December 1, 2002                 $(37,437,314)    $    (27,500)   $     69,922     $(10,161,620)
                                                                                            ------------

     Net income                              8,323,211                                         8,323,211

     Less reclassification
         adjustment for gains realized
         in net income                                                          (69,922)         (69,922)
                                                                                            ------------

     Comprehensive income                                                                      8,253,289

     Stock issued for interest
         expense                                                                                  43,890

     Conversion of Series B
          preferred stock to common
          stock                                                                                       --
                                          ------------     ------------    ------------     ------------

Balance, November 30, 2003                 (29,114,103)         (27,500)             --       (1,864,441)
                                                                                            ------------

     Net income                                170,253                                           170,253

    Unrealized holding loss                                                      (2,251)          (2,251)
                                                                                            ------------

     Comprehensive income                                                                        168,002

     Retirement of treasury stock                                27,500                               --
                                          ------------     ------------    ------------     ------------

Balance, November 30, 2004                $(28,943,850)    $         --    $     (2,251)    $ (1,696,439)
                                          ============     ============    ============     ============


          See accompanying notes to consolidated financial statements.

                                      F-14


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003



                                                                  2004             2003
                                                              ------------     ------------
                                                                         
Operating activities:
     Net income                                               $    170,253     $  8,323,211
     Adjustments to reconcile net income to net cash
         used in operating activities:
             Depreciation                                           14,480           88,460
             Gain on sale of investment securities                      --          (87,965)
             Gain on sale of other investments                          --          (33,722)
             Loss on write-down of other investments                    --           71,430
             Gain loss on sale and disposal of property,
                 plant and equipment                                    --         (480,574)
             Gain on settlement with creditors                    (904,027)              --
             Stock issued for interest expense                          --           43,890
             Gain on disposition of subsidiary                          --      (10,825,332)
             Provision for losses on accounts receivable         1,048,559          981,920
             Changes in assets and liabilities:
                 Accounts receivable                            (1,590,973)      (1,517,838)
                 Prepaid expenses and other current assets         140,251           97,399
                 Distribution to bankruptcy creditors             (301,170)              --
                 Other assets                                           --          189,855
                 Accounts payable and accrued expenses           1,050,704          915,065
                 Taxes payable                                     315,011          406,097
                 Deferred revenues                                 220,564          121,138
                 Related party, net                               (243,684)          71,363
                                                              ------------     ------------

Net cash used in operating activities                              (80,032)      (1,635,603)
                                                              ------------     ------------

Investing activities, net of effects of acquisitions:
     Purchase of property and equipment                           (181,502)              --
     Proceeds from sale of investment securities                        --           98,274
     Proceeds from sale of other investments                            --          100,000
     Purchase of investment securities                              (4,546)              --
     Proceeds from sale of property, plant and equipment                --        2,121,746
     Proceeds from collection of other assets                           --          209,102
                                                              ------------     ------------

Net cash provided by (used in) investing activities               (186,048)       2,529,122
                                                              ------------     ------------


                                   (Continued)

          See accompanying notes to consolidated financial statements.


                                      F-15


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003



                                                            2004            2003
                                                        -----------     -----------
                                                                  
Financing activities:
     Proceeds from short-term borrowings                $        --     $   380,000
     Repayment of short-term borrowings                          --        (380,000)
     Repayment of long-term debt                             (7,260)     (1,163,025)
     Principal payments on pre-petition bank debt in
         bankruptcy proceedings                             (23,830)             --
                                                        -----------     -----------

Net cash used in financing activities                       (31,090)     (1,163,025)
                                                        -----------     -----------

Decrease in cash and cash equivalents                      (297,170)       (269,506)

Cash and cash equivalents at beginning of year              669,022         938,528
                                                        -----------     -----------

Cash and cash equivalents at end of year                $   371,852     $   669,022
                                                        ===========     ===========

Cash paid during the year for:
     Interest                                           $     3,126     $   121,532
                                                        ===========     ===========
     Taxes                                              $    27,593     $        --
                                                        ===========     ===========


Supplemental disclosure of non-cash investing and financing activities:

      See Notes 5 and 12

          See accompanying notes to consolidated financial statements.


                                      F-16


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles
      ------------------------------------------------------------

      Description of Business and Concentrations

      eLEC  Communications  Corp.  ("eLEC" or the  "Company") is a  full-service
      telecommunications company that focuses on developing integrated telephone
      service in the competitive local exchange carrier ("CLEC") industry and by
      utilizing  high-speed internet  connections to provide voice over internet
      protocol services which is intended to be available to customers in fiscal
      2005. The Company offers small  businesses  and  residential  customers an
      integrated  set of  telecommunications  products and  services,  including
      local exchange, local access, and domestic and international long distance
      telephone.

      The Company  presently  operates in one business  segment.  The  principal
      focus  of the  Company,  as a CLEC,  is to  resell  and  provide  low cost
      alternative   telecommunication   services  and  other  bundled  services,
      focusing on small business users and residential customers.

      Principles of Consolidation

      The consolidated  financial statements include the accounts of the Company
      and  its  wholly-owned   subsidiaries  after  elimination  of  significant
      intercompany balances and transactions. Investments in less than 20% owned
      companies that do not have readily  determinable  fair values were carried
      at cost prior to their disposition.

      Investment Securities

      In accordance with generally accepted accounting  principles,  the Company
      follows Statement of Financial  Accounting  Standards No. 115, "Accounting
      for Certain  Investments  in Debt and Equity  Securities",  which requires
      that investment  securities be classified as trading,  held-to-maturity or
      available-for-sale.  Investment  securities at November 30, 2004 consisted
      of equity securities classified as  available-for-sale  and are carried at
      fair  value  with  unrealized  gains  or  losses  reported  in a  separate
      component of shareholders' equity.


                                      F-17


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1     Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Property, Plant and Equipment and Depreciation

      Property,  plant and  equipment  are  recorded  at cost.  Depreciation  is
      computed  primarily by use of accelerated and  straight-line  methods over
      the estimated  useful lives of the assets.  The estimated useful lives are
      three to five years for computer equipment and software, five to ten years
      for machinery and equipment,  and the lesser of the estimated  useful life
      or the life of the lease for leasehold improvements.

      Income Taxes

      The Company  accounts for income  taxes  according  to the  provisions  of
      Statement of Financial  Accounting Standards ("SFAS") No. 109, "Accounting
      for Income  Taxes."  Under the  liability  method  specified  by SFAS 109,
      deferred tax assets and liabilities are determined based on the difference
      between the financial statement and tax bases of assets and liabilities as
      measured  by the  enacted  tax rates  which  will be in effect  when these
      differences  reverse and the effect of net operating  loss  carryforwards.
      Deferred  tax expense is the result of changes in deferred  tax assets and
      liabilities.  A valuation  allowance has been established to eliminate the
      deferred  tax assets as it is more likely than not that such  deferred tax
      assets will not be realized.

      Revenue Recognition

      Revenues from voice, data and other telecommunication-related services are
      recognized in the period in which  subscribers  use the related  services.
      Revenues  for carrier  interconnection  and access are  recognized  in the
      period in which the service is provided.


                                      F-18


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Collectibility of Accounts Receivable

      Trade  receivables  potentially  subject the Company to credit  risk.  The
      Company  extends  credit to its customers  and generally  does not require
      collateral.  During  fiscal years ended  November  30, 2004 and 2003,  the
      Company accepted most new customers and extended initial credit without an
      evaluation of the credit  history or financial  condition of the customer.
      In the fourth  quarter of the year ended  November 30,  2004,  the Company
      made an effort to improve the  acceptance  of new  customers  by requiring
      certain minimum credit scores by new applicants. Once a customer is billed
      for  services,  the Company  actively  manages the accounts  receivable to
      minimize  credit  risk.  Approximately  $96,000 as of  November  30,  2004
      represented net amounts due (after allowance for doubtful collection) from
      entities   in  the   telecommunications   industry   related   to  carrier
      interconnection and access.

      In order  to  record  the  Company's  accounts  receivable  at  their  net
      realizable  value,  the  Company  must  assess  their  collectibility.   A
      considerable  amount  of  judgment  is  required  in  order  to make  this
      assessment,  including  an  analysis  of  historical  bad  debts and other
      adjustments,  a review of the aging of the Company's receivables,  and the
      current  creditworthiness of the Company's  customers.  Generally,  when a
      customer  account  reaches a certain  level of  delinquency,  the  Company
      disconnects  the  customer's  service and  provides an  allowance  for the
      related  amount  receivable  from the  customer.  The Company has recorded
      allowances for  receivables  that it considered  uncollectible,  including
      amounts for the resolution of potential credit and other collection issues
      such as  disputed  invoices,  customer  satisfaction  claims  and  pricing
      discrepancies.  However,  depending  on  how  such  potential  issues  are
      resolved,  or if the financial condition of any of the Company's customers
      was to  deteriorate  and their  ability to make  required  payments was to
      become  impaired,  increases  in these  allowances  may be  required.  The
      Company actively manages its accounts  receivable to minimize credit risk.
      As of November  30,  2004,  the Company had no  individual  customer  that
      constituted more than 10% of its accounts receivable.

      During the years ended  November 30, 2004 and 2003,  the Company  recorded
      bad debt expense of approximately $1,049,000 and $982,000.

      Earnings Per Share

      Basic  earnings  per  share is  computed  by  dividing  net  income by the
      weighted-average number of shares outstanding.  Diluted earnings per share
      included  the dilutive  effect of stock  options,  warrants,  and in 2003,
      convertible preferred stock.  Approximately 1,130,000 and 1,500,000 of the
      Company's  stock options and warrants were excluded from the 2004 and 2003
      calculation  of diluted  earnings per share because the exercise  price of
      the stock  options and warrants were greater than the average price of the
      common   shares,   and   therefore   their   inclusion   would  have  been
      anti-dilutive.


                                      F-19


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Cash and Cash Equivalents

      The  Company  considers  all  highly  liquid  investments  purchased  with
      original maturities of three months or less to be cash equivalents.

      Impairment of Long-Lived Assets

      The Company reviews  long-lived  assets for impairment  whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not be  recoverable.  Recoverability  of  assets  to be held  and  used is
      measured  by a  comparison  of the  carrying  amount of an asset to future
      forecasted  net  undiscounted  cash flows  expected to be generated by the
      asset. If such assets are considered to be impaired,  the impairment to be
      recognized  is measured by the amount by which the carrying  amount of the
      assets exceeds the fair values.

      Use of Estimates

      In preparing  financial  statements in conformity with generally  accepted
      accounting  principles,  management  is  required  to make  estimates  and
      assumptions  that affect the reported  amounts of assets and  liabilities,
      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. Significant estimates relate to the allowance
      for doubtful  accounts  receivable,  income tax valuation  allowance,  and
      conclusions  regarding  the  impairment  of  long-lived  assets  and  gain
      recognition on the sale of the  subsidiaries.  Actual results could differ
      from those estimates,  and any difference between the amounts recorded and
      amounts ultimately realized or paid will be adjusted  prospectively as new
      facts become known.


                                      F-20


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Advertising

      Advertising costs are expensed as incurred.  Advertising  expense amounted
      to approximately $1,000 in 2004 and $27,000 in 2003.

      Fair Value of Financial Instruments

      The following methods and assumptions were used to estimate the fair value
      of each class of significant financial instruments:

      o     Cash and Cash Equivalents

            The carrying  amount  approximates  fair value  because of the short
            maturity of those instruments.

      o     Investment Securities

            The fair value of the  Company's  investment  in  marketable  equity
            securities is based upon the quoted market price.

      o     Capital Lessee Obligations

            The fair  value  of the  Company's  capital  lessee  obligations  is
            estimated  based on current rates offered to the Company for debt of
            the same remaining maturities and approximates the carrying amount.

      The Company has no instruments with significant off-balance-sheet risk.


                                      F-21


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Stock Compensation Plan

      The Company accounts for its stock option awards under the intrinsic value
      based method of accounting  prescribed by APB Opinion No. 25,  "Accounting
      for Stock Issued to  Employees,"  and related  interpretations,  including
      Financial  Accounting  Standards  Board  ("FASB")  Interpretation  No. 44,
      "Accounting for Certain  Transactions  Including Stock  Compensation,"  an
      interpretation  of APB Opinion  No. 25.  Under the  intrinsic  value based
      method,  compensation  cost is the excess,  if any,  of the quoted  market
      price of the stock at grant date or other measurement date over the amount
      an  employee  must pay to acquire the stock.  The Company  makes pro forma
      disclosures of net income and earning per share as if the fair value based
      method  of  accounting  had been  applied  as  required  by SFAS No.  123,
      "Accounting for Stock-Based Compensation."

      The Company's  1995 Stock Option Plan (the "Plan")  provides for the grant
      of up to 3,400,000  incentive stock options,  non-qualified stock options,
      tandem stock appreciation  rights, and stock appreciation rights of shares
      of common stock. Under the Plan, incentive stock options may be granted at
      no less than the fair market value of the  Company's  stock on the date of
      grant, and in the case of an optionee who owns directly or indirectly more
      than 10% of the  outstanding  voting stock (an  "Affiliate"),  110% of the
      market price on the date of grant. As of November 30, 2004,  approximately
      450,000 option shares remain available for future issuance.

      The  Company's  non-employee  Director  Stock Option Plan provides for the
      grant of options to purchase  10,000 shares of the Company's  common stock
      to each  non-employee  director on the first  business day following  each
      annual meeting of the shareholders of the Company. Under the plan, options
      may be  granted  at no less than the fair  market  value of the  Company's
      common stock on the date of grant.

      For  disclosure  purposes,  the fair value of each stock  option  grant is
      estimated  on the date of grant  using  the Black  Scholes  option-pricing
      model  with the  following  weighted  average  assumptions  used for stock
      options granted in 2004 and 2003, respectively:  annual dividends of $ -0-
      for both years,  expected volatility of 158% and 159%,  risk-free interest
      rate of 1.25% and 1.15%,  and expected  life of five years for all grants.
      The weighted-average  fair value of stock options granted in 2004 and 2003
      was $.21 and $.09, respectively.


                                      F-22


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Stock Compensation Plan (Continued)

      Under the above model,  the total value of stock  options  granted in 2004
      and 2003 was $466,273 and $68,574, respectively,  which would be amortized
      ratably on a pro forma basis over the related vesting periods, which range
      from  immediate   vesting  to  five  years.  Had  compensation  cost  been
      determined  based upon the fair  value of the stock  options at grant date
      for all awards,  the Company's  net income (loss) and earnings  (loss) per
      share would have been changed to the pro forma amounts indicated below:



                                                                                   2004           2003
                                                                                ----------     ----------
                                                                                         
         Net income:
           As reported                                                          $  170,253     $8,323,211
           Stock-based compensation cost, net of
              related tax effects, that would have been
              included in the determination of net income
              if the fair value based method had been
              applied to all awards                                                279,145        294,338
                                                                                ----------     ----------
           Proforma net income (loss)                                           ($ 108,892)    $8,028,873

         Basic earnings (loss) per share:
             As reported                                                         $     .01     $      .53
             Proforma                                                           ($     .01)    $      .51

         Diluted earnings (loss) per share:
             As reported                                                         $     .01     $      .53
             Proforma                                                           ($     .01)    $      .51

         Stock-based employee compensation
           cost, net of related tax effects, included
           in the determination of net income as
           reported                                                              $     -0-     $      -0-
                                                                                ----------     ----------



                                      F-23


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles
      ------------------------------------------------------------

      Recent Accounting Pronouncements (Continued)

      On December 16, 2004,  the  Financial  Accounting  Standards  Board (FASB)
      issued  Statement  No. 123 (revised  2004) that will require  compensation
      costs related to share-based payment  transactions to be recognized in the
      financial statements.  With limited exceptions, the amount of compensation
      cost will be measured based on the grant-date  fair value of the equity or
      liability  instruments  issued.  In  addition,  liability  awards  will be
      measured each reporting  period.  Statement 123(R) replaces FASB Statement
      No. 123,  Accounting  for  Stock-Based  Compensation,  and  supercedes APB
      Opinion No. 25,  accounting for Stock Issued to Employees.  SFAS 123(R) is
      effective as of the first interim or annual  reporting  period that begins
      after December 15, 2005. The Company is currently  assessing the impact of
      adopting SFAS 123(R).

      In December 2003,  the FASB issued a revision to SFAS No. 132,  "Employers
      Disclosures  about  Pensions  and Other  Postretirement  Benefits",  which
      revision is effective for fiscal years ending after December 15, 2003. The
      adoption  of this  revision  does  not have any  impact  on the  Company's
      results of  operations  or financial  position,  but  requires  additional
      disclosures related to the Company's defined benefit plan (See Note 9).

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
      Stock-Based Compensation - Transition and Disclosure",  which is effective
      for fiscal years ending after  December 15, 2002.  The  provisions of this
      statement  provide  alternative  methods of transition  for an entity that
      voluntarily  changes  to the fair value  based  method of  accounting  for
      stock-based  employee  compensation,  and  requires  disclosure  about the
      effects on reported net income of an entity's  accounting policy decisions
      with respect to stock-based  compensation.  The Company did not change its
      accounting method for stock-based employee  compensation and, accordingly,
      the provisions of this new standard did not have a material  impact on its
      consolidated results of operations and financial position.

      Reclassification

      Certain 2003 amounts  related to the  bankruptcy  of TSI and certain other
      items have been reclassified to conform to the 2004 presentation.


                                      F-24


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

2.    Investment Securities
      ---------------------

      At November 30, 2004:

                                                         Fair        Unrealized
                                           Cost          Value      Holding Loss
                                          -------       -------     ------------

         Equity securities included
             in other assets              $ 4,546       $ 2,295       ($2,251)
                                          -------       -------       -------

      The Company holds a non-marketable warrant to purchase 95,238 of shares of
      Talk America Holding,  Inc. ("Talk") at $6.30 per share, expiring in 2005.
      As of November 30, 2004, the Talk shares closed at $6.32 per share.

3.    Other Investments
      -----------------

      The Company held shares in Cordia  Corporation  (Cordia),  a publicly-held
      company whose shares were quoted in the over-the-counter market. Cordia is
      controlled by entities owned by a shareholder  and former  employee of the
      Company and members of his family. Due to the thinly-traded  nature of the
      Cordia shares, such shares had not been accounted for as marketable equity
      securities in accordance with Statement of Financial  Accounting Standards
      No. 115, but instead were carried at cost.

      During the years ended  November 30, 2004 and 2003, the Company sold 2,000
      and 70,000 shares of Cordia stock, resulting in gains of $770 and $33,722.
      The shares were sold at a significant discount to published market prices.
      At November 30, 2003,  the Company wrote off its  remaining  investment in
      Cordia  amounting to $71,430,  because the value of the Cordia  investment
      was deemed to be worthless.  At November 30, 2004, the Company held 81,180
      shares of Cordia.

4.    Property, Plant and Equipment
      -----------------------------

                                                             2004
                                                           --------

         Machinery and equipment                           $ 82,605
         Computer equipment and software                    448,780
         Furniture and fixtures                              90,452
                                                           --------
                                                            621,837
         Less accumulated depreciation and amortization     429,424
                                                           --------

                                                           $192,413
                                                           --------


                                      F-25


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

4.    Property, Plant and Equipment (Continued)
      -----------------------------------------

      On October 8, 2003, the Company sold its New Rochelle,  New York corporate
      headquarters.  The  Company  received  proceeds  of  $2,200,000  and  used
      $1,100,000  of such  proceeds to retire in full the mortgage  note on this
      property (Note 6). As a result of the sale, the Company recorded a gain of
      approximately $546,000 in the fourth quarter of 2003.

      The Company placed  approximately  $100,000 in escrow to be used to remedy
      potential  environmental  costs.  As of November 30,  2003,  approximately
      $91,000  remained in escrow.  In 2004, all but  approximately  $46,000 was
      returned to the  Company  and the balance was used to cover  environmental
      costs. The $45,000 expense is included in other income, net.

5.    Short-Term Borrowings
      ---------------------

      Short-term  borrowings  as of November 30, 2003  consisted of an unsecured
      line of credit  agreement with a finance company,  up to $150,000,  due on
      demand with  interest  payable  monthly at the prime lending rate plus 2%.
      This  liability  was  settled  on  April  8,  2004  as  part  of a Plan of
      Reorganization  (see Note 8).

      During the year ended  November 30, 2003,  the Company  borrowed  $380,000
      from certain  individuals  that was repaid upon the sale of the  corporate
      headquarters  described  in  Note  4.  Interest  expense  related  to such
      borrowings  amounted to approximately  $45,000,  including the issuance by
      the  Company of 630,000  shares of common  stock  valued at  approximately
      $44,000.

6.    Long-Term Debt and Capital Lease Obligations
      --------------------------------------------

      On December 7, 2000, the Company acquired a building in New Rochelle,  New
      York,  which served as the Company's  headquarters.  The purchase price of
      the  building  was  $1,500,000,  of which  $1,100,000  was  paid  with the
      proceeds of a mortgage  loan from the  seller,  and the  remainder  of the
      purchase  price was paid in cash at closing.  The mortgage  loan  required
      interest  payments only on a monthly basis through December 2005, when the
      entire loan  principal  balance  became  due.  The  interest  rate was 10%
      through  December  2001,  and 11% for the  remaining  period.  See  Note 4
      regarding sale of the building and repayment of the mortgage loan.


                                      F-26


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

6.    Long-Term Debt and Capital Lease Obligations (Continued)
      --------------------------------------------------------

      Long-term debt consists of the following:

                                                       2004
                                                     -------

         Capital lease obligations (Note 10)         $32,100

         Less current maturities                      32,100
                                                     -------

                                                     $    --
                                                     =======

7.    Income Taxes
      ------------

      At November 30, 2004, the Company had net operating loss carryforwards for
      Federal income tax purposes of approximately  $20,850,000  expiring in the
      years 2008 through 2024.  There is an annual  limitation of  approximately
      $187,000  on the  utilization  of  approximately  $2,450,000  of such  net
      operating loss carryforwards under the provisions of Internal Revenue Code
      Section 382.

      At November 30,  2004,  the  Company's  Federal net  operating  loss carry
      forwards are scheduled to expire as follows:

             Year ended November 30

                     2008                                     $ 1,110,000
                     2009                                       1,050,000
                     2010                                       1,000,000
                     2012                                       3,100,000
                     2018                                       2,710,000
                     2019                                       2,510,000
                     2020                                       2,350,000
                     2021                                       5,850,000
                     2022                                         770,000
                     2024                                         400,000
                                                              -----------

                                                              $20,850,000
                                                              ===========


                                      F-27


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

7.    Income Taxes (Continued)
      ------------------------

      Deferred income taxes reflect the net tax effects of temporary differences
      between  the  carrying  amounts of assets and  liabilities  for  financial
      reporting   purposes  and  the  amounts  used  for  income  tax  purposes.
      Significant   components  of  the   Company's   deferred  tax  assets  and
      liabilities as of November 30, 2004 are as follows:



                                                                2004
                                                            -----------
                                                         
         Deferred tax assets:
            Net operating loss carryforwards                $ 7,090,000
            Allowance for doubtful accounts and accruals        190,000
                                                            -----------
                                                              7,280,000
         Valuation allowance                                 (7,280,000)
                                                            -----------

         Net deferred tax assets                            $        --
                                                            ===========


      The following is a reconciliation  of the tax provisions for the two years
      ended November 30, 2004 with the statutory Federal income tax rates:

                                                                Percentage of
                                                                Pre-Tax Income
                                                             ------------------
                                                              2004        2003
                                                             ------      ------

         Statutory Federal income tax rate                     34.0%       35.0%

         Utilization of net operating loss carryovers            --       (34.1)

         Operating losses generating no tax benefit           (34.0)         --

         State taxes, net of Federal effect                    15.3          --

         Reversal of accrual for prior year items             (33.3)         --
                                                             ======      ======

                                                              (18.0)%        .9%
                                                             ======      ======

      For the year ended November 30, 2004,  the Company  recorded a tax benefit
      of approximately $48,000 which resulted from the reduction of an estimated
      accrual of tax expense for the year ended November 30, 2003, offset by tax
      expense of $22,000 for the year ended November 30, 2004.


                                      F-28


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

8.    Subsidiary's Plan of Reorganization
      -----------------------------------

      On April 8, 2004,  the United  States  Bankruptcy  Court for the  Southern
      District of New York confirmed a Plan of  Reorganization  (the "Bankruptcy
      Plan") for Telecarrier  Services,  Inc. ("TSI").  On July 29, 2002, TSI, a
      wholly owned subsidiary,  had filed a voluntary  petition for relief under
      Chapter 11 of the Federal  Bankruptcy Code in the United States Bankruptcy
      Court  for  the  Southern  District  of  New  York.  The  Bankruptcy  Plan
      authorized  the  Company  to  disburse   $325,000  to  creditors  in  full
      satisfaction of claims amounting to approximately $1,229,000.

      For the year ended November 30, 2004, TSI reported a gain of $904,027 as a
      result  of being  judicially  released  from  liabilities  and  claims  as
      follows:

         Pre-petition claims:
            Unsecured line of credit                         $  150,000
            Trade payables and due to related party             618,482
            Other accrued expenses                              103,250
                                                             ----------

                     Total pre-petition claims                  871,732

         Post-petition payables and accrued expenses             68,124
         Administrative claims and legal costs                  289,171
                                                             ----------

                     Total claims                             1,229,027

            Distribution to creditors                           325,000
                                                             ----------

                     Gain on debt reduction                  $  904,027
                                                             ==========

      TSI had an agreement, effective January 2, 2002, with Telco Services, Inc.
      ("Telco"),  a corporation  owned by a former  shareholder  of the Company,
      under which Telco provided TSI with collection,  sales and other services.
      As a result of a court-stipulated agreement between TSI and Telco, entered
      into on February  6, 2004,  the amount  owed Telco for such  services  was
      reduced by approximately  $51,000. Such reduction was included in the gain
      on settlement  with  creditors for the year ended November 30, 2004. As of
      November 30, 2004, all of Telco's claims related to the TSI bankruptcy had
      been  paid  in  full,  including  $65,000  in  administrative  claims  and
      approximately  $31,000 in unsecured claims. The President of Telco is also
      the President of Glad Holdings (See Note 11).


                                      F-29


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

9.    Pension Plans
      -------------

      The Company  sponsors a defined benefit plan covering two active employees
      and a number  of former  employees.  The  Company's  funding  policy  with
      respect to the defined  benefit  plan is to  contribute  annually not less
      than the minimum  required by applicable  law and  regulation to cover the
      normal cost and to fund  supplemental  costs,  if any,  from the date each
      supplemental cost was incurred.  Contributions are intended to provide not
      only for  benefits  attributed  to  service  to date,  but also for  those
      expected  to be paid in the  future.  Plan  assets  consist  primarily  of
      investments in conservative equity and debt securities. The Company uses a
      November 30 measurement date for its pension plan.

      Effective June 30, 1995, the plan was frozen, ceasing all benefit accruals
      and resulting in a plan curtailment.

      Obligations and Funded Status at November 30:



         Pension Benefits                                           2004          2003
                                                                 ---------     ---------
                                                                         
         Change in benefit obligation:
              Benefit obligation at beginning of year            ($820,709)    ($736,717)
              Interest cost                                        (52,125)      (54,086)
              Actuarial loss                                       (32,373)      (41,981)
              Benefits paid                                         38,181        12,075
                                                                 ---------     ---------

              Benefit obligation at end of year                  ($867,026)    ($820,709)
                                                                 =========     =========

         Change in plan assets:
               Fair value of plan assets at beginning of year     $498,149      $417,601
               Actual return on plan assets                         31,105         7,357
               Employer contribution                                89,000        85,266
               Benefits paid                                       (38,181)      (12,075)
                                                                 ---------     ---------

               Fair value of plan assets at end of year           $580,073      $498,149
                                                                 ---------     ---------



                                      F-30


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

9.    Pension Plans (Continued)
      -------------------------

                                             2004            2003
                                          ---------       ---------

      Funded status                       ($286,953)      ($322,560)
                                          ---------       ---------

      Net amount recognized               ($286,953)      ($322,560)
                                          =========       =========

      Amounts recognized in the statement of financial position consist of:

                                             2004            2003
                                          ---------       ---------

      Accrued benefit cost                ($286,953)      ($322,560)
                                          ---------       ---------

      Net amount recognized               ($286,953)      ($322,560)
                                          =========       =========

      The  accumulated  benefit  obligation  for the Company's  defined  benefit
      pension  plan was  $867,026  and  $820,709 at November  30, 2004 and 2003,
      respectively.

      Information   required  for  pension  plan  with  an  accumulated  benefit
      obligation in excess of plan assets:

                                                        November 30
                                                  -----------------------
                                                     2004          2003
                                                  ---------     ---------

      Projected benefit obligation                ($867,026)    ($820,709)
      Accumulated benefit obligation              ($867,026)    ($820,709)
      Fair value of plan assets                    $580,073      $498,149

      Components of Net Periodic Benefit Cost:
                                                     2004          2003
                                                  ---------     ---------

      Interest cost                               $  52,125     $  54,086
      Expected return on plan assets                (41,390)      (35,411)
      Amortization of net loss                       37,356        34,057
                                                  ---------     ---------

      Net periodic benefit cost                   $  48,091     $  52,732
                                                  =========     =========


                                      F-31


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

9.    Pension Plans (Continued)
      -------------------------

        Assumptions

               Weighted-average assumptions used to
                 determine net periodic benefit cost
                 November 30:

                                                            2004       2003
                                                           -------    -------

               Discount rate                                  6.25%      7.00%
               Expected long-term return on plan assets       8.00%      8.00%
               Rate of compensation increase                    --         --

      The expected  return on Plan assets  should  remain  constant from year to
      year since the long-term expectation should not change significantly based
      on a single year's experience. A rate of 8% was adopted for this purpose.

      Plan Assets

      The Company's pension plan weighted-average  asset allocations at November
      30, 2004 and 2003, by asset category are as follows:

                                                           November 30
                                                        -----------------
                                                         2004        2003
                                                        -----       -----
      Asset Category

            Equity securities                            51.8%       57.1%
            Debt securities                              22.0%       27.8%
            Other                                        26.2%       15.1%
                                                        -----       -----

            Total                                       100.0%      100.0%
                                                        =====       =====

      The  current  investment  policy  for  pension  plan  assets  is to reduce
      exposure to equity market risks.  The current  strategy for Plan assets is
      to  invest  in  conservative  equity  and debt  securities.  The Plan also
      maintains a significant cash balance.

      Equity  securities  include the  Company's  common stock in the amounts of
      approximately $5,400 and $3,900 at November 30, 2004 and 2003.


                                      F-32


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

9.    Pension Plans (Continued)
      -------------------------

      Cash Flows - Contributions

      The Company  expects to contribute  approximately  $100,000 to its defined
      benefit plan in fiscal 2005.

      Estimated Future Benefit Payments

      The following pension benefit payments are expected to be paid:

         2005                                                  $ 17,672
         2006                                                    19,852
         2007                                                    42,137
         2008                                                    46,176
         2009                                                    55,992
         2010 - 2014                                            306,881

      Defined Contribution Plan

      The  Company  has a 401(k)  profit  sharing  plan for the  benefit  of all
      eligible   employees,   as  defined.   The  plan  provides  for  voluntary
      contributions  not to exceed  the  statutory  limitation  provided  by the
      Internal Revenue Code. The Company may make  discretionary  contributions.
      There were no contributions made for the years ended November 30, 2004 and
      2003.


                                      F-33


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

10.   Commitments
      -----------

      Operating Leases

      The  Company  leases  its  offices  under  noncancelable  operating  lease
      agreements which expire through 2009.

      Rent  expense  was  approximately  $82,000  and  $67,000 in 2004 and 2003,
      respectively. In addition to the annual rent, the Company pays real estate
      taxes, insurance and other occupancy costs on its leased facilities.

      The  minimum  annual  commitments  under all  operating  leases  that have
      remaining  non-cancelable terms in excess of one year are approximately as
      follows:

                Year ended November 30,
                -----------------------

                        2005                                            $160,000
                        2006                                             162,000
                        2007                                             139,000
                        2008                                              96,000
                        2009                                               6,000
                                                                        --------

                                                                        $563,000
                                                                        ========

      Capital Lease Obligations

      The  Company  leases  certain  machinery  and  equipment  with lease terms
      through 2005.  Obligations  under capital leases have been recorded in the
      accompanying  financial  statements at the present value of future minimum
      lease payments,  discounted at interest rates ranging from 12.4% to 20.2%.
      The capitalized cost and accumulated depreciation included in property and
      equipment was as follows:

                                                      2004
                                                    -------

      Cost                                          $69,567
      Accumulated depreciation                       69,567
                                                    -------

                                                    $    --
                                                    =======


                                      F-34


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

10.   Commitments (Continued)
      -----------------------

      Capital Lease Obligations (Continued)

      The future  minimum lease payments under the capital lease and net present
      value  of  future  minimum  lease  payments  for  the  ensuing  years  are
      summarized as follows:

               Year ended November 30,
               -----------------------

                         2005                             $40,689

               Less amount representing interest            8,589
                                                          -------

               Present value of future minimum
                  lease payments (Note 6)                 $32,100
                                                          =======

      Other Commitments

      In January 2005,  the Company  entered into a minimum  purchase  agreement
      with a  wholesale  VOIP  (Voice  Over  Internet  Protocol)  provider.  The
      agreement requires minimum fees aggregating approximately $108,000 through
      January 2006.

11.   Related Party Transactions
      --------------------------

      TSI has an agreement, effective January 2, 2002, with Telco Services, Inc.
      ("Telco"), a corporation owned by a former shareholder,  under which Telco
      provides TSI with collection,  sales and other services. Expenses incurred
      in connection with this agreement,  which are included in selling, general
      and administrative  expenses in the consolidated  statement of operations,
      amounted to $21,127 for the year ended November 30, 2003. The President of
      Telco is also the  President of Glad Holdings LLC ("Glad  Holdings")  (see
      Note 12).

      During the years  ended  November  30, 2004 and 2003,  the Company  billed
      Cordia,  a related  party (see Note 3),  $338,087  and  $197,224 for rent,
      telemarketing  services,  commissions,  and other costs. Cordia billed the
      Company  $585,397 and $ 395,232 for the years ended  November 30, 2004 and
      2003 for  telecommunications  services and other costs. As of November 30,
      2004,  the Company owed Cordia  $59,384.


                                      F-35


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

12.   Asset Sale
      ----------

      On September  3, 2002,  the Company  entered into an agreement  with Essex
      Acquisition Corp. ("EAC"), a wholly-owned subsidiary of BiznessOnline.com,
      Inc. ("Biz"), to sell substantially all the assets of Essex Communications
      Inc., ("Essex") a former wholly-owned subsidiary, (amounting to $1,102,103
      at November 30,  2002),  for five dollars plus the  assumption  of certain
      liabilities  of Essex,  amounting  to  $10,081,382  at November  30, 2002,
      including  all  obligations  due and  payable to Essex's  largest  vendor,
      Verizon  Services  Corp.  ("Verizon").  EAC entered into an agreement with
      Verizon that provided a payment schedule for the liabilities  assumed from
      Essex and  Verizon  granted  EAC a  discount  on the  assumed  liabilities
      provided  EAC  adhered to the payout  schedule.  EAC also paid the Company
      $270,000 to  reimburse  the  Company  for  amounts  paid by the Company to
      Essex's lender.  The sale closed on December 31, 2002. As the creditors of
      Essex  did not  consent  to the  assignment  of their  claims,  Essex  had
      remained liable for substantially all the obligations  assumed in the sale
      until such time as they were paid. The June 30, 2002  unaudited  financial
      statements of Biz indicated that Biz had a stockholders' equity deficiency
      of   approximately   $20,500,000  and  had  negative  working  capital  of
      approximately $3,500,000.  The most recent independent auditor's report of
      Biz expressed significant doubt about Biz's ability to continue as a going
      concern. These factors indicated that there was significant uncertainty as
      to Biz and its  subsidiaries'  ability to repay the obligations  described
      above.  Accordingly,  the  Company did not record any gain until Essex was
      released from the assumed obligations.  During the period December 1, 2002
      through  September 11, 2003, EAC had settled  liabilities of approximately
      $3,511,000 and accordingly, gain was recorded for such amount.

      On September 11, 2003, the Company sold all the outstanding  capital stock
      of Essex to Glad  Holdings (see Note 11), a New Jersey  limited  liability
      company,  for an aggregate  purchase  price of $100 and a general  release
      from Glad  Holdings  with respect to any and all matters  arising prior to
      September 11, 2003. The Company,  based on all available  information  and
      consultation  with  counsel,  concluded  that  it was  unlikely  that  any
      creditor of Essex would be able to hold the  Company  responsible  for any
      debts or liabilities of Essex. As a result thereof,  the Company  believed
      it had been  released  of all the  liabilities  related  to  Essex,  which
      amounted  to  approximately  $7,314,000  on such  date,  and  accordingly,
      recorded such amount as gain in the fourth quarter fiscal of 2003.


                                      F-36


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

12.   Asset Sale (Continued)
      ----------------------

      The following  unaudited pro forma summary presents  information as if the
      sale of Essex's  assets had  occurred at the  beginning  of the year ended
      November 30, 2003. The pro forma amounts include certain  adjustments that
      eliminate all the operations of Essex for the periods  presented.  The pro
      forma  information  does not  necessarily  reflect the actual results that
      would have  occurred  had the sale taken place for the periods  presented,
      nor is it  necessarily  indicative of the future  results of operations of
      the remaining company:

                                                                 2003
                                                              -----------
                                                              (Unaudited)
                                                              -----------

      Revenues                                                 $4,674,808
                                                              -----------

      Net loss                                                ($2,106,605)
                                                              -----------

      Basic and diluted loss per share                        ($      .13)
                                                              ===========

13.   Accounts payable and accrued expenses
      -------------------------------------

      As of November 30, 2004 approximately  $198,000 of liabilities  related to
      the discontinued  luggage  business remain on the Company's  balance sheet
      under the capiton  accounts  payable and accrued  expenses.  There has not
      been any demand for payment of liabilities. The Company intends to reverse
      these  liabilities  in 2006 when the  statute  of  limitations  expires if
      payment is not demanded.


                                      F-37


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

14.   Stockholders' Equity
      --------------------

      The  Company  was  authorized  to  issue up to 1,300  shares  of  Series B
      Preferred  stock $.10 par value,  and such stock was  entitled  to receive
      dividends  when as, and if dividends  were  declared by the Company on its
      common stock.  Each holder of Series B preferred  stock had the right,  at
      the option of the holder,  to convert  each share of such stock into 1,000
      shares of common stock.  The holders of shares of Series B preferred stock
      were  entitled  to that  number  of  votes  on all  matters  presented  to
      shareholders  equal to the number of shares of common stock then  issuable
      upon conversion of such shares of preferred stock.

      During 2001, certain of the Series B shareholders elected to convert their
      shares to common  shares,  resulting in the issuance of 100,000  shares of
      common stock.  During 2003, the remaining  Series B shareholder  converted
      its shares to common shares, resulting in the issuance of 16,000 shares of
      common stock.

      The following is a summary of outstanding options:

                                                                       Weighted-
                                                                        Average
                                        Number       Exercise Price    Exercise
                                       of Shares        Per Share        Price
                                       ---------     --------------    ---------

      Outstanding December 1, 2002     1,618,453      $.05 - $4.88       $1.60

      Granted during year ended
          November 30, 2003              740,000          $.10           $ .10

      Canceled during year ended
          November 30, 2003             (635,119)     $.58 - $4.88       $1.91
                                      ----------

      Outstanding November 30, 2003    1,723,334      $.05 - $2.50       $ .84

      Granted during year ended
           November 30, 2004           2,185,000      $.16 - $.28        $ .23

      Canceled during year ended
           November 30, 2004            (435,834)     $.10 - $2.25       $1.35
                                      ----------

      Outstanding November 30, 2004    3,472,500      $.05 - $2.50       $ .40
                                      ----------

      Options exercisable,
           November 30, 2004             937,500      $.05 - $2.50       $ .40
                                      ----------

      Options exercisable,
           November 30, 2003             621,334      $.72 - $2.50       $1.43
                                      ----------


                                      F-38


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

14.   Stockholders' Equity (Continued)
      --------------------------------

      The following table summarizes  information about the options  outstanding
      at November 30, 2004:



                                   Options Outstanding                  Options Exercisable
                         ---------------------------------------     ------------------------
                                         Weighted-
                                          Average      Weighted-                    Weighted-
        Range of                         Remaining      Average                      Average
        Exercise            Number      Contractual    Exercise         Number      Exercise
         Prices          Outstanding    Life (Years)     Price       Outstanding     Price
      -------------      -----------    ------------   ----------    -----------   ----------
                                                                    
      $ .05 - $ .97       2,976,500         4.44       $     .22       791,500     $     .17
      $1.41 - $1.44         470,000         1.00       $    1.41       120,000     $    1.43
      $1.41 - $2.50          26,000          .48       $    2.50        26,000     $    2.50


      On October 24,  1996,  the  shareholders  of the Company  adopted the eLEC
      Communications  Corp.  1996 Restricted  Stock Award Plan (the  "Restricted
      Stock Award Plan").  An aggregate of 400,000 shares of common stock of the
      Company have been reserved for issuance in connection  with awards granted
      under the  Restricted  Stock Award Plan.  Such shares may be awarded  from
      either  authorized  and unissued  shares or treasury  shares.  The maximum
      number of shares that may be awarded under the Restricted Stock Award Plan
      to any  individual  officer or key  employee  is  100,000.  No shares were
      awarded during 2004 and 2003.

      As of November 30, 2004 and 2003, warrants were outstanding to purchase up
      to 550,000  shares of the  Company's  common stock at prices  ranging from
      $1.54 to $2.50. The warrants expire through October 23, 2010.

15.   Net Income Per Common Share
      ---------------------------

      Net income per common share data was computed as follows:



                                                                             2004           2003
                                                                          -----------    -----------
                                                                                   
      Net income                                                          $   170,253    $ 8,323,211
                                                                          ===========    ===========

      Weighted average common shares outstanding                           16,254,282     15,771,219
      Effect of dilutive securities, stock options and preferred stock        461,526         70,722
                                                                          -----------    -----------
      Weighted average dilutive common shares outstanding                  16,715,808     15,841,941
                                                                          ===========    ===========

      Net income per common share - basic                                 $       .01    $       .53
                                                                          ===========    ===========
      Net income per common share - diluted                               $       .01    $       .53
                                                                          ===========    ===========



                                      F-39


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

16.   Subsequent Events
      -----------------

      On December 17, 2004,  the Company sold a promissory  note ("Note") in the
      principal amount of $328,767 and 160,000 shares of restricted common stock
      of the Company to an unaffiliated party for $300,000.  The Note is payable
      on December 17, 2005 and is  unsecured.  The Note  requires the Company to
      expend the proceeds of the Note on sales and marketing efforts.

      On February 8, 2005, the Company  consummated a private placement pursuant
      to  which  the  Company  issued a  secured  convertible  term  note in the
      principal amount of $2,000,000 (the "Convertible  Note"),  and the Company
      issued a common stock  purchase  warrant (the  "Warrant") to the holder of
      the Convertible Note, exercisable at any time through February 8, 2012, to
      purchase up to 793,650  shares of the Company's  common  stock,  par value
      $.10 per share (the "Common  Stock").  The exercise  price is $.72 for the
      first 264,550 shares,  $.79 for the next 264,550 shares,  and $.95 for any
      additional  shares.  The proceeds received by the Company,  net of related
      fees and expenses was approximately $1,744,000.  The Company agreed to use
      the  proceeds  only for  marketing,  general  working  capital and general
      business purposes.  Interest on the Convertible Note is payable monthly on
      the first day of each month during the term of the Convertible Note, at 3%
      above the prime rate commencing March 1, 2005. Commencing May 1, 2005, the
      Company is  required  to make  monthly  principal  payments of $60,606 per
      together,  with any accrued and unpaid interest  payable on such date, the
      "Monthly  Payment Amount".  All or a portion of the outstanding  principal
      and  interest  due under the  Convertible  Note shall be paid in shares of
      Common Stock upon satisfaction of certain conditions. The Convertible Note
      is initially  convertible  into shares of Common Stock at a price of $0.63
      per share (together with any adjustments,  the "Fixed Conversion  Price").
      The  Fixed  Conversion  Price  is  subject  to  anti-dilution   protection
      adjustments,  on a weighted average basis, upon the Company's  issuance of
      additional  shares  of  Common  Stock  at a price  that is less  than  the
      then-current Fixed Conversion Price. This agreement  prohibits the payment
      of any dividends as long as the Convertible Note remains outstanding.  The
      Convertible Note is secured by a blanket lien on substantially  all of the
      Company's  assets and the common stock of all  subsidiaries,  and contains
      prepayment penalty provisions.


                                      F-40


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

16.   Subsequent Events (Continued)
      -----------------------------

      Absent  earlier  redemption  by the Company or earlier  conversion  by the
      investor,  the Convertible  Note  originally  matured on February 8, 2006.
      Since  the  Company  entered  into a  service  provider  agreement  with a
      wholesale telephone service provider, the maturity date of the Convertible
      Note has been extended to February 8, 2008.

      On  February  24,  2005,  New  Rochelle  Telephone  Company  ("NRTC"),   a
      wholly-owned  subsidiary of the Company,  completed its negotiations  with
      Verizon  Services  Corp.  ("Verizon")  and  signed a  Wholesale  Advantage
      Services  Agreement  (the  "Agreement").  The  Agreement  is  a  long-term
      commercial   alternative  to  the  unbundled   network  elements  platform
      ("UNE-P")  and allows NRTC to purchase  from Verizon  wholesale  dial tone
      services on terms that preserve,  in all material respects,  the features,
      functionality and ordering  processes  previously  available to NRTC under
      Verizon's UNE-P service offering.  The rates and charges for such services
      are fixed at agreed upon price  levels that should  allow NRTC to continue
      to offer its existing telephone services at competitive  prices.  Pursuant
      to the Agreement,  NRTC and the Company are required to keep  confidential
      all  additional  terms and  provisions of the  Agreement.  The Company has
      minimum line commitments in connection with the agreement.

17.   Risks and Uncertainties
      -----------------------

      The Company buys substantially all of the telecommunication  services that
      it resells from Regional Bell  Operating  Companies  ("RBOC's"),  and long
      distance  carriers and is,  therefore,  highly  dependent  upon them.  The
      Company believes that its relationships  with them are  satisfactory.  The
      Company believes there are less desirable  suppliers of  telecommunication
      services  in the  geographical  location  in which  the  Company  conducts
      business.  In addition,  the Company is at risk to  regulatory  agreements
      that  govern  the  rates to be  charged  to the  Company.  In light of the
      foregoing,  it is  reasonably  possible  that  the  loss of the  Company's
      relationship with such vendors or a significant  unfavorable change in the
      regulatory  agreements  structure would have a severe  near-term impact on
      the Company's ability to conduct its telecommunications business.


                                      F-41


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

17.   Risks and Uncertainties (Continued)
      -----------------------------------

      Future results of operations  involve a number of risks and uncertainties.
      Factors  that could  affect  future  operating  results and cash flows and
      cause actual results to vary materially from historical  results  include,
      but are not limited to:

      -     The  Company's  business  strategy with respect to bundled local and
            long distance services may not succeed.

      -     Failure to manage, or difficulties in managing, the Company's growth
            operations  or  restructurings  including  attracting  and retaining
            qualified  personnel and opening up new  territories for its service
            with favorable gross margins.

      -     Dependence on the  availability or  functionality of incumbent local
            telephone  companies'  networks,  as they  relate  to the  unbundled
            network element platform or the resale of such services.

      -     Increased price competition in local and long distance service.

      -     Failure or  interruption  in the Company's  network and  information
            systems.

      -     Changes in government policy, regulation and enforcement.

      -     Failure of the  Company's  collection  management  system and credit
            controls efforts for customers.

      -     Inability to adapt to technological change.

      -     Competition in the telecommunications industry.

      -     Inability to manage customer attrition and bad debt expense.

      -     Adverse change in Company's relationship with third party carriers.

      -     Failure or bankruptcy  of other  telecommunications  companies  upon
            whom the Company relies for services and revenues.

      -     Lack of capital or  borrowing  capacity,  and  inability to generate
            cash flow.


                                      F-42


                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED NOVEMBER 30, 2004 AND 2003

18.   Fourth Quarter Adjustments (Unaudited)
      --------------------------------------

      During the fourth quarter of the year ended November 30, 2004, the Company
      made a year-end  adjustment that was material to the results of the fourth
      quarter.  The net effect of the  year-end  adjustment  was to increase net
      income in the  fourth  quarter  by  approximately  $115,000,  to record as
      recoverable certain  telecommunication excise taxes previously expensed as
      part of cost of sales.


                                      F-43


                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24.  Indemnification of Directors and Officers

      Reference is made to Sections 721 through 725 of the Business Corporation
Law of the State of New York (the "BCL"), which provides for indemnification of
directors and officers of New York corporations under certain circumstances.

      Section 722 of the BCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, in connection with actions or proceedings, whether civil or criminal
(other than an action by or in the right of the corporation, a "derivation
action"), if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard is applicable in the case of
derivative actions, except that indemnification only extends to amounts paid in
settlement and reasonable expenses (including attorneys' fees) incurred in
connection with the defense or settlement of such actions, and the statute does
not apply in respect of a threatened action, or a pending action that is settled
or otherwise disposed of, and requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. Section 721 of the BCL provides that Article 7 of the BCL is
not exclusive of other indemnification that may be granted by a corporation's
certificate of incorporation, disinterested director vote, shareholders vote,
agreement or otherwise.

      Article XII of the Registrant's by-laws requires the Registrant to
indemnify its officers and directors to the fullest extent permitted under the
BCL. Article XII of the Registrant's by-laws further provides that no director
of the Registrant shall be personally liable to the Registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except that no indemnification shall be made in respect of (1) a threatened
action, or a pending action which is settled or otherwise disposed of, or (2)
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the Registrant unless and only to the extent that the court in
which such action or suit was brought or, if no action was brought, any court of
competent jurisdiction determines upon application that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such portion of the settlement and expenses as the court deems
proper.

      Section 402(b) of the BCL provides that a corporation's certificate of
incorporation may include a provision that eliminates or limits the personal
liability of the corporation's directors to the corporation or its shareholders
for damages for any breach of a director's duty, provided that such provision
does not eliminate or limit (1) the liability of any director if a judgment or
other final adjudication adverse to the director establishes that the director's
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that the director personally gained a financial
profit or other advantage to which the director was not legally entitled or that
the director's acts violated Section 719 of the BCL; or (2) the liability of any
director for any act or omission prior to the adoption of a provision authorized
by Section 402(b) of the BCL. Article Sixth of the Registrant's Certificate of
Incorporation, as amended, provides that no director of the Registrant shall be
liable to the Registrant or its shareholders for any breach of duty in such
capacity except as provided in Section 402(b) of the BCL.

      Any amendment to or repeal of the Registrant's Certificate of
Incorporation or by-laws shall not adversely affect any right or protection of a
director or officer of the Registrant for or with respect to any acts or
omissions of such director or officer occurring prior to such amendment or
repeal.


                                       43


      The Registrant maintains directors and officers insurance which, subject
to certain exclusions, insures the directors and officers of the Registrant
against certain losses which arise out of any neglect or breach of duty
(including, but not limited to, any error, misstatement, act, or omission) by
the directors or officers in the discharge of their duties, and insures the
Registrant against amounts which it has paid or may become obligated to pay as
indemnification to its directors and/or officers to cover such losses.

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing, the Registrant has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

Item 25.  Other Expenses of Issuance and Distribution

      The following table sets forth the expenses expected to be incurred by us
in connection with the issuance and distribution of the common stock registered
hereby, all of which expenses, except for the Securities and Exchange Commission
registration fee, are estimates:

                 Description                                   Amount
                                                               ------
 
      Securities and Exchange Commission registration fee     $   276
      Accounting fees and expenses                              5,000*
      Legal fees and expenses                                  35,000*
      Miscellaneous fees and expenses                           1,724*
                                                              -------
                Total                                         $42,000
                                                              =======

-------------
* Estimated

Item 26.  Recent Sales of Unregistered Securities

      In February 2005, we issued a secured convertible term note (the
"Convertible Term Note") in the principal amount of $2,000,000 to Laurus Master
Fund, Ltd. ("Laurus"). The Convertible Term Note is convertible into shares of
our common stock at a fixed conversion price of $0.63 per share of common stock.
We also issued Laurus a warrant (the "Laurus Warrants") to purchase up to
793,650 shares of our common stock, at an exercise price of (i) $0.72 per share
for the first 264,550 shares acquired; (ii) $0.79 per share for the next 264,550
shares acquired and (iii) $0.95 per share for the remaining shares acquired. The
Laurus Warrants expire on February 8, 2012. The Convertible Term Note and the
warrant were issued in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
on the basis that their issuance did not involve a public offering, no
underwriting fees or commissions were paid by us in connection with such sale
and Laurus represented to us that it was an "accredited investor," as defined in
the Securities Act.

      In February 2005, we paid to Source Capital Group, Inc. ("Source
Capital"), in consideration of the introduction made by Source Capital of Laurus
to the Company, a finder's fee in the amount of $160,000 and issued to or at the
direction of Source Capital common stock purchase warrants (the "Source
Warrants") to purchase up to an aggregate of 253,968 shares of common stock at
an exercise price of $0.63 per share. The Source Warrants expire on February 8,
2009. The Source Warrants were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, on the basis that
their issuance did not involve a public offering and satisfied the conditions of
Rule 506 of 


                                       44


the Securities Act, and Source Capital represented to us that it is an
"accredited investor," as defined in the Securities Act.

      In December 2004, we sold 160,000 shares of our stock in conjunction with
the sale of a promissory note in the principal amount of $328,767.12 to an
unaffiliated third party for an aggregate purchase price of $300,000. Such
shares were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act, on the basis that such issuances did not
involve a public offering, no underwriter fees or commissions were paid in
connection with such issuances and the unaffiliated third party represented to
us that he was an "accredited investor" as defined in Regulation D under the
Securities Act.

      In August 2003 and October 2003, we issued an aggregate of 450,000 and
180,000 shares of our common stock, respectively, to three investors in
conjunction with certain financing agreements as interest expense. Such shares
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act, on the basis that such issuances did not involve a
public offering, no underwriter fees or commissions were paid in connection with
such issuances and the recipients were "accredited investors" as defined in
Regulation D under the Securities Act of 1933, as amended.

Item 27.  Exhibits

(3)   Articles of Incorporation and By-laws
      (a)   Certificate of Incorporation, as amended, incorporated by reference
            to our Registration Statement on Form S-1 filed with the Securities
            and Exchange Commission on August 27, 1969 under Registration Number
            2-34436.
      (b)   Certificate of Amendment of the Certificate of Incorporation,
            incorporated by reference to our definitive proxy statement filed
            with the Securities and Exchange Commission in connection with our
            Annual Meeting of Shareholders held in May 1984.
      (c)   Certificate of Amendment to the Certificate of Incorporation,
            incorporated by reference to Exhibit 3(b) to our Annual Report on
            Form 10-K for the year ended November 30, 1988.
      (d)   Certificate of Amendment to the Certificate of Incorporation,
            incorporated by reference to Exhibit 3(e) to our Annual Report on
            Form 10-K for the year ended November 30, 1994, as amended.
      (e)   Certificate of Amendment of the Certificate of Incorporation,
            incorporated by reference to Exhibit 3 to our Quarterly Report on
            Form 10-Q for the quarter ended August 30, 1995.
      (f)   Certificate of Amendment of the Certificate of Incorporation,
            incorporated by reference to Exhibit 3(f) to our Annual Report on
            Form 10-K for the year ended November 30, 1998.
      (g)   Certificate of Amendment of the Certificate of Incorporation,
            incorporated by reference to Exhibit 3.2 to our Quarterly Report on
            Form 10-Q for the quarter ended August 31, 1998.
      (h)   Certificate of Amendment of the Certificate of Incorporation,
            incorporated by reference to Exhibit 3(1) to our Current Report on
            Form 8-K dated November 16, 1999.
      (i)   By-laws, amended and restated as of December 1996, incorporated by
            reference to Exhibit 3(e) to our Annual Report on Form 10-K for the
            year ended November 30, 1996.

(5)   Opinion re: Legality
      (a)   Opinion of Pryor Cashman Sherman & Flynn LLP.*

--------------------
* Previously filed.


                                       45


(10)  Material Contracts
      (a)   1995 Stock Option Plan, incorporated by reference to Exhibit 10(I)
            to our Annual Report on Form 10-K for the year ended November 30,
            1995, as amended.
      (b)   1996 Restricted Stock Award Plan, incorporated by reference to
            Exhibit A to our Proxy Statement dated October 24, 1996.
      (c)   Non-Employee Director Stock Option Plan, dated March 30, 2001,
            incorporated by reference to Exhibit 10(c) to our Annual Report on
            Form 10-KSB for the year ended November 30, 2003.
      (d)   Lease Agreement between South Broadway WP, LLC, Landlord, and New
            Rochelle Telephone Corp., Tenant, dated August 2003, incorporated by
            reference to Exhibit 10(d) to our Annual Report on Form 10-KSB for
            the year ended November 30, 2003.
      (e)   Office Lease between Lexin Celebration, LLC, as Landlord, and VoX
            Communications Corp., as Tenant, dated January 25, 2005,
            incorporated by reference to Exhibit 10(e) to our Annual Report on
            Form 10-KSB for the year ended November 30, 2004.
      (f)   Securities Purchase Agreement, dated as of February 8, 2005, between
            eLEC Communications Corp. and Laurus Master Fund, Ltd., incorporated
            by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
            February 8, 2005.
      (g)   Secured Convertible Term Note, dated as of February 8, 2005, between
            eLEC Communications Corp. and Laurus Master Fund, Ltd., incorporated
            by reference to Exhibit 10.2 to our Current Report on Form 8-K dated
            February 8, 2005.
      (h)   Master Security Agreement, dated as of February 8, 2005, among us,
            New Rochelle Telephone Corp., Telecarrier Services, Inc., VoX
            Communications Corp., Line One, Inc., AVI Holding Corp. and
            TelcoSoftware.com Corp. in favor of Laurus Master Fund, Ltd.,
            incorporated by reference to Exhibit 10.3 to our Current Report on
            Form 8-K dated February 8, 2005.
      (i)   Stock Pledge Agreement, dated as of February 8, 2005, executed by
            eLEC Communications Corp. in favor of Laurus Master Fund, Ltd.,
            incorporated by reference to Exhibit 10.4 to our Current Report on
            Form 8-K dated February 8, 2005.
      (j)   Subsidiary Guaranty, dated as of February 8, 2005, executed by New
            Rochelle Telephone Corp., Telecarrier Services, Inc., VoX
            Communications Corp., Line One, Inc., AVI Holding Corp. and
            TelcoSoftware.com Corp., incorporated by reference to Exhibit 10.5
            to our Current Report on Form 8-K dated February 8, 2005.
      (k)   Registration Rights Agreement, dated as of February 8, 2005, between
            eLEC Communications Corp. and Laurus Master Fund, Ltd., incorporated
            by reference to Exhibit 10.6 to our Current Report on Form 8-K dated
            February 8, 2005.
      (l)   Common Stock Purchase Warrant, dated as of February 8, 2005, between
            eLEC Communications Corp. and Laurus Master Fund, Ltd., incorporated
            by reference to Exhibit 10.7 to our Current Report on Form 8-K dated
            February 8, 2005.
      (m)   Form of Common Stock Purchase Warrant, dated as of February 8, 2005,
            issued by eLEC Communications Corp. to or on the order of Source
            Capital Group, Inc., incorporated by reference to Exhibit 10.8 to
            our Current Report on Form 8-K dated February 8, 2005.

(22)  Subsidiaries - The significant wholly-owned subsidiaries are as follows:

      Name                                        Jurisdiction of Organization
      ----                                        ----------------------------

      New Rochelle Telephone Corp.                       New York
      Telecarrier Services, Inc.                         Delaware
      VoX Communications Corp                            Delaware

(23)  Consent of Experts and Counsel


                                       46


      (a)   Consent of Nussbaum, Yates & Wolpow, P.C.1
      (b)   Consent of Pryor Cashman Sherman & Flynn LLP (included in their
            opinion filed as Exhibit 5(a))

(24)  Powers of Attorney
      (a)   Powers of Attorney of certain officers and directors of the Company
            (included on the signature page of this Registration Statement as
            originally filed on March 30, 2005).

Item 28.  Undertakings

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Company, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

      The undersigned Company hereby undertakes that:

      (1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:

      (i) Include any prospectus required by Section 10(a)(3) of the Securities
      Act;

      (ii) Reflect in the prospectus any facts or events which, individually or
      together, represent a fundamental change in the information set forth in
      the Registration Statement. Notwithstanding the foregoing, any increase or
      decrease in volume of securities offered (if the total dollar value of
      securities offered would not exceed that which was registered) and any
      deviation from the low or high end of the estimated maximum offering range
      may be reflected in the form of prospectus filed with the Commission
      pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
      price represent no more than a 20% change in the maximum aggregate
      offering price set forth in the "Calculation of Registration Fee" table in
      the effective Registration Statement;

      (iii) Include any additional or changed information on the plan of
      distribution.

      (2) For determining liability under the Securities Act, the Company will
treat each such post-effective amendment as a new Registration Statement of the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering.

      (3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

      (4) For determining any liability under the Securities Act, treat each
post-effective amendment 

--------------------


                                       47


that contains a form of prospectus as a new Registration Statement for the
securities offered in the Registration Statement, and that offering of the
securities at that time as the initial bona fide offering of those securities.




                                       48


                                   SIGNATURES

      In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it met all
the requirements of filing on Form SB-2 and authorized this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, in White
Plains, New York on June 7, 2005.

                                                    eLEC COMMUNICATIONS CORP.



                                                    By:  /s/Paul H. Riss
                                                         -----------------------
                                                         Paul H. Riss
                                                         Chief Executive Officer


      In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement was signed by the following persons in
the capacities and on the dates stated.




        Signature                                  Title                                Date

                                                                                 
/s/Paul H. Riss                      Chairman of the Board, Chief Executive         June 7, 2005
----------------------------         Officer and Chief Financial Officer
Paul H. Riss                         (principal financial officer, principal
                                     accounting officer and principal 
                                     executive officer)

*                                    Director                                       June 7, 2005
----------------------------
Michael H. Khalilian


*                                    Director                                       June 7, 2005
----------------------------
Greg M. Cooper


*                                    Director                                       June 7, 2005
----------------------------
Gayle Greer

*By: /s/Paul H. Riss
    ------------------------
    Paul H. Riss
    Attorney-in-fact


                                       49