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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





ANNUAL REPORT UNDER SECTION 13
OR 15(d)

OF THE SECURITIES EXCHANGE ACT 1934:

For the Fiscal Year Ended December 31, 2008

Commission File Number: 0-52830





IPtimize, Inc.

(Name of Small Business Issuer in its Charter)







|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 84-1471798                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

1720 S. Bellaire Street, Suite 200, Denver, CO 80222

(Address of Principal Executive Office, including Zip Code)

(303) 268-3600

(Issuers Telephone Number)





Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK, $.001 PAR VALUE

(Title of Class)





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

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

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

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

The aggregate market value of Common Stock held by non-affiliates of 14,612,188 at December 31, 2008 was $3,214,681.Shares of Common Stock, $.001 par value,
outstanding at May 21, 2009: 21,251,245 shares.



|                           |  |                      |  |                                              |  |                             
|-------------------------- |  | -------------------- |  | -------------------------------------------- |  | ----------------------------
|Large Accelerated Filer   ̈ |  | Accelerated Filer   ̈ |  | Non-Accelerated Filer   ̈                     |  | Smaller Reporting Company  x
|                           |  |                      |  | (Do not check if a smallerreporting company) |  |                             









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|         |  |                                                                                                                  |  |   
|-------- |  | ---------------------------------------------------------------------------------------------------------------- |  | --
|         |  | PART I                                                                                                           |  |   
|         |  |                                                                                                                 
|ITEM1.   |  | Description of Business                                                                                          |  | 3 
|ITEM 1A. |  | Risk Factors                                                                                                     |  | 10
|ITEM 2.  |  | Description of Property                                                                                          |  | 17
|ITEM 3.  |  | Legal Proceedings                                                                                                |  | 17
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                                              |  | 18
|         |  |                                                                                                                 
|         |  | PART II                                                                                                          |  |   
|         |  |                                                                                                                 
|ITEM 5.  |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 18
|ITEM 6   |  | Select Financial Data                                                                                            |  | 24
|ITEM 7.  |  | Managements Discussion and Analysis or Plan of Operations                                                       |  | 24
|ITEM 8.  |  | Consolidated Financial Statements                                                                                |  | 35
|ITEM 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 59
|ITEM 9A. |  | Controls and Procedures                                                                                          |  | 59
|ITEM 9B  |  | Other Information                                                                                                |  | 61
|         |  |                                                                                                                 
|         |  | PART III                                                                                                         |  |   
|         |  |                                                                                                                 
|ITEM 10. |  | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act  |  | 62
|ITEM 11. |  | Executive Compensation                                                                                           |  | 67
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 70
|ITEM 13. |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 72
|ITEM 14. |  | Principal Accountant Fees and Services                                                                           |  | 78
|         |  |                                                                                                                 
|         |  | PART IV                                                                                                          |  |   
|         |  |                                                                                                                 
|ITEM 15. |  | Exhibits and Financial Statement schedules                                                                       |  | 80



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Cautionary Note Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act of 1934, as amended, that are based on managements exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words
may, will, anticipate, believe, estimate, expect, intend, and words of similar import, are intended to identify any forward-looking statements. You should not place
undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Although we believe that our expectations are based on reasonable assumptions, we can give no
assurance that our expectations will materialize.



|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------

As used in this
registration statement, unless the context requires otherwise, the terms IPtimize, Inc., we, our, or us, refer to IPtimize, Inc. and where the context requires, our subsidiaries.

History and Organization

We were incorporated
under the laws of the State of Minnesota in 1983 as Simmetech Inc. and did not maintain any operations and remained dormant until late 2005. In November 2005, we merged with IPtimize, Inc., a Colorado corporation (referred to as IPtimize Colorado),
and adopted the name of the Colorado corporation. Since that date, we have been engaged in the business of managed Internet Protocol (IP) services for businesses. In September 2007, we re-incorporated our business to the State of
Delaware by merging into our wholly-owned subsidiary.

Our principal offices are located at 1720 South Bellaire Street, Suite 200, Denver,
CO 80222. We maintain a website at http://www.IPtimize.com. The information contained on that website is not deemed to be a part of this summary.

Overview of our Business

We are a broadband voice and data service provider which means that we utilize high speed data
network access, including the Internet, to furnish a suite of voice, video and data communications services to cable TV network operators, wire network operators, ISPs and small and medium sized businesses. We provide the technology and
service components used to furnish IP-based communication services to our customers and thereby serve as a single point of contact. Our customers use their broadband connection to the Internet to reach our Voice over IP (VoIP) servers
(used to manage and route calls), which direct their call to a national broadband network thereby enabling our customers to connect to any phone at virtually any destination in the world, wherever digital network access is available. Our voice and
network services reduce our customers communications costs, decrease complexity and increase productivity.

VoIP is a protocol used for the
transmission of phone calls over privately managed broadband networks (such as our network) and/or the Internet. It converts voice into a digital package of data that is then reassembled at the other end. Unlike traditional telephone networks, VoIP
does not use dedicated circuits for each telephone call; rather, the same network can be shared by multiple users for voice, data and video simultaneously. This network is more efficient than a dedicated circuit network because the data network is
not restricted by the one call, one line limitation of a traditional telephone network. This improved efficiency creates potential cost savings that can be passed on to consumers in the form of lower rates or retained by the provider as revenue.
VoIP has been used over the past decade by the major phone companies to transport calls over fiber optic lines to make long distance calls. Through recent technological advances, VoIP calls can now be made directly by a caller.



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Our service is enabled by three primary components, owned or leased by us:



| |  |  | Servers and other computer hardware owned by us;
| | - |  | ------------------------------------------------



| |  |  | Computer software acquired under license from independent third parties; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | Network access provided by our service partners.
| | - |  | ------------------------------------------------

While these same components are available to our competitors, we manage these components in a way that we believe provides superior service to our customers. For example, our service allows customers to place and
receive telephone calls virtually anywhere in the world wherever there is access to digital networks. Our services are carrier agnostic and terminal equipment agnostic.

Unlike traditional telephone networks, VoIP does not use dedicated circuits for each telephone call; instead, VoIP packets are carried on a fiber based network shared by multiple users transmitting voice, data and
video simultaneously. This type of data network is more efficient than a dedicated circuit switched network because the data network is not restricted by the one-call, one-line limitation of the PSTN and, as a result, greater quantities of traffic
can be transmitted over this data network. This improved efficiency creates cost savings that can be passed on to consumers in the form of lower rates or retained by the IP provider.

Our service solutions are designed specifically for the small to medium business market as well as the residential market. We measure our growth by the
number of service endpoints and equivalents under management. These endpoints represent unique identifiers for telephones, computers, and servers that link communication services together and manage security and traffic functions. As of
March 31, 2009, we have 7034 service endpoints under management. Our goal is to increase this number through internal growth and acquisitions.

We are engaged in the business of optimizing broadband networks for communication requirements for our customers. While we hope to increase our service offerings in the future, we do not anticipate entering a different industry segment.

Material Developments

Agreement
with Level 3 Communications, LLC. In September 2007, we executed a Master Service Agreement (the MSA) with Level 3 Communications, Inc., an international communications company that operates one of the worlds largest
Internet backbone networks reaching over 40 million customers (Level 3).

The MSA allows us to utilize our unique
architecture (i.e., operable on and compatible with any network) and customer support capabilities to provide VoIP services to the commercial and residential customers of cable system operators in smaller markets. The MSA allows us to aggregate our
cable system and business customer traffic onto to the Level 3 national broadband network, including the ability to terminate calls anywhere in the world. Pursuant to the MSA Agreement:



| |  |  | Level 3 agreed to provide us with Internet backbone connectivity plus other carrier services for our cable system and business customers throughout the United
States;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We agreed to jointly prepare and distribute marketing materials to the United States cable television industry under a marketing program launched by Level 3 in
November 2007;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We will aggregate and deliver to Level 3 its traffic derived from the commercial and residential VoIP services provided to cable TV systems located in Tier
2 and Tier 3 metropolitan and rural markets (typically markets with less than 200,000 homes and businesses). In the United States, there are several hundred cable operators, most of which have several separate
cable systems located in different markets. There are currently approximately 7,000 separate cable systems
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | in the United States. In smaller markets, cable systems typically do not have enough traffic volume to have their own connection to the Level 3s
Internet backbone. To a lesser extent, we will service commercial customers of cable systems in the Tier 1 markets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have completed certification on all inter-operational testing procedures and protocols to insure that our systems are mutually compatible with Level 3.

Agreement with C-COR Incorporated Subsidiary. On November 9, 2007, we signed a Reseller Agreement (the Reseller Agreement) with Broadband Management Solutions, LLC, a wholly owned subsidiary of
C-COR Incorporated, and a global provider of inter-operable network solutions for cable broadband networks that simplify the transition to on-demand networks (C-COR). C-COR was recently acquired by ARRIS Group Inc., a $1.2 billion
technology provider to the cable television industry. The Reseller Agreement affords us access to C-CORs proprietary cable system status monitoring and diagnostic equipment, software, documentation, products and services. This, in turn, may
improve the quality and reliability of our unique architecture technology that we will be utilizing to connect cable system operators to the Level 3 Internet backbone. We agreed with C-COR to jointly prepare and distribute marketing materials to its
customers in the cable television industry.

Opportunity to Provide VoIP Services to Cable System Operators. We have determined that
there are additional robust opportunities to sell our services in the cable sector, especially in light of the knowledge, experience and relationships Mr. Pitcock, our Chief Executive Officer, maintains in the cable industry. Mr. Pitcock
was instrumental in developing the cable industry opportunity and presenting us with the freedom to focus our resources on pursuing agreements with individual cable systems and multiple system operators. We anticipate that there will be greater
opportunity to enter into such agreements, thereby allowing for the significant expansion of our business.

With the recently completed
Agreements, we believe that we are positioned to successfully participate in the $8 billion cable VoIP market. We believe that partnering with cable operators offers us a more immediate and cost-effective path to serving SMB customers nationwide,
and allows us to attain operating stability more reliably in a shorter period of time. We have joined together the national broadband network and customer relationships established by Level 3, and the cable industry network management capability and
customer relationships established by C-COR, with our network architecture. This melding allows us to serve the commercial and residential customers of cable system operators in smaller metropolitan and rural markets that are not currently being
provided with VoIP telephony or broadband services. This potentially may also include individual cable systems owned by the major cable operators in smaller markets. Because cable operators recognize that voice is a critical component of their
triple play offering (video, data and now voice), we believe this may make us a valued partner to cable system operators, as well as to Level 3 and C-COR.

American Fiber Systems. On August 16, 2008, we purchased the broadband access, hosted VoIP telephone services equipment and the related commercial VoIP business assets of American Fiber Systems, Inc.
(AFS) for $1,000,000. Based in Boise, Idaho, the commercial VoIP business assets serve small business and enterprise customers in four metropolitan areas: Boise, Idaho and its surrounding areas, Reno and Las Vegas, Nevada and Salt Lake
City, Utah. With the acquisition of these assets will more than double the number of service endpoints we serve and adds both expanded geographic reach and an established commercial customer base to our growing VoIP business. The transaction
included financing of $800,000 from an unrelated third party. The note is a 12% promissory note due August 12, 2013 and is payable $17,796 per month, including both principal and interest. In addition, we issued a five-year warrant to purchase
400,000 shares of our common stock for $.45 per share.

Our Products and Services

Our services consist of hosted VoIP and video communications replacement products and consulting services related to VoIP and data management. Our voice
services, in turn, consist of two offerings, described in more detail immediately below. Our consulting services are designed primarily around our voice services, but also encompass other aspects of the information industry. These services will also
be offered on a wholesale basis to various channels, including cable network operators in wireless network operators, ISPs, Tier 2 and smaller markets.



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Our voice services include a hosted offering known as VoicePilot, and a telephone line replacement
offering known as VoIP Connect. These products bring features and benefits that are not available with traditional telephony products and do not require an overhaul of the existing telecom infrastructure. Revenue from our voice services is generated
by monthly charges to our customers.



| |  |  | VoicePilot uses a customers or end users (i.e. a customer of our customer) existing broadband Internet connection and a desktop PC application or
telephone handset. Switching and connectivity to the outside world and to a customers remote offices or cable operators head ends is accomplished through our network switching platform that connects the Internet and the legacy (public)
telephone network. This technology is enabled through the use of computer hardware and software, each acquired by us from independent third parties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | VoIP Connect is our business trunk replacement service that allows businesses to put voice traffic onto existing broadband internet connections. It does not offer
all of the features included in our VoicePilot offering. Also, unlike our VoicePilot offering, it does not require different telephone equipment, but works with a customers existing telephone equipment.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Service offerings are offered for a monthly flat rate and variable fees. For the year ended December 31, 2008, a majority of our revenue was derived
from our voice services, and we expect that will be the case for the foreseeable future. Our service can be used with any digital network connection and most any computer hardware meeting minimum specifications. We are dependent on network access
and software provided by our service partners for our voice services. While the loss of any one or more of these providers would adversely affect our business on a temporary basis, we believe suitable substitutes are available given sufficient time
to investigate those alternatives.

Competition

The market for communications services is competitive, very large, highly fragmented and mature. While there are many service providers for the various service products that comprise our managed services portfolio, there remain a relatively
small number of known competitors that offer the same mix of outsourced, IP-centric and vendor integration solutions we provide. We believe that the principal competitive factors affecting our ability to attract and retain customers are price, call
quality, reliability, customer service, enhanced services and features and the fact that our services are carrier agnostic and terminal equipment agnostic.

We compete with providers of traditional (land-line) providers of telephone service and other providers of VoIP and other IP services. As a relatively new entrant in the network services industry, we face significant
challenges competing against these companies. Most of these companies have significantly greater personnel and financial resources than we do. Our competitive strategy is to differentiate our service based on quality, flexibility, and cost.
Since our company is relatively new, there is no assurance we will be successful with that strategy.

We experience competition from all
network and communications services providers whose target market is cable operators in tier 2 and smaller markets and small and medium sized businesses. Because the capital cost to compete is small, many competitors may enter the market for the
marketing of carrier broadband services or hosted VoIP services. We compete for small to medium sized business customers with Qwest Communications, Covad and C-Beyond Communications. We believe that our focus on flexible integrated Managed VoIP and
networking solutions differentiates us in the competition for small to medium sized business customers.



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The incumbent telephone companies are increasingly becoming competitors and have historically dominated
their regional markets. These competitors include AT&T (formerly SBC Communications and BellSouth), Qwest Communications and Verizon Communications. These competitors are substantially larger and better capitalized than we are and have the
advantage of a large existing customer base. These are factors that may be difficult for us to overcome.

Notwithstanding our small size
and limited operating history, and while the same VoIP components are available to our competitors, we manage these components in a way which we believe provides superior service to our customers. For example, our service allows customers to place
and receive telephone calls anywhere in the world, wherever digital network access is available. Many of our competitors services are only available when connected to that providers network. We believe this provides us with an important
competitive advantage. In addition, we:



| |  |  | Act as both a reseller and a private label distributor for many of our service partners in reaching their customers;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Serve as a centralized point of contact for both vendor and network administration; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Operate on any carriers system and interface with any local area network terminal equipment.
| | - |  | ---------------------------------------------------------------------------------------------

We ease the administrative burden, eliminate redundancy, and reduce costs for our customers while at the same time allowing our customers to avoid making
any material network or terminal equipment purchases or modifications to accommodate our service offerings.

Regulation

Traditional telephone service historically has been subject to extensive federal and state regulation, while Internet services generally have been subject
to less regulation. In fact, the FCC has issued an order preempting state telecommunication regulation over VoIP services, which was affirmed by the Eighth Circuit Court of Appeals in March 2002. Because some elements of IP services resemble the
services provided by traditional telephone companies and others resemble the services provided by Internet service providers, the IP services industry has not fit easily within the existing framework of telecommunications law and until recently has
developed in an environment largely free from regulation.

However, the Federal Communications Commission (FCC), as part of a
rulemaking proceeding initiated on February 12, 2004, is considering whether VoIP services should be classified as unregulated information services or regulated telecommunications services under the Communications Act of
1934. VoIP service providers are required to make contributions to support universal service based on a percentage of the revenues derived from selling these services. The U.S. Congress and various foreign regulatory bodies have also
begun to assert regulatory authority over IP providers and are continuing to evaluate how IP services will be regulated in the future. In addition, while some of the existing regulations governing IP services are applicable to the entire industry
many rulings are limited to individual companies or categories of service. As a result, both the application of existing rules to us and our competitors and the effects of future regulatory developments are uncertain.

Regulatory Classification of VoIP Services

While the
FCC has not reached a decision on the classification of IP services like ours, it has ruled on the classification of specific VoIP services offered by other IP services providers. The FCC has drawn distinctions among different types of VoIP
services, and has concluded that some VoIP services are telecommunications services while others are information services. The FCCs conclusions in those proceedings do not determine the classification of our services, but they likely will
inform the FCCs decision regarding IP services like ours. If the FCC decides to classify IP services like ours as telecommunications services, we could become subject to rules and regulations that apply to providers of traditional telephony
services. This could require us to restructure our service offering or raise the price of our service, or could otherwise significantly harm our business.



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The FCC is also evaluating a new universal service fund contribution formula based on telephone numbers
instead of the amount of telecommunication service revenues derived from interstate and international end-users. The adoption of this approach would increase the amount of universal service contributions we would be required to pay. Although we have
the right to pass these charges on to our customers, the increase in end cost for certain VoIP services could affect the demand for these services.

VoIP E-911 Matters

The FCC requires that all VoIP service companies provide enhanced emergency dialing capabilities, or
E-911, to their customers using dedicated land-lines to transmit customers and end users 911 calls, their callback number and customer-provided location information to the emergency authority serving the customers specified
location. We are in full compliance with all of the FCC requirements.

The Wire-line Broadband Internet Access Services Proceeding

On September 23, 2005, the FCC released an order concluding that wire-line broadband Internet access, such as digital subscriber line, or DSL, is an
information service, not a telecommunications service, and thus is subject to lighter regulation than the FCC applies to telecommunications services. This order may give providers of wire-line broadband Internet access services the right to limit
their customers access to IP and Internet services, including our service, or otherwise discriminating against providers of IP services such that our service becomes less attractive to customers. However, because telecommunications carriers
that provide wire-line broadband Internet access services will remain subject to Title II of the Telecommunications Act of 1996, their ability to engage in discriminatory and anticompetitive behavior may be limited by other provisions of law.

To facilitate a smooth transition to this new regulatory regime, the FCCs September 23, 2005 order required facilities-based
wire-line broadband Internet access service providers to continue providing their wire-line broadband transmission offerings on the same terms and conditions for one year from the effective date of the order.

The same day as the September 23, 2005 order, the FCC released a policy statement expressing its position that consumers should have access to the
Internet and Internet-based services like ours. The FCC stated that consumers should be able to access content, connect equipment and run applications of their choice. The policy statement also reaffirms that consumers are entitled to competition
among network service, application and content providers. The document is only a statement of policy and is not independently enforceable, and the ability and willingness of the FCC to protect access to these services is unclear. However, we believe
the policy statement indicates that the FCC may protect consumers access to IP services like ours. In that regard, as a condition to the FCCs October 31, 2005 approval of the mergers of Verizon and MCI and SBC and AT&T, the FCC
required each of the merged companies to commit to conducting business in a manner that comports with the policy statement for two years from the merger closing dates.

Assistance to Law Enforcement

The Communications Assistance for Law Enforcement Act
(CALEA) requires certain communications service providers to assist law enforcement agencies in conducting lawfully authorized electronic surveillance. On September 23, 2005, the FCC released an order concluding that CALEA applies
to IP services providers that, like us, offer services that allow users to receive calls from, and make calls to, the public switched telecommunications network. The FCC established a deadline of May 14, 2007 for IP services providers to comply
with the requirements of CALEA. On May 3, 2006, the FCC adopted a second order. The order clarified that the FCC will not establish standards for VoIP providers to comply with CALEA. Instead, the FCC directs law enforcement agencies, experts
and the industry to develop the standards. The FCCs order clarifies that IP services providers may use third party vendors to comply with the requirements of CALEA. Should the FCC take additional actions that require us to implement
capabilities that significantly differ from those we currently plan to deploy, we may face technical obstacles, or may incur additional expense in order to comply. We have implemented a solution, using a third party vendor that will enable us to
comply with the requirements of CALEA and the September 23, 2005 order.



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Universal Service Fund

FCC regulations require providers of interstate telecommunications services, but not providers of information services, to contribute to the federal Universal Service Fund, or USF. USF contributions are currently
calculated as a percentage of interstate and international revenue. In addition, the FCC is considering a number of proposals that could alter the way that the USF is assessed. For instance, the FCC is considering an assessment based on the use of
telephone numbers. In the future, we may be required to contribute directly to the USF or may face additional costs due to an increase in the contribution obligations of our suppliers. On June 21, 2006, the FCC issued rule 06-94 that requested
that interconnected VoIP service providers begin collecting a surcharge on monthly recurring VoIP services and to remit to the Universal Service Fund.

Access to Telephone Numbers and Local Number Portability

Our service and features depend on our ability to assign to
customers the phone numbers they want. FCC regulations affect our ability to do this and the cost at which we can do it.

Access to New Telephone
Numbers

Current FCC rules prohibit IP services providers from directly obtaining telephone numbers from the entities that control them,
which are the North American Numbering Plan Administrator and the Pooling Administrator. Instead, IP services providers must obtain numbers indirectly through licensed telecommunications carriers. SBC Internet Services, Inc., an unlicensed IP
services provider, filed a petition with the FCC seeking limited waiver of rules that limit the direct assignment of telephone numbers to licensed telecommunications carriers. The FCC granted SBC Internet Services petition and stated that it
will provide similar relief in response to petitions from other similarly-situated IP services providers.

Federal Legislative Activities

The United States Congress may consider various pieces of legislation in its current session that could amend the Telecommunications
Act and could affect our business. These bills propose, among other things, to deregulate advanced Internet communications services such as IP networks and the applications provided over such networks and require all Internet telephone providers to
provide certain 911 services similar to those already required under the FCCs order. We do not know whether any of these proposals will become law.

Fees and Taxes

There are numerous fees and taxes assessed on traditional telephone services that we believe have not been
applicable to us and that we have not paid in the past. Currently, we only collect and remit sales taxes for hardware sales for customers with a billing address in Colorado, where our corporate operations are conducted.

Intellectual Property

We do not currently have any
patents, trademarks or licenses.

Customers

We have approximately 800 customers accumulating annual sales in excess of $1.6 million for the year ended December 31, 2008. The loss of any one of these customers would not materially affect our revenue.



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Employees

As of December 31, 2008, we had 32 full time and part-time employees. Of that number, 5 were engaged in direct sales, 4 in sales support, 12 in information technology, 7 in administration and 4 in executive administration. None of our
employees is a party to a collective bargaining agreement. We consider our relationship with our employees to be good. As of March 31, 2009, we had 23 full time and part-time employees.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

The following risks with respect to
our proposed business and financial condition should be carefully considered. These risks and uncertainties are not the only ones facing us. Other risks and uncertainties that have not been predicted or assessed by us may also adversely affect us.
Some of the information in this report contains forward-looking statements that involve substantial risks and uncertainties. These statements can be identified by forward-looking words such as may, will, expect,
anticipate, believe, intend, estimate, and continue or other similar words. Statements that contain these words should be carefully read for the following reasons:



| |  |  | The statements may disclose our future expectations;
| | - |  | ----------------------------------------------------



| |  |  | The statements may contain projections of our future earnings or our future financial condition; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | The statements may state other forward-looking information.
| | - |  | -------------------------------------------------------------

Risks Related to Our Business and Industry

We are currently insolvent

As of December 31, 2008, we were legally insolvent in that we had a negative shareholders equity and our liabilities
exceeded our assets. In addition, and as a result of our ongoing operating losses, we had outstanding liabilities that could not be met by our revenues, including payments due to our note holders and vendors. We are currently negotiating with our
note holders with whom we are currently in default to extend the term of their notes or to convert the same into shares of our common stock. While we have been successful in converting and extending a portion of these notes, there can be no
assurance that we will be able to cure the remaining defaults or that these obligations may be negotiated on terms that are favorable to us, if at all. Our insolvent financial status will continue to have a material adverse effect upon our ability
to consummate the private equity and debt financing we need to sustain our operations or carry out our acquisition business strategy.

We have a history
of losses and we may never become profitable

We have had a limited operating history in our current business activity of providing
managed IP services to small businesses upon which an evaluation of our company and its prospects may be based. We have incurred startup expenses and losses since inception resulting in an accumulated deficit of $22,248,243. We may encounter
unforeseen difficulties and obstacles, including unanticipated costs, or revenue growth that is slower than anticipated, and a slow acceptance by the market of our services and products. There can be no assurance that we will achieve or sustain
profitability. The likelihood that we will succeed must be considered in light of the problems, expenses, and delays frequently encountered in connection with the development and growth of new businesses, as well as many other factors. We cannot
assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business



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enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including
whether we will be able to generate revenue. As a result of continuing losses, we may exhaust all of our resources prior to completing the development of our products. Additionally, as we continue to incur losses, our accumulated deficit will
continue to increase, which might make it harder for us to obtain financing in the future. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us, which could result in reducing or
terminating our operations.

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern

In their report in connection with our Annual Report on Form 10-K for the fiscal 2008, our independent auditors stated that our financial statements
for the year ended December 31, 2008 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern was raised as an issue because of our working capital deficit of $5,665,270 and our accumulated
deficit of $22,248,243 at December 31, 2008. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit as well as to obtain necessary funding from outside sources,
including private equity and debt financing and accelerating our sales growth through acquisitions. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove
successful.

If we are unable to obtain additional financing our business operations will be harmed

As of December 31, 2008, we had a cash balance of $963. We have raised $200,000 in 2009, in a private placement of our securities with our directors
and officers. However, we require at least $1,000,000 in additional funds to finance our current and proposed business operations. In addition, we anticipate that we will require up to $5,000,000 to fund our anticipated cable industry sales growth
during the next twelve months, depending on revenue from operations. Our continued operations will depend upon the availability of cash flow from operations and/or our ability to raise additional funds through equity or debt financing. There can be
no assurance that we will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on acceptable terms. If we cannot obtain needed funds, we may be forced to curtail or cease our activities, placing our
continued viability in substantial doubt. Even if we do receive additional financing, it may not be sufficient to sustain or expand our operations or continue our business operations. Any additional equity financing may involve substantial dilution
to our existing shareholders.

We must review and restate certain previously issued financial statements for the fiscal 2006 and 2007

In January 2009 we discovered that we will have to restate the results of its operations for the years ended December 31, 2006 and 2007 and that the
previously issued financial statements for those periods, together with the auditors reports thereon, for those periods should not be relied upon until restated financial information is filed with the SEC. The Fiscal 2006 & 2007
financial statements will be restated to increase the loss from the operations by $514,320 and increase in preferred dividend by $30,202 (2006) or $.07 per share loss attributable to common shareholders; and restated to increase the loss from
the operations by $102,864 and increase in preferred dividend by $181,812 (2007) or $.03 per share loss attributable to common shareholders. We cautioned the marketplace not to rely on the financial statements for those periods until we file
restated financial information for one or more of those periods. We are undergoing the review of the financial statements in question as well as of our accounting practices and procedures. There is no assurance that we will be able to identify and
correct accounting errors in such practices or procedures, if any that would prevent similar errors from recurring in the future.



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Failure of our targeted customers to accept IP services would have a material adverse impact on our business

Our business plan assumes the rapid growth and broad acceptance of IP services in the smaller cable markets as well as in the small to
medium sized business market. However, there can be no assurance that these markets will accept VoIP as an alternative to traditional telephony services or that either or both will accept our particular services and products. Any material delay in
acceptance of IP services by smaller cable operators and/or the small to medium sized business customers will have a material adverse effect on our financial performance and may require that we again change our business strategy. Competitors have
invested substantial resources in the existing telecommunications infrastructure, including proprietary networks, and may effectively compete against the Internet-based market for small to medium sized business customers. Furthermore, the
transmission of voice communications over data networks, including the Internet, is limited by the current capabilities of those networks. Bundling voice and data communications over common networks could cause these transmissions to suffer in the
event that networks have insufficient bandwidth. Additionally, we are confronted with how to position our company within an industry with rapidly evolving standards, many of which are designed by competitors with vast resources devoted to developing
proprietary technologies. Our failure to conform our managed IP products to existing or future standards may limit their acceptance by market participants.

Unforeseen explosive growth in the IP services industry, either driven by increasing bandwidth availability or as a result of competitive developments, could strain our ability to deliver our managed IP services
products to the small to medium sized business market within a narrowing window of opportunity. As a result, we cannot predict with any degree of accuracy how the IP services industry will evolve and whether the evolving telecommunications
infrastructure will continue to support our Internet phone products. To address these risks, we must continue to develop and upgrade our technologies and commercialize our services incorporating such technologies. There can be no assurance that we
will successfully address such risks, and failure to do so could have a material adverse effect on our business, results of operations and financial condition.

Failure to anticipate technological changes will affect our ability to grow our business

IP services are a rapidly growing
and evolving market that is likely to be affected by future technological developments. The technology and methodology relating to this field are constantly changing at a rapid pace, and may favor larger companies with more substantial financial and
technical resources than our company. No assurance can be given that such new technological advances will not diminish or eliminate our perceived competitive advantage. Our ability to anticipate changes in technologies, markets and industry trends
and to develop and introduce new and enhanced services on a timely basis may be a factor in our ability to grow our company and remain competitive. Our ability to adapt to changes in technology will be limited by the financial and technical
resources available to us.

We rely on business partners and third-party service providers

Our success will largely depend upon our ability to rely on third-party providers who provide ISP services, data networking services, hosted data
services, local telecom service and wireless Internet access. We intend to rely upon several unaffiliated, third party companies for computer equipment, network services, component parts, manufacturing, systems integration and real-time monitoring
capabilities. This outsourcing strategy involves certain risks, including the potential lack of adequate capacity and reduced control over delivery schedules, manufacturing yield, quality and costs. In the event that one or more subcontractors were
to become unable or unwilling to continue to supply, manufacture or maintain our products in the required volumes, we would have to identify and qualify acceptable replacements. Finding replacements could take time, and we cannot be sure that
additional sources would be available on a timely basis or at all. Accordingly, we may be subject to the risk of interruptions in operations or supplies due to changes in market demand or increased servicing costs. There can be no assurance that we
will be able to maintain favorable relationships with the providers of these services, in which case we may be unable to provide customers with our full range of services. Many of the factors necessary for the success of these relationships are
beyond our control.



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Failure to maintain customer management will impact the growth of our business

We use software programs and other internal controls that manage the processes involved in fulfillment, customer service and customer support. These
controls are necessary for the efficient delivery of our products and services and the maintenance of our customer and business partner relationships. Any operational delays or service failures, including billing, contract management or management
of services, would have a material negative impact on our operating results.

Failure to manage our expected growth will negatively impact our business

To effectively manage anticipated growth, we will need to expand or enhance our management, network operations, customer service, sales
and marketing capabilities. We may not be able to hire the management, staff, or other resources required, or install adequate control systems in an efficient and timely manner. Difficulties in installing and implementing new systems, procedures and
controls may significantly burden management and strain our internal resources. Delays in the implementation of new systems or operational disruptions when transitioning to new systems could impair our ability to accurately forecast sales demand,
manage product inventory and record and report financial and management information on a timely and accurate basis. There can be no assurance that our allocation of available capital will be sufficient to meet our expansion goals.

Government regulation and legal uncertainties relating to IP telephony could harm our business

Historically, voice communications services have been provided by regulated telecommunications common carriers. We offer voice communications to the
public for international and domestic calls using IP telephony, and we do not operate as a licensed telecommunications common carrier in any jurisdiction. Based on specific regulatory classifications and recent regulatory decisions, we believe we
should not be regulated as a telecommunications common carrier in any of our markets. However, the growth of IP telephony has led to close examination of its regulatory treatment in many jurisdictions making the legal status of our services
uncertain and subject to change as a result of future regulatory action, judicial decisions or legislation in any of the jurisdictions in which we operate. Established regulated telecommunications carriers have sought and may continue to seek
regulatory actions to restrict the ability of companies such as ours to provide services or to increase the cost of providing such services. In addition, our services may be subject to regulation if regulators distinguish phone-to-phone telephony
service using IP technologies over privately-managed networks such as our services from integrated PC-to-PC and PC-originated voice services over the Internet. Some regulators may decide to treat the former as regulated common carrier services and
the latter as unregulated enhanced or information services.

Application of new regulatory restrictions or requirements to us could
increase our costs of doing business and prevent us from delivering our services through our current arrangements. In such event, we would consider a variety of alternative arrangements for providing our services, including obtaining appropriate
regulatory authorizations for our local network partners or ourselves, changing our service arrangements for a particular country or limiting our service offerings. Such regulations could limit our service offerings, raise our costs and restrict our
pricing flexibility and potentially limit our ability to compete effectively. Further, regulations and laws that affect the growth of the Internet could hinder our ability to provide our services over the Internet.

Our business may become subject to extensive government regulation and taxation in multiple jurisdictions

To date, governmental regulations have not materially restricted use of the Internet in the VoIP markets. Uncertainty currently exists as to whether new
laws or regulations may be passed that would increase our costs of doing business or limit our ability to deliver products and services over the Internet. New laws may be passed or interpretations of existing laws may be made, regulating issues such
as sales and other taxes; access charges; user privacy; pricing controls; characteristics and quality of products and services; consumer protection; cross-border commerce; copyright, trademark and patent infringement; and other claims based on the
nature and content of Internet materials. There is no assurance that the FCC, IRS or other governmental officials responsible for regulating compliance with such laws will adopt our interpretations of laws, or support our attempts to comply with
them. Also, there is no assurance that our products or services will be in continuous compliance with any future laws, regulations or standards, either



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in the United States or in other countries. We are subject to state and federal income and payroll taxes, local and personal property taxes and certain other
fees. Because we conduct business in several jurisdictions, our operations may be subject to taxation by multiple state and local taxing authorities. Many state and local tax laws are not uniform, and we may be exposed to double taxation on portions
of our income by various jurisdictions.

The VOIP and communications services industry is very competitive

The market for communications services, including IP and managed network services offered by us, is extremely competitive. Presently, we compete (at
varying degrees depending on their involvement with small to medium sized business customers) with firms including Vonage, Covad Communications, AT&T, Packet 8, Inc. and Qwest Communications, as well as technology firms including Savvis
Communications, SiteLite, RedSiren, NetSolve, NUVO, Opsource and OneConnect. To a lesser extent, we compete for certain network monitoring or secure access services with virtual network operators including Vanguard, iPass, Sirocom,
Virtela, Megapath and FiberLink. We compete in offering IP services with various national and local providers. We expect to receive competition from both value added resellers and systems integration firms that participate in the small to medium
business customers networking purchases. In Denver, we compete for small to medium sized business customers with Qwest Communications, Covad, and C-Beyond, which provide certain related vendor network services.

Many of these competitors have substantially greater capital resources, larger customer bases, marketing experience, research and development staff and
facilities than we do. Any of these companies could succeed in developing products that are more effective than the products that we have or may develop and may be more successful than us in producing and marketing their products. It is impossible
to quantify the number of competitors since they include both the companies to whom we attempt to sell our products and services and various other IP services companies.

We expect this competition to continue and intensify in the future. Competition in our markets is primarily driven by:



| |  |  | Product performance, features and liability;
| | - |  | --------------------------------------------



| |  |  | Price;
| | - |  | ------



| |  |  | Timing of product introductions;
| | - |  | --------------------------------



| |  |  | Ability to develop, maintain and protect proprietary products and technologies;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Sales and distribution capabilities;
| | - |  | ------------------------------------



| |  |  | Technical support and service;
| | - |  | ------------------------------



| |  |  | Brand loyalty;
| | - |  | --------------



| |  |  | Applications support; and
| | - |  | -------------------------



| |  |  | Breadth of product line.
| | - |  | ------------------------

If a
competitor develops superior technology or cost-effective alternatives to our products, or our services, our business, financial condition and results of operations could be materially adversely affected. There can be no assurance that we will be
able to successfully attract customers or that competitors may not take measures that impact the price, delivery or general attractiveness of our service and product offerings.

If we fail to introduce new products or services, or our existing products or services are not accepted by potential customers, we may not gain or may lose market share

Rapid technological changes and frequent new product introductions are typical for the small to medium sized business market we serve. Our future success
will depend in part on continuous, timely development and introduction of new products and services that address evolving market requirements. We believe successful new product and service introductions provide a significant competitive advantage
because customers invest their time in selecting and learning to use new products and are often reluctant to switch products. To the extent we fail to introduce new and innovative products and/or services, we may lose market share to our
competitors, which will be difficult or impossible to regain. Any inability, for technological or other reasons, to successfully develop and introduce new products could reduce our growth rate or damage our business.



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We may experience delays in the development and introduction of products. We cannot assure that we will
keep pace with the rapid rate of change in IP services or that our new products or services will adequately meet the requirements of the marketplace or achieve market acceptance. Some of the factors affecting market acceptance of new products
include:



| |  |  | Availability, quality and price relative to competitive products;
| | - |  | -----------------------------------------------------------------



| |  |  | The timing of introduction of the product relative to competitive products;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Customers opinions of the products utility;
| | - |  | ---------------------------------------------



| |  |  | Ease of use;
| | - |  | ------------



| |  |  | Consistency with prior practices;
| | - |  | ---------------------------------



| |  |  | Opinions of the products usefulness; and
| | - |  | -----------------------------------------



| |  |  | General trends.
| | - |  | ---------------

We have not
experienced any difficulties with the preceding factors; however, there can be no assurance that we will not experience difficulties in the future. The expenses or losses associated with unsuccessful product development or lack of market acceptance
of our new products could materially adversely affect our business, operating results and financial condition.

If we are unable to retain the services
of our officers or key employees, or if we are unable to successfully recruit qualified managerial and sales personnel having experience in our business, we may not be able to continue our operations.

Since our management team is limited, the loss of one or more of our officers or key employees would have a materially adverse effect on our ability to
execute our business plan and manage our operations and could have a material adverse effect on our growth, revenues, and prospective business.

We have entered into written employment agreements with Ron Pitcock, our Chief Executive Officer, Donald W. Prosser, our Chief Financial Officer, and Robert T. Flood, our Chief Information and Technology Officer and we have purchased
key man or related life insurance policies on the life of Ron Pitcock. There can be no assurance, if the services of any of these individuals were unavailable, that we would be able to employ qualified replacements to perform these
services on terms suitable to us.

Currently, we are not aware of any named executive officer or director who has plans to leave us or
retire. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and sales personnel having experience in business. Competition for
qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud

Our internal controls and operations are subject to extensive SEC regulation and reporting obligations. A companys internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. We cannot be certain that our efforts to develop and maintain our internal controls will be successful,
that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes-Oxley Act. Any failure to develop or maintain
effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results or cause us to fail to meet certain reporting obligations. Ineffective internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Shares.



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We need to expand our sales and support organizations to increase market acceptance of our products.

We currently have a small customer service and support organization and will need to increase our staff to support new customers and the expanding
needs of existing customers. The employment market for sales personnel and customer service and support personnel in this industry is very competitive, and we may not be able to hire the kind and number of sales personnel, customer service and
support personnel we are targeting. Our inability to hire qualified sales, customer service and support personnel may materially adversely affect our business, operating results and financial condition.

Risks Related to Our Common Stock

Our
share price has fluctuated in the past and may continue to fluctuate in the future

The market price of our shares in the
over-the-counter market has experienced significant volatility and may continue to fluctuate significantly. The market price of our shares may be significantly affected by factors such as the announcements of agreements, new products or product
enhancements by us or our competitors and technological innovations by us or our competitors. In addition, while we cannot assure you that any securities analysts will initiate or maintain research coverage of our company and our shares, any
statements or changes in estimates by analysts initiating or covering our shares or relating to the VoIP and telecommunications industry could result in an immediate and adverse effect on the market price of our shares. Further, we cannot predict
the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price of the shares prevailing from time to time. Sales of a substantial number of shares or the perception that such sales could occur
following the filing of this report, could have a material adverse effect on the market price of our shares.

Trading in shares of
companies, such as ours, listed on the Pink Sheets in general and trading in shares of technology companies in particular have been subject to extreme price and volume fluctuations that have been unrelated or disproportionate to operating or other
performance. As of the date hereof, we have filed Form 211 to initiate trading of our common stock on the OTC Bulletin Board, which application is pending our resolution of the outstanding SEC comments. Until this application is approved, of which
there can be no assurance, no market maker is presently publishing bid and asked quotations in our common stock.

The Number of Shares of Common Stock
Which are Available for Sale upon Exercise of our Outstanding Warrants or Conversion of our Outstanding Preferred Stock is Significant in Relation to Our Currently Outstanding Common Stock and Could Cause Downward Pressure on the Market Price for
Our Common Stock and Result in Significant Dilution to Existing Shareholders.

The number of shares of our Common Stock reserved for
issuance upon exercise of our outstanding warrants or conversion of our outstanding convertible bridge notes, and Series A and Series B Preferred Stock is significant in relation to the number of shares of our Common Stock currently outstanding. If
those security holders exercise their conversion privileges and are eligible to tack the holding period that they owned their derivative securities, and determine to sell a substantial number of shares into the market at any given time, there may
not be sufficient demand in the market to purchase the shares without a decline in the market price for our Common Stock. Continuous sales into the market of a number of shares in excess of the typical trading volume for our Common Stock, or even
the availability of such a large number of shares, could depress the trading market for our Common Stock over an extended period of time. In addition, if security holders exercise their conversion privileges, the additional shares could result in
substantial dilution to existing shareholders.



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The common stock is considered a penny stock

The SEC has adopted regulations which generally define penny stock to be an equity security that has a market or exercise price of less than
$5.00 per share, subject to specific exemptions. The market price of the common stock may drop below $5.00 per share and therefore may be designated as a penny stock according to SEC rules. This designation requires any broker or dealer
selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the
ability of brokers or dealers to sell the securities and may affect the ability of investors to sell their shares.

We Have not Paid Cash Dividends in
the Past and do not Expect to pay Cash Dividends in the Future. Any Return on Investment may be Limited to the Value of Our Stock.

We
have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of cash dividends on our Common Stock will depend on our earnings, financial condition and
other business and economic factors affecting us at such time as our Board of Directors may consider relevant. If we do not pay cash dividends, our Common Stock may be less valuable because a return on an investors investment will only occur
if our Common Stock price appreciates.

Available Information

We have filed, and we intend to continue to file Annual Reports on Form 10-K on a timely basis for all subsequent years. In addition, we file Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to
these reports, and other information with the SEC. The public may read and copy any materials we file with the SEC at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

As a smaller reporting
issuer (as defined by in Item 10(f)(1) of Regulation S-K), the Company is not required to report unresolved staff comments.



|ITEM 2. | DESCRIPTION OF PROPERTY
|------- | -----------------------

Presently, we maintain our
principal office at 1720 S. Bellaire Street, Suite 200, Denver, Colorado. At present, we lease approximately 8,000 square feet at an annual lease cost of $99,996 under a sub-lease which expires in January 2010. We maintain co-location facilities for
equipment in various markets as required. We maintain a website at www.IPtimize.com. The information contained on that website is not deemed to be a part of this annual report.

While limited in size, our present corporate office provides facilities suited to existing corporate development and marketing planning functions. As we
grow, new premises may be required in order to provide the additional facilities needed for the implementation of our business plan and the commencement of ongoing technical operations functions. However, we do not plan to purchase and own any real
estate at the present time.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

In addition to one routine
matter incidental to our business, we are presently party to the following legal proceeding:

The Company is the defendant in Civil
Action No. 2008-CV-6792, pending in the District Court for the City and County of Denver, Colorado, and titled Michael Dozier v. IPtimize, Inc. The plaintiff, who formerly worked with the Company, alleges that he is
entitled to 750,000 more shares of stock in the Company than he has received and is claiming the monetary value of those shares, damages for mental and emotional suffering, and associated fees and costs. The Company has denied
all liability. Though settlement negotiations have begun, the case is set for a jury trial commencing 17 August 2009.



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|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
|------- | -----------------------------------------------------

During the year ended December 31, 2008 we held an annual meeting of the shareholders on December 10, 2008. The meeting was noticed and proxy was filed on Form 14-A (Rule 14a-101) dated November 10, 2008. The meeting was held
and 12,271,601 shares were voted either by proxy or in person or 66.43%. The following are the matters voted on and all were passed.



| | 1. | Elect directors, each to serve such term as set forth herein or until his successor has been duly elected and qualified;
| | -- | ------------------------------------------------------------------------------------------------------------------------



| | 2. | Approve additional issuances of IPtimize Inc.s securities;
| | -- | -----------------------------------------------------------



| | 3. | Approve the Equity Incentive Plan 2008;
| | -- | ---------------------------------------



| | 4. | Ratify the appointment of Ronald R. Chadwick PC., CPA as our independent certified public accountants;
| | -- | ------------------------------------------------------------------------------------------------------

No other matters were submitted to a vote of the security holders.

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | ----------------------------------------------------------------------------------------------------------------------------



| | (a) | The following table sets forth the range of high and low bid price information for our Common Stock for each fiscal quarter for the past two fiscal years and for the first quarter
of the current fiscal year as reported by the Pink OTC Markets Inc. and obtained from Yahoo Finance. High and low bid quotations which represent prices between dealers without adjustment for retail mark-ups, markdowns or commissions, have been
adjusted to reflect the one for three reverse split which became effective on October 10, 2007; and may not necessarily represent actual transactions.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | 
| | --- | 



|                              |  |         |     |        |   |    
|----------------------------- |  | ------- | --- | ------ | - | ---
|                              |  | HIGHBID |     | LOWBID
|Year Ended December 31, 2008: |  |         |     |        |   |    
|Fourth Quarter                |  | $       | .48 |        | $ | .17
|Third Quarter                 |  |         | .70 |        |   | .22
|Second Quarter                |  |         | .53 |        |   | .13
|First Quarter                 |  |         | .74 |        |   | .11
|Year Ended December 31, 2007: |  |         |     |        |   |    
|Fourth Quarter                |  | $       | .60 |        | $ | .29
|Third Quarter                 |  |         | .30 |        |   | .18
|Second Quarter                |  |         | .24 |        |   | .15
|First Quarter                 |  |         | .72 |        |   | .42



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Since our shares have been quoted in the over-the-counter market on the Pink Sheets, the prices for our
shares have fluctuated widely. There may be many factors that explain these variations. We believe that such factors include (a) the demand or lack thereof for our Common Stock, (b) the number of shares of our Common Stock available for
sale, (c) developments in the VoIP industry, and (d) changes in the performance of the stock market in general, among others.

In
recent years, the stock market has experienced extreme price and volume fluctuations that have had a substantial effect on the market prices for many small and emerging growth companies such as our company, which may be unrelated to the operating
performances of the specific companies. Some companies that have experienced volatility in the market price of their stock have been the targets of securities class action litigation. If we became the target of securities class action litigation, it
could result in substantial costs and a diversion of managements attention and resources and have an adverse effect on our ability to implement our business plan. In addition, holders of shares of our Common Stock could suffer substantial
losses as a result of fluctuations and declines in the market price of our Common Stock.

Holders

As of December 31, 2008, the approximate number of holders of record of shares of our Common Stock, $.001 par value per share, our only class of
trading securities, was believed by management to be as follows:



|                              |  |                        
|----------------------------- |  | -----------------------
|Title of Class                |  | Number of RecordHolders
|Common Stock, $.001 par value |  | 618                    

The number of record holders of our Common Stock was determined from the records of our transfer
agent and does not include numerous beneficial owners of our Common Stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The exact number of these shareholders is unknown to us. As of
December 31, 2008, there were six holders of our Series A Preferred Stock and ten holders of our Series B Preferred Stock.

Dividend Policy

We have never declared or paid any cash dividends on our Common Stock. We do not anticipate paying any cash dividends to stockholders in
the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other
factors as our Board of Directors deem relevant.

Penny Stock Rules

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than
securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading; (b) contains a description of the brokers or dealers duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other
requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a
toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including
language, type size and format, as the SEC shall require by rule or regulation.



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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer
with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information
relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customers account. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written acknowledgment
of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our Common Stock. Therefore, stockholders may have difficulty
selling our securities.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information as of December 31, 2008 with respect to compensation plans (including individual compensation
arrangements) under which our Common Stock is authorized for issuance, aggregated as follows: (i) all compensation plans previously approved by security holders; and (ii) all compensation plans not previously approved by security holders.

Equity Compensation Plan Information



|                                                       |  |                                                                                          |     |  |                                                                         |  |                                                                                                                                      |    
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------- | --- |  | ----------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ | ---
|                                                       |  | NUMBER OFSECURITIES TOBE ISSUED UPONEXERCISE OFOUTSTANDINGOPTIONS,WARRANTS,AND
RIGHTS(b) |     |  | WEIGHTEDAVERAGEEXERCISE PRICEOFOUTSTANDINGOPTIONS,WARRANTS,ANDRIGHTS(b) |  | NUMBER OFSECURITIESREMAINING AVAILABLEFOR FUTUREISSUANCES UNDEREQUITYCOMPENSATIONPLANS
(EXCLUDINGSECURITIESREFLECTED INCOLUMN (a)(c) |    
|Equity compensation plans approved by security holders |  | 726,667                                                                                  | (1) |  | Fair market value                                                       |  | 273,333                                                                                                                              | (1)



|(1) | Represents shares of our Common Stock reserved for issuance
pursuant to our 2007 Equity Incentive Plan adopted by our stockholders on June 22, 2007, and reversed by 3 to 1 for the agreed revenue stock split October 28, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Transfer Agent

Pacific Stock Transfer Company is
the transfer agent for our Common Stock. They are located at 500 East Warm Springs Road, Suite 240, Las Vegas, Nevada 89119; phone: (702) 361-3033; facsimile: (702) 433-1979.



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Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

On October 5, 2007 the Board of Directors approved a 1-for-3 (Reverse Split). IPtimize common stock began trading on a
reverse-split basis on October 10, 2007. As a result of the reverse stock split, every three shares of IPtimize common stock combined into one share of IPtimize common stock. The Reverse Split affected all common stock, warrants
and common stock underlying the Series A and Series B Preferred Stock outstanding immediately prior to the close of business on October 10, 2007 (Effective Time).

The Reverse Split became effective on Wednesday, October 10, 2007 (the Effective Date). Commencing on the Effective Date the Common
Stock became eligible to trade on a post-Reverse Split basis. After giving effect to the rounding of fractional shares of New Common Stock as explained below, there were no material differences between the shares of Old Common Stock prior to the
Effective Date of the Reverse Split and the shares of New Common Stock to be outstanding after the Effective Date of the Reverse Split.

Ratio and
Fractional Shares

The ratio of the Reverse Split was one-for-three. Accordingly, all shareholders holding more than one old
share received one new share for every three old shares held by them on the Effective Date. With the exception of stockholders who received less than one new share, all fractional shares were rounded up and one
whole share was issued. Shareholders who would have otherwise received less than one new share were paid cash based on the closing bid price on October 10, 2007, the day the reverse stock split was implemented.

The following is a description of all of the sales of securities undertaken by us during the past three years which were not registered under the
Securities Act:

Between November 2005 and January 2006, and following the merger with IPtimize Colorado, we sold an aggregate of 615,833
(split adjusted) shares of our common stock at a price of $0.90 per share for a total consideration of $554,250. The offering included one warrant for every share of our common stock purchased. The warrants are exercisable at a price of $0.75 per
share for a period of 3 years from the date of issue.

Between March and August 2006, we sold an aggregate of $875,000 principal amount of
one year, 15%, senior bridge notes convertible into shares of our common stock at $.25 per share. Each investor in the offering also received one share of our common stock and one common stock purchase warrant for each $3.00 of principal amount
convertible debenture invested. The warrants are exercisable at a price of $2.25 per share for a period of three years from the date of issuance.

Between September and December 2006, we sold 415,000 shares of our Series B Preferred Stock to twelve individuals or entities for a price of $1.00 per share, for a total consideration of $415,000.

In 2006, we issued 100,000 (split adjusted) shares of common stock to three individuals or entities for $0.90 per share, or a total of $90,000. Also
during 2006, we also issued 758,926 (split adjusted) shares of Common Stock as follows: (a) 450,000 (split adjusted) shares to four individuals for consulting services valued at $563,000; (b) 10,000 (split adjusted) shares to one
individual for interest in the amount of $15,000; (c) 290,593 (split adjusted) shares to fifteen individuals for employee stock grants valued at $226,809; and (d) 8,333 (split adjusted) shares to one individual for conversion of debt in
the amount of $18,750. Also during 2006, we issued 97, 221 (split adjusted) shares of common stock for deferred financing fees to two individuals in the amount of $142,032, or approximately $1.46 per share.

In connection with a financial advisory agreement executed by us on March 9, 2007, we issued a total of 8,335,000 shares of common stock and
4,165,000 warrants to purchase our common stock to a single entity that agreed to provide services to us under that agreement. The shares and warrants were issued for total consideration of $835, or $0.0001 per share of common stock.

Between March and June 2007, we issued $325,000 principal amount of convertible promissory notes to five individuals or entities. Each note is
convertible into our common stock at the rate of $0.50 per share. Each investor also received two warrants to purchase our common stock for each one dollar of debt issued by us. The warrants are exercisable at a price of $0.50 per share for a period
of five years from the date of issuance.



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Effective April 6, 2007, we issued 68,170 (split adjusted) shares of common stock to three
individuals for consulting services. The shares were valued at $28,631, or approximately $0.42 per share, based on the estimated fair value of the shares on the date the issuance was approved by our board of directors. Also effective April 6,
2007, we issued 83,333 (split adjusted) shares of common stock as compensation to an employee. The shares were valued at $35,000, or $0.42 per share, based on the estimated fair value of the shares on the date the issuance was approved by our board
of directors.

On July 2, 2007, we issued 200,000 (split adjusted) shares of common stock to a single entity in connection with a loan
agreement executed by us. The shares were issued as partial consideration for the loan, and were not assigned a separate value in the transaction.

In August and September 2007, we agreed to issue a total of 50,000 (split adjusted) shares of common stock to nine individuals in connection with short term loans extended by such individuals. The shares were issued at the rate of one share
for each $6.00 advanced to us. The shares were issued as part consideration for the loans, and were not assigned a separate value for purposes of these transactions.

In September 2007, we issued a total of 321,556 (split adjusted) shares of our common stock for services previously rendered to our company. Of that amount, 116,667 (split adjusted) shares were issued to a former
director for services rendered to us, 195,557 (split adjusted) were issued to our former chairman in settlement of amounts due under his employment agreement and 9,333 (split adjusted) were issued to a public relation firm for amounts due for
services rendered by that entity. All of the shares issued in these transactions were valued at $0.45per share based on the estimated fair market value of the shares on the date the issuance was approved by our board of directors.

In January 2008, the Company issued 513,848 shares of Companys common stock upon the conversion of three Secured Promissory Notes from the 2006
Debt Offering. The holders accepted restricted shares of common stock and converted the principal loan amount and the accrued interest at the price of $0.45 per share. The principal loan amounts totaled $185,000 and the accrued interest totaled
$44,231.

On February 22, 2008, we consummated Bridge Loan Agreements with a group of investors (the Bridge Loan).
Investors were issued convertible promissory notes of $1,650,000 bearing interest at 12.99% per annum and convertible into 3,666,667 shares of our Common Stock at $0.45 per share (the Bridge Note). In addition to the usual
representations and warranties, the Bridge Loan Agreement granted us the right to prepay the Loan Amount on 45 days prior written notice at any time after the closing bid price for our Common Stock for 20 consecutive trading days is $1.35 or greater
and the minimum average daily trading volume during such 20 day trading period shall have been 50,000 shares. The investors were also issued five year warrants (the Bridge Warrants) to purchase an aggregate of 1,833,333 restricted shares
of our Common Stock at $0.45 per share (the Bridge Warrant Shares). We agreed to register the Bridge Warrant Shares in the first registration statement we file under the Securities Act of 1933, as amended.

On February 22, 2008, we entered into a three-year employment agreement with Mr. Ron Pitcock as our the Chief Executive Officer. Pursuant to
the agreement, and in addition to a base salary of $150,000 and customary health and hospitalization, vacation, confidentiality, and non-competition provisions, the agreement: (i) settled our $125,000 accrued monthly consulting obligation for
an aggregate of 277,777 shares of our Common Stock valued at $0.45 per share; (ii) granted Mr. Pitcock an Incentive Stock Option under our 2007 Stock Option Plan to purchase an aggregate of 250,000 shares of our Common Stock at $0.45 per
share all of which vested upon the execution of the employment agreement; and (iii) granted Mr. Pitcock the right to have all of his option shares registered under the Securities Act in the first registration statement filed by us under
the Securities Act following the date of the agreement.



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On February 22, 2008, we entered into a second amendment to the Advisory Agreement with FCBD.
Pursuant to the second amendment, we agreed to a bonus for FCBDs performance of services in excess of those required of it in the Advisory Agreement, and simultaneously with the execution of the second agreement, we agreed to issue 317,777
restricted (i.e. unregistered) shares of our Common Stock (the Bonus Shares) to FCBD and further agreed to include the same in the first registration statement filed by us under the Securities Act.

On February 14, 2008, we entered into a Settlement and Release Agreement with one of our vendors as settlement of a long-standing dispute concerning
services delivered by the party to the Company. The Company issued 25,000 shares of restricted common stock for the acceptance of the settlement.

In February, the Company issued a total of 25,000 shares of Common Stock to three of its shareholders as compensation for extending to the Company a temporary interest free loan to meet temporary cash needs over a thirty-day period. The
Company repaid the loans in full out of the proceeds of the Bridge Loan Agreement.

On April 2, 2008 the Company closed on the $5,000,000
Debenture offering above the minimum offering of $1,500,000 with $1,838,780 in debentures. The terms of the notes are 10% due in five years, interest paid quarterly, and convertible into Common Stock at $0.45 per share.

On April 24, 2008, we entered into a Termination and Settlement Agreement with FCBD related to the Advisory Agreement, pursuant to which we agreed
to pay FCBD $159,000 and issue to FCBD an aggregate of 311,111 shares of our stock in full settlement of all of our monetary obligation to FCBD under the Advisory Agreement. We agreed to register the shares of stock issued to FCBD in the first
registration statement filed by us under the Securities Act.

On April 21, 2008, the Company entered into a Waiver and Release
Agreement with Clay Storer to release one another including obligations, duties or liabilities arising from Storers employment by the Company. The sole consideration for Storers agreement was the issuance of 49,632 shares of the
Companys Common Stock for a value of $16,875. The number of shares was calculated by dividing the $16,875 by the closing price of the Companys Common Stock in the Pink Sheets Market on the date of the agreement, April 21, 2008.

On September 20, 2008 the Company entered into a working capital convertible
loan agreement with five current investors in the Company. The terms of the note are as follows: 1) Interest paid at a rate of twelve and 99/100 (12.99%) percent per annum on an actual day/360 day basis and payable on the 18thday of each month beginning on October 18, 2008; 2) All principal, unpaid interest and other costs incurred in connection with this Note shall be due and
payable to the Holder on the on the earlier of: (i) six months from the date of this Working Capital Loan Agreement. (the Due Date) and (ii) have the option of the Lender to extend for one (1) additional year (total of 18
months) or (iii) at the option of the lender to receive $50,000 per month plus interest after the Due Date. Both options are at the Leaders discretion and upon 60 days notice. The terms of the note are governed by a Working Capital Loan
Agreement. In addition, the loan is convertible at $0.30 per share of Common Stock at the option of the Lender and the Lender received Common Stock purchase warrants for a 1,000,000 shares at $0.45 per share of common stock expiring in five
years.

October 10, 2008, the Company offered a $525,000 Debenture offering of which $375,000 was received by December 31, 2008
and the balance of the offer was closed on February 15, 2009. The terms of the notes are 12% due in one year, interest paid quarterly, and convertible into Common Stock at $0.30 per share.

On December 19, 2008 the Company borrowed $100,000 from a private party on a demand note. The terms are 12% interest monthly and 25,000 shares of
unregistered shares of common stock as a fee.



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##### Table of Contents

All of the securities set forth above were issued by the Company pursuant to Section 4(2) of the
Securities Act of 1933, as amended, or the provisions of Rule 506 of Regulation D promulgated under the Securities Act. All such shares issued contained a restrictive legend and the holders confirmed that they were acquiring the shares for
investment and without intent to distribute the shares. We did not conduct any general solicitation in connection with the offering and received a representation from each investor that he, she, or it was an accredited investor within
the meaning of Rule 501 of the Securities Act. We also took what we considered to be reasonable steps to insure that the purchasers of the securities were not underwriters within the meaning of Section 2(a)(11) of the Securities Act, including:
(i) reasonable inquiry to determine if the purchaser was acquiring the securities for himself or for other persons; (ii) providing written disclosure to each purchaser that the securities had not been registered under the Securities Act
and could not be sold unless they were registered or unless an exemption from registration was available; and (iii) placement of a legend on the certificate representing the securities and issuance of stock transfer instructions to our transfer
agent.



| | (b) | Rule 463 is not applicable.
| | --- | ---------------------------



| | (c) | During the fourth quarter of the fiscal year covered by this annual report, we did not repurchase any shares of our Common Stock.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



|ITEM 6. | SELECT FINANCIAL DATA
|------- | ---------------------

As a
smaller reporting issuer (as defined by in Item 10(f)(1) of Regulation S-K), the Company is not required to report selected financial data specified in Item 301 of Regulation S-K.



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
|------- | ----------------------------------------------------------

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking
information

This report contains certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, that are based on managements exercise of business judgment as well as assumptions made by, and information currently available to, management.
When used in this document, the words may, will, anticipate, believe, estimate, expect, intend, and words of similar import, are intended to identify any
forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our expectations will materialize.

Managements Discussion and Analysis of
Financial Condition and Results of Operations should be read together with our audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K, including the following discussion,
contains trend analysis and other forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Annual Report on Form 10-K that are not statements of historical facts are
forward-looking statements. These forward looking statements made herein are based on our current expectations, involve a number of risks and uncertainties and should not be considered as guarantees of future performance. The factors that could
cause actual results to differ materially include without limitation:



| |  |  | Dependence on key management personnel;
| | - |  | ---------------------------------------



| |  |  | Competitors with greater financial resources;
| | - |  | ---------------------------------------------



| |  |  | The impact of competitive pricing;
| | - |  | ----------------------------------



| |  |  | The ability of management to execute acquisition and expansion plans and motivate personnel in the execution of such plans;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Interruptions or cancellation of existing contracts;
| | - |  | ----------------------------------------------------



| |  |  | Adverse publicity related to the company, or the industry.
| | - |  | ----------------------------------------------------------



| |  |  | An inability to arrange additional debt or equity financing;
| | - |  | ------------------------------------------------------------



| |  |  | Adverse claims relating to our use of trademarks and/or trade names;
| | - |  | --------------------------------------------------------------------



| |  |  | The adoption of new, or changes in, accounting principles;
| | - |  | ----------------------------------------------------------



| |  |  | The costs inherent with complying with new statutes and regulations applicable to public reporting companies, such as the Sarbanes-Oxley Act of 2002.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Economic downturn.
| | - |  | ------------------

Actual results
may differ materially from those set forth in such forward-looking statements as a result of factors set forth elsewhere in this Annual Report on Form 10-K, including under Risk Factors. More information about factors that potentially
could affect the Companys financial results is included in our filings with the Securities and Exchange Commission. The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

General

It is our desire to provide all parties who may read this MD&A an understanding of the Companys
past performance, its financial condition and its prospects of going forward in the future. Accordingly, we will discuss and provide our analysis of the following:



| |  |  | Overview of the business;
| | - |  | -------------------------



| |  |  | Critical accounting policies;
| | - |  | -----------------------------



| |  |  | Results of operations;
| | - |  | ----------------------



| |  |  | Overview of business segments;
| | - |  | ------------------------------



| |  |  | Liquidity, capital resources and outlook for 2009;
| | - |  | --------------------------------------------------



| |  |  | New accounting pronouncements.
| | - |  | ------------------------------

We
are a broadband voice and data service provider which means that we utilize high speed data network access (including the Internet) to furnish a suite of voice, video and data communications services to cable TV network operators, wire network
operators, ISPs and small and medium sized businesses. We are often referred to as a hosted service provider because we provide the technology and service components used to furnish Internet Protocol (or IP) based communication
services to our customers and thereby serve as a single point of contact. Our customers use their broadband connection to the Internet to reach our Voice over IP (VoIP) servers (used to manage and route calls) which direct their call to
a national broadband network thereby enabling our customers to connect to any phone at any destination in the world. Our voice and network services reduce our customers communications costs, decrease complexity, and increase productivity.

In September 2007, we executed a Master Service Agreement (the MSA) with Level 3 Communications, Inc. (NASDAQ: LVLT), an
international communications company that operates one of the worlds largest Internet backbone networks reaching over 40 million customers (Level 3). However, and as required by the MSA, we were previously prohibited from
announcing the existence of the MSA until after the same had been approved by Level 3s legal department.



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##### Table of Contents

VoIP is a protocol used for the transmission of phone calls over privately managed broadband networks
(such as our network) and/or the Internet. It converts voice into a digital package of data which is then reassembled at the other end. Unlike traditional telephone networks, VoIP does not use dedicated circuits for each telephone call; rather, the
same network can be shared by multiple users for voice, data, and video simultaneously. This network is more efficient than a dedicated circuit network because the data network is not restricted by the one call, one line limitation of a traditional
telephone network. This improved efficiency creates potential cost savings that can be passed on to consumers in the form of lower rates or retained by the provider as revenue. Significant cost savings are also possible for international telephone
calls because VoIP calls bypass the international settlement process, which represents a significant portion of the international long distance tariffs. VoIP has been used over the past decade by the major phone companies to transport calls over
fiber optic lines to make long distance calls. Through recent technological advances, VoIP calls can now be made directly by a caller.

Our
service is enabled by three primary components, owned or leased by us:



| |  |  | Servers and other computer hardware owned by us;
| | - |  | ------------------------------------------------



| |  |  | Computer software acquired under license from independent third parties; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | Network access provided by our service partners.
| | - |  | ------------------------------------------------

While these same components are available to our competitors, we manage these components in a way which we believe provides superior service to our customers. For example, our service allows customers to place and
receive telephone calls anywhere in the world, wherever digital network access is available. Our services are carrier agnostic and terminal equipment agnostic.

Unlike traditional telephone networks, VoIP does not use dedicated circuits for each telephone call; instead, VoIP packets are carried on a fiber based network shared by multiple users transmitting voice, data and
video simultaneously. This type of data network is more efficient than a dedicated circuit switched network because the data network is not restricted by the one-call, one-line limitation of the PSTN and, as a result, greater quantities of traffic
can be transmitted over this data network. This improved efficiency creates cost savings that can be passed on to consumers in the form of lower rates or retained by the IP provider.

Our service solutions are designed specifically for the small to medium business market as well as the residential market. We measure our growth by the
number of IP endpoint addresses under management. These endpoints represent unique identifiers for telephones, computers, and servers that link communication services together and manage security and control functions. As of December 31, 2008,
we have 6,051 IP endpoint addresses under management. Our goal is to increase this number through internal growth and acquisitions.

We are
engaged in the business of optimizing broadband networks for communication requirements for our customers. While we hope to increase our service offerings in the future, we do not anticipate entering a different industry segment.

Going forward, we intend to continue with our recurring service model and expand the product offerings to meet the needs of the markets which we serve.
We anticipate that our revenue growth will be achieved through:



| |  |  | Targeted cable systems in second, third and fourth tier cities for use of our system platform to provide them our hosted services;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strategically targeted acquisitions that include need infrastructure and matching services
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Organic growth through a direct sales team and sales agent partner program.
| | - |  | ---------------------------------------------------------------------------



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##### Table of Contents

Our costs and operating expenses consist of cost of sales, general and administrative expenses,
depreciation amortization, financing and interest expenses, described in more detail as follows:



| |  |  | Cost of sales consists primarily of leased access, network and collocation facilities that we utilize to provide services to our end-users. The term of our
contracts with these providers is generally two years or less, in addition we are in the process of building our own, network and collocation facilities to be able increase our margins on the services provided ;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses consist primarily of compensation and benefits for sales, management, operation, customer service, accounting, and
administrative personnel, occupancy costs, marketing, legal and accounting fees, and other expenses associated with being a public company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Depreciation and amortization expenses are related to the depreciation and amortization of our network equipment, computer software, leaseholds, office furniture,
and fixtures;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expenses consist of cash and non-cash interest costs related to our borrowing activities;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | We have not recorded any income tax benefit for net losses and credits incurred for any period from inception to December 31, 2008. The utilization of these
losses and credits depends on our ability to generate taxable income in the future. Because of the uncertainty of our generating taxable income going forward, we have recorded a full valuation allowance with respect to these deferred assets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Trends in Our Industry and Business

A number of factors in our industry and business have a significant effect on our results of operations and are important to an understanding of our financial statements. These trends include:

Overall Economic Factors. Our operations and earnings are affected by local, regional and global events or conditions that affect
supply and demand for telecommunications and other information products and services. These events or conditions are generally not predictable and include, among other things, general economic growth rates and the occurrence of economic recessions;
changes in demographics, including population growth rates; and consumer preferences. Our strategy and execution focus is predicated on an assumption that these factors will continue to promote strong desire for the utilization of telephony products
and services and that the cost and feature advantages of VoIP alternatives will not be negatively impacted by unforeseen changes in these factors.

Industry. The telecommunications industry is highly competitive. In recent years we have seen new sources of supply for our underlying infrastructure that have reduced our overall costs of operation, and have enjoyed the
benefits of competition among these suppliers for a relatively limited amount of viable customers. These decreases were driven largely by reduced vendor pricing. A key component of our competitive position, particularly given the number and range of
competing communications products, is our ability to manage operating expenses successfully, which requires continuous management focus on reducing unit costs and improving efficiency.

Consumer Demand. There is significant competition within the traditional telecommunications marketplaces and also with other emergent
next generation telecommunications providers, including IP telecommunications providers, in supplying the overall telecommunications needs of businesses and individual consumers. We compete with other telecommunications firms in the sale
and purchase of various products and services in our markets. Our ability to sell managed IP services is directly linked to the significant growth rate of broadband adoption, and we expect this trend to continue. We benefit from this trend because
our service requires a broadband Internet connection and our potential addressable market increases as broadband adoption increases.



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##### Table of Contents

Regulatory Factors. Our business has developed in an environment
largely free from regulation. However, the United States and other countries have begun to examine how VoIP services should be regulated, and a number of initiatives could have an impact on our business. These initiatives include the assertion of
state regulatory and taxing authorities over us, FCC rulemaking regarding emergency calling services, CALEA and Electronic Privacy, and proposed reforms for the inter-carrier compensation system. Complying with regulatory developments will impact
our business by increasing our operating expenses, including legal fees, requiring us to make significant capital expenditures or increasing the taxes and regulatory fees we pay. We may impose additional fees on our customers in response to these
increased expenses. This would have the effect of increasing our revenues per customer, but not our profitability, and increasing the cost of our services to our customers, which would have the effect of decreasing any price advantage we may have.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements and accompanying notes, which have been prepared in accordance with accounting principals generally accepted in the
United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may
differ under different estimates and assumptions. Our significant accounting policies are described in Note 2 to the financial statements. The accounting estimate and assumptions discussed in this section are those that we consider to be the most
critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.

Principles of
Consolidation

The consolidated financial statements include the accounts of IPtimize, Inc. and its subsidiary IP Solutions, Inc. All significant
inter-company balances and transactions are eliminated in the consolidation. The Company is reporting its consolidated operations under the guidance of ARB 51, as amended by FASB 94 for consolidated companies.

Revenue Recognition

We recognize revenue from
services at the time the services are completed and revenue from the sale of products at the time that title passes to the buyer.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2008. The respective carrying value of certain on-balance-sheet financial instruments approximated
their fair values. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, leases payable, lines of credit, and notes payable. Fair values were assumed to approximate carrying values
for these financial instruments because they are short term in nature, their carrying amounts approximate fair values, or they are receivable or payable on demand. The carrying value of our long-term debt approximated its fair value based on the
current market conditions for similar debt instruments.



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Stock-based Compensation

We account for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of
the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.

Effective January 1,
2006, we implemented the provisions of SFAS 123(R) Share-Based Payment, requiring us to provide compensation costs for our stock option plans determined in accordance with the fair value based method prescribed in SFAS 123, as revised.
We estimate the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provide for expense recognition over the service period, if any, of the stock option.

Results of Operations

The nature of our operation
and the use of new technology in our business create certain challenges and risks to us in our growth and changes in operations. These challenges and risks are discussed in Item 1 of this Annual Report. However, certain of these factors are
especially important to this discussion and in understanding our results of operations, financial condition and cash flows, and the reason why historical results may not be indicative of our future performance.

Comparison of the year ended December 31, 2008 to the year ended December 31, 2007.

The following data has been derived from our statements of operations for the two years ended December 31, 2008. The information presented below and
in the following discussion was derived from audited financial information.



|                                               |  |                         |            |   |      |   |            |  
|---------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                               |  | Year Ended December 31, |           
|Statement of Operations Data                   |  | 2007                    |            |   | 2008 |  
|                                               |  | As restated             |            |   |      |  
|Revenue                                        |  | $                       | 1,025,152  |   |      | $ | 1,696,659  |  
|                                               |  |                         |            |   |      |   |            |  
|Costs of sales                                 |  |                         | 734,463    |   |      |   | 1,260,706  |  
|Salaries & wages                               |  |                         | 902,378    |   |      |   | 1,739,501  |  
|Consulting                                     |  |                         | 760,244    |   |      |   | 3,584,110  |  
|Taxes                                          |  |                         | 76,982     |   |      |   | 281,950    |  
|Rent                                           |  |                         | 77,424     |   |      |   | 114,975    |  
|Legal & Accounting                             |  |                         | 236,843    |   |      |   | 153,267    |  
|Marketing                                      |  |                         | 233,346    |   |      |   | 1,260,282  |  
|Insurance                                      |  |                         | 82,752     |   |      |   | 176,296    |  
|Other general & administrative                 |  |                         | 137,286    |   |      |   | 552,442    |  
|Depreciation and amortization                  |  |                         | 55,763     |   |      |   | 174,847    |  
|                                               |  |                         |            |   |      |   |            |  
|Total costs and expenses                       |  |                         | 3,297,481  |   |      |   | 9,298,376  |  
|                                               |  |                         |            |   |      |   |            |  
|Net operating (loss)                           |  |                         | (2,272,329 | ) |      |   | (7,601,717 | )
|Other income (expense)                         |  |                         |            |   |      |   |            |  
|Loss on acquisition                            |  |                         | (250,000   | ) |      |   |           |  
|Gain on settlement of debt                     |  |                         | 37,672     |   |      |   | 395,635    |  
|Interest income                                |  |                         |           |   |      |   | 5,573      |  
|Interest expense                               |  |                         | (431,260   | ) |      |   | (1,048,635 | )
|                                               |  |                         |            |   |      |   |            |  
|Net (loss)                                     |  |                         | (2,915,917 | ) |      |   | (8,249,144 | )
|Preferred stock dividend                       |  |                         | (329,700   | ) |      |   | (299,190   | )
|                                               |  |                         |            |   |      |   |            |  
|Net (loss) attributable to common stockholders |  | $                       | (3,245,617 | ) |      | $ | (8,548,334 | )
|                                               |  |                         |            |   |      |   |            |  



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Revenue. Our total revenue for the year ended December 31, 2008 was $1,696,659
compared to $1,025,152 for the year ended December 31, 2007. Our revenue increased $671,507, or 65.5% due primarily to a focus on growth of our managed IP services, primarily VoicePilot and VoIPConnect.

Our recurring managed IP service revenue increased approximately $615,656 or 72.9% in 2008 versus 2007. Recurring service revenue represented 85% of the
total revenue in 2008 versus 56% in 2007. IP endpoints under management represents the number of IP addresses which we bill monthly recurring service fees on. As the number of IP endpoints increases, we see a corresponding increase in our monthly
recurring revenues. IP endpoints under management increased from approximately 2,000 to 7,000 from December 31, 2007 to December 31, 2008.

Cost of Sales. Our cost of sales for the year ended December 31, 2008 was $1,260,706 compared to $734,463 for the year ended December 31, 2007. Costs increased $526,243, or 71.7%, due
primarily to the increased sales of hosted VoIP Services.

Our gross profit margin for 2008 was 26%, down from 29% for 2007. This reflects
the change in our focus from one-time equipment sales to a recurring revenue business model based on managed services. Despite the decreased margin, we believe that the revenue from our current model is more sustainable and will benefit us in the
long term. In addition the purchasing of the above described will allow us to provide more of the services internally and not have to purchase the use of these services from an outside vendor for a higher cost. Our long term plan to increase the
margins to approximately 50% are based on the purchase of a soft switch which allows us to operate without purchasing the soft switch services from a wholesaler. We will save the markup that the wholesaler charges for the services that we can
provide on our own soft switch. We believe that we will have the soft switch up and begin saving on our margin by the second quarter of 2009. We have purchased the hardware, installed the equipment and are in the process of purchasing the balance of
the software needed to be fully operational.

General and Administrative. Our General and Administrative expenses for the
year ended December 31, 2008 were $5,037,970 compared to $2,563,018 for the year ended December 31, 2007 representing a increase of $2,474,952.

Salaries and wages increased to $1,739,501 for the year ended December 31, 2008 from $902,378 for the year ended December 31, 2007. The increase in salaries and wages is a result of an increase in the
workforce, from 7 on December 31, 2007 to 27 on December 31, 2008, this increase was $837,123 or 92.8%. This increase included charges of $452,523 for the period costs of the issuance of opinions issued in late 2007 and early 2008.

The consulting fees increased from $760,244 for the year ended December 31, 2007 to $3,584,110 for the year ended December 31,
200 or a increase of $2,823,866 or 371.4%. The increase is mostly due to the termination of consulting contracts that were set up to be amortized over three years and terminated in the fourth quarter of 2008. In addition, we had several outside
business consultants that were helping with the business plan, financing, and business strategies. All of these consultants were paid with unregistered common stock. There was a decrease in the consulting expense paid in cash as a result of a
reduced need for the services rendered by the consultants in the IT area.

Taxes increased to $281,950 for the year ended December 31,
2008 from $76,982 for the year ended December 31, 2007. The increase reflects the payroll tax increase related to a larger staff in 2008. It also includes an estimate of penalties and interest that maybe due to the Internal Revenue Service
because the payroll taxes for 2004 through 2007 were not paid until March 2008 of $176,000.



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Rent increased to $114,975 for the year ended December 31, 2008 from $77,424 for the year ended
December 31, 2007, a 48.5% increase. This increase is due to the expiration of an office lease and the move to new offices. Legal and accounting was $153,267 for the year ended December 31, 2008 as compared to $236,843 for the year ended
December 31, 2007 a decrease of $83,576 (35.9%) The decrease in legal and accounting was the result of filing a Form 10 with the SEC, two years audits, and the due diligence on a proposed acquisition for the year ended December 31,
2007 verse less filings, less legal, and one audit for the year ended December 31, 2008. The Marketing expense for the year ended December 31, 2008 was $1,260,282 as compared to $233,346 for the year ended December 31, 2007. The
increase was $1,026,936 or 440.1% and was due to the termination of a contract for public relations that was being amortized over three years. The remaining balance of $1,041,250 was included in the December 31, 2008 expense. Insurance for the
year ended December 31, 2008 was $176,296 as compared to $82,752 for the year ended December 31, 2007. The increase includes D&O insurance, additional health insurance costs, and additional liability insurance costs for 2008. The Other
General and administrative expenses increased to $552,442 for the year ended December 31, 2008 from $137,286 for the year ended December 31, 2007, an increase of $415,155 or 302.4%. These costs increased as a result of increase overhead
related to growth of sales, building the structure to manage the sales growth and customer service demand related to the soft switches.

Depreciation and amortization increased to $174,847 for the year ended December 31, 2008 from $55,763 for the year ended December 31, 2007, an increase of $119,084. The increase was due to addition depreciation on switch and
server hardware and amortization of the covenant not to compete and customer list for the AFS transaction.

Other Income and
(Expense). Our total other expense for the year ended December 31, 2008 was $(647,427) compared to $(643,588) for the year ended December 31, 2007. The Other Income and (expense) for the year ended December 31, 2008
includes income from debt settlement of $395,635 and interest income of $5,573 that is an increase from the same period 2007 of $363,536. Interest expense for the year ended December 31, 2008 was $880,801 or an increase of $517,265 due to
increased debt.

Net Loss.

Our net loss attributable to common stockholders for the year ended December 31, 2008 was $(8,548,334) compared to $(3,245,617) for the year ended December 31, 2007. Since our inception, we have incurred
significant operating losses. These losses can be attributed to insufficient revenue and operating margins to cover: (i) fixed expenses including personnel, office facilities, and network infrastructure; and (ii) variable expenses
associated with product development, legal expense, debt costs, and capital formation expenses. Our business strategy to increase revenue, operating margin, and cash flow includes:



| |  |  | Targeted cable systems in second, third and fourth tier cities for use of our system platform to provide them our hosted services;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strategically targeted acquisitions that include need infrastructure and matching services, and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Organic growth through a direct sales team and sales agent partner program.
| | - |  | ---------------------------------------------------------------------------

We believe the execution of our business strategy, will add sufficient operating margins in excess of our expenses to generate positive earnings before
interest, tax, depreciation, and amortization (EBITDA). However, these activities require additional capital resources and working capital to complete, (See, Liquidity and Capital Resources, below). To meet these and other
requirements, we have raised additional funds, from several parties in the form convertible loans and a convertible bridge loan. We are in negotiation to sale preferred stock and to sale additional common stock. We are in the process of negotiating
additional debt for the acquisition of needed soft switch equipment and working capital growth. The funding will be secured by the soft switch and related equipment. The working capital will be secured by accounts receivables. If additional funds
are raised through the issuance of equity



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securities, our existing stockholders may experience significant dilution. If additional funds are raised through the issuance of debt securities, we may not
be able to obtain additional subsequent financing, if necessary, if the debt security contains certain covenants restricting our ability to obtain additional financing while such debt security is outstanding. Our plan is to negotiate with the
present debt and preferred stock holder a plan of conversion that will work with the additional funding required creating equity and positive cash flow. We plan to begin this process June 1, 2009. There can be no assurance that financing will
be available in amounts or on terms acceptable to us, or at all.

Liquidity and Capital Resources

December 31, 2008.

As of
December 31, 2008, we had a working capital deficit of $5,665,270, consisting of current assets of $479,777 and current liabilities of $6,145,047. Current assets were $963 in cash, $254,407 of accounts receivable, and prepaid expenses of
$224,407.

Current liabilities as of December 31, 2008 were $6,145,047, an increase of $2,121,876 over December 31, 2008. The
increase was primarily due to an increase in notes payable of approximately $2,166,000.

Our independent auditors have raised substantial
doubt about our ability to continue as a going concern due to our recurring losses and working capital and stockholders deficits. As of December 31, 2008, we had stockholders deficit of $(7,944,861) a increase from $(3,164,172) on
December 31, 2007. Our working capital deficit had grown from $3,817,847 as of December 31, 2007 to $5,665,270 as of December 31, 2008. Our ability to continue in operation is subject to increasing revenue and obtaining capital from
outside sources. There is no assurance that we will be successful in either endeavor.

Subsequent to December 31, 2008, We were able to complete to
two debt offering:

1) On April 5, 2009 we closed on the 2009 Bridge Note financing. The terms of the financing are $250,000 12%
interest convertible at $0.12 per share of Common Stock, 8,333 shares of common stock per thousand as a fee, due April 2010.

2) We
borrowed $300,000 in May from five investors at 12% interest and 8,333 shares of common stock per thousand as a fee, due upon the closing of a major financing.

We have received loans in 2009 from the Chief Financial Officer, four Board of Director members, and a 5% shareholder in excess of $350,000. There are no terms on these advances and the compensation committee of the
board of directors has been asked to determine the compensation on these loans. In addition, the Chief Executive Officer, Chief Financial Officer, Controller and several salesmen are working for deferred compensation and several of the middle level
managers have taken cuts in compensation until we get cash flow positive.

Cash used by operating activities is net income adjusted for
certain non-cash items and changes in assets and liabilities. Our operating activities used approximately $4,398,904 of cash during 2008 compared with cash used in operating activities of $899,677 during 2007. The increase in cash used in 2008 is
due in large part to a $213,758 decrease in accounts payable and accrued liabilities and $164,488 in increase of accounts receivable. Historically, we have financed our operations by issuing equity and debt securities for cash and services, as our
operations have consistently used rather than provided cash.

Net cash used in investing activities is for the purchase of fixed assets and
other investing activities. In 2007, we used $1,333,196 for the purchase of fixed assets and $119,773 for other assets. During 2007, we used $111,591 for the purchase of fixed assets.



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Cash flows from financing activities consist primarily of proceeds from loans and the sale of equity.
During 2008, cash provided by financing activities was $6,059,246 which included proceeds from: (i) $1,650,000 of convertible bridge notes; (ii) $1,525,000 of notes payable; (iii) $600,000 from the working capital loan;
(iv) proceeds from the sale of convertible debentures of $2,188,779; (v) $95,467 of bank overdraft. The cash used by financing activities was $(232,634) which includes the payments of: (i) cash payment of Series B Preferred dividend
of $(47,850); (ii) $(165,661) of payments on Notes Payable; and (iii) $(19,123) payments on capital leases. During 2007, cash provided by financing activities was $1,153,080 which included proceeds from: (i) $325,000 of convertible
bridge notes; (ii) $808,080 of other notes payable; and (iii) $20,000 of preferred stock; offset by uses of financing activities of $(7,565) to cover the bank overdraft, cash payment of Series B Preferred dividend of $(47,850); $(34,211)
for payments of notes payable; and $(21,612) payments on capital leases.

Contractual Obligations and Commercial Commitments



|                        |  |       |           |      |   |           |  |           |           |            |   |   |  |   |  
|----------------------- |  | ----- | --------- | ---- | - | --------- |  | --------- | --------- | ---------- | - | - |  | - | -
|Contractual Obligations |  | Total |           | 2009 |   | 2010-2011 |  | 2012-2013 |           | Thereafter
|Long-term Debt          |  | $     | 7,198,862 |      | $ | 3,442,969 |  | $         | 3,755,893 |            | $ |  |  | $ | 
|Capital Leases          |  | $     | 6,273     |      | $ | 6,273     |  | $         |          |            | $ |  |  | $ | 
|Operating Leases        |  | $     | 114,975   |      | $ | 114,975   |  | $         |          |            | $ |  |  | $ | 

Off-Balance Sheet Arrangements

We do not currently have any off balance sheet arrangements falling within the definition of Item 303 of Regulation S-B.

Inflation

To date, inflation has not had a material
impact on our operations.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). SFAS No. 141R is a revision to SFAS No. 141 and includes substantial
changes to the acquisition method used to account for business combinations (formerly the purchase accounting method), including broadening the definition of a business, as well as revisions to accounting methods for contingent
consideration and other contingencies related to the acquired business, accounting for transaction costs, and accounting for adjustments to provisional amounts recorded in connection with acquisitions. SFAS No. 141R retains the fundamental
requirement of SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R shall be applied prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating the requirements of SFAS No. 141R.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to
adoption, are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 159, if elected, on our Consolidated Financial Statements.

As of January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109 (FIN 48). See Note 11, Income Taxes, of Notes to Consolidated Financial Statements for further discussion.



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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 defines fair value and applies to other accounting pronouncements that require or permit fair value measurements and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial
statements. The FASB has provided a one year deferral for the implementation of SFAS No. 157 for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. We are currently evaluating the
impact of adopting SFAS No. 157 on our Consolidated Financial Statements.

In March 2006, the EITF reached a consensus on EITF Issue
No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation) (EITF 06-3), which allows companies to adopt a
policy of presenting taxes in the income statement on either a gross or net basis. Taxes within the scope of this EITF include taxes that are imposed on a revenue transaction between a seller and a customer, for example, sales taxes, use taxes,
value-added taxes, and some types of excise taxes. As of January 1, 2007, we adopted EITF 06-3 for interim and annual reporting periods. EITF 06-3 did not impact the method for recording and reporting these sales taxes in our Consolidated
Financial Statements as our policy is to exclude all such taxes from revenue.

In December 2007, the U.S. Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin 110 (SAB 110) to amend the SECs views discussed in Staff Accounting Bulletin 107 (SAB 107) regarding the use of the simplified method in developing an estimate of expected life of share options
in accordance with SFAS No. 123(R). SAB 110 is effective for us beginning in the first quarter of fiscal year 2008. We will continue to use the simplified method until we have the historical data necessary to provide a reasonable estimate of
expected life in accordance with SAB 107, as amended by SAB 110.

FASB Statement of Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 (SFAS 161):SFAS 161, issued in March 2008, requires new and expanded disclosures regarding hedging activities. These
disclosures include, but are not limited to, a tabular presentation of derivative data; financial statement presentation of fair values on a gross basis, including those that currently qualify for netting under FASB Interpretation No. 39; and
specific footnote narrative regarding how and why derivatives are used. The disclosures are required in all interim and annual reports. SFAS No. 161 is effective for fiscal and interim periods beginning after November 15, 2008. The Company
does not believe that the adoption of SFAS No. 161 will have a material effect on its financial position or results of operations

FASB Statement of Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162): SFAS 162, issued in May 2008, is intended to improve financial reporting by
identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles. SFAS No. 162 is effective 60 days following
the Security Exchange Commissions approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.



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|ITEM 8. | FINANCIAL STATEMENTS
|------- | --------------------

RONALD R. CHADWICK, P.C.

Certified Public Accountant

2851 South Parker Road, Suite 720

Aurora, Colorado 80014

Telephone (303)306-1967

Fax (303)306-1944

Email: rcpc35@hotmail.com

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Iptimize, Inc.

Denver, Colorado

I have audited the accompanying consolidated balance sheet of Iptimize, Inc. as of December 31, 2008, and the related consolidated statements of operations, stockholders equity and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Iptimize, Inc. as
of December 31, 2008, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 15 to the
financial statements the Company has suffered recurring losses from operations and has a working capital deficit that raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are
also described in Note 15. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Ronald R. Chadwick, P.C.

Aurora, Colorado

May 28, 2009



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

IPtimize, Inc.

We have audited the accompanying balance sheet of IPtimize, Inc. as of December 31, 2007, and the related statements of operations, stockholders (deficit), and
cash flows for the years ended December 31, 2007 and 2006. 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 financial statements referred to above present fairly, in all material respects, the financial position of IPtimize, Inc. as of
December 31, 2007, and the results of its operations, and its cash flows for the years ended December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements,
the Company has suffered recurring losses and has working capital and stockholders deficits. These factors raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these
matters are also discussed in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LOGO

Denver, Colorado

June 13,
2008

LOGO



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##### Table of Contents

IPtimize, Inc.

Consolidated Balance Sheets

December 31,



|                                                                                                                                   |  |            |             |   |      |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                   |  | 2007       |             |   | 2008 |  
|                                                                                                                                   |  | (Restated) |             |   |      |  
|Assets                                                                                                                             |  |            |             |   |      |   |             |  
|Current Assets                                                                                                                     |  |            |             |   |      |   |             |  
|Cash in bank                                                                                                                       |  | $          | 26,224      |   |      | $ | 963         |  
|Accounts receivable, net of allowance for doubtful accounts                                                                        |  |            | 66,630      |   |      |   | 254,407     |  
|Prepaid expenses                                                                                                                   |  |            | 112,470     |   |      |   | 224,407     |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total current assets                                                                                                               |  |            | 205,324     |   |      |   | 479,777     |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Fixed Assets                                                                                                                       |  |            |             |   |      |   |             |  
|Furniture, fixtures, equipment and software                                                                                        |  |            | 265,892     |   |      |   | 1,599,088   |  
|Less: Accumulated depreciation                                                                                                     |  |            | (163,509    | ) |      |   | (321,721    | )
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total fixed assets, net of depreciation                                                                                            |  |            | 102,383     |   |      |   | 1,277,367   |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Other Assets                                                                                                                       |  |            |             |   |      |   |             |  
|Prepaid marketing and services costs                                                                                               |  |            | 2,104,587   |   |      |   |            |  
|Covenant not to compete & customer lists, net                                                                                      |  |            |            |   |      |   | 103,138     |  
|Deposits                                                                                                                           |  |            | 16,289      |   |      |   | 10,000      |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total other assets                                                                                                                 |  |            | 2,120,876   |   |      |   | 113,138     |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total Assets                                                                                                                       |  | $          | 2,428,583   |   |      | $ | 1,870,282   |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Liabilities and Stockholders (Deficit)                                                                                            |  |            |             |   |      |   |             |  
|Current Liabilities                                                                                                                |  |            |             |   |      |   |             |  
|Accounts payable and accrued expenses                                                                                              |  | $          | 1,854,897   |   |      | $ | 1,731,073   |  
|Bank overdraft                                                                                                                     |  |            |            |   |      |   | 95,467      |  
|Notes payable                                                                                                                      |  |            | 446,885     |   |      |   | 1,187,125   |  
|Bridge notes payable  current                                                                                                     |  |            | 925,000     |   |      |   | 2,724,844   |  
|Leases payable  current                                                                                                           |  |            | 22,951      |   |      |   | 6,273       |  
|Deferred revenue                                                                                                                   |  |            | 12,591      |   |      |   | 13,598      |  
|Working capital notes payable                                                                                                      |  |            |            |   |      |   | 386,667     |  
|Due to related parties                                                                                                             |  |            | 760,847     |   |      |   |            |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total current liabilities                                                                                                          |  |            | 4,023,171   |   |      |   | 6,145,047   |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Long Term Liabilities                                                                                                              |  |            |             |   |      |   |             |  
|Leases payable                                                                                                                     |  |            | 2,445       |   |      |   |            |  
|Bridge notes payable                                                                                                               |  |            | 325,000     |   |      |   |            |  
|Debenture notes payable                                                                                                            |  |            |            |   |      |   | 1,933,738   |  
|Notes payable                                                                                                                      |  |            |            |   |      |   | 630,822     |  
|Preferred dividend payable                                                                                                         |  |            | 105,000     |   |      |   | 185,090     |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total long term liabilities                                                                                                        |  |            | 432,445     |   |      |   | 2,749,650   |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total liabilities                                                                                                                  |  |            | 4 ,455,616  |   |      |   | 8,894,697   |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Redeemable Preferred Stock                                                                                                         |  |            |             |   |      |   |             |  
|Preferred stock, $.001 par value, 30,000,000 shares authorized                                                                     |  |            |             |   |      |   |             |  
|Series A - 1,104,236 (2007) & 606,807 (2008) shares issued and outstanding                                                         |  |            | 883,389     |   |      |   | 485,446     |  
|Series B - 435,000 shares issued and outstanding                                                                                   |  |            | 253,750     |   |      |   | 435,000     |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total Redeemable Preferred Stock                                                                                                   |  |            | 1,137,139   |   |      |   | 920,446     |  
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Stockholders (Deficit)                                                                                                            |  |            |             |   |      |   |             |  
|Common stock, $.001 par value, 70,000,000 shares authorized, 12,942,247 (2007) and 18,472,979 (2008) shares issued and
outstanding |  |            | 12,942      |   |      |   | 18,473      |  
|Additional paid in capital                                                                                                         |  |            | 10,522,795  |   |      |   | 14,284,909  |  
|Accumulated (deficit)                                                                                                              |  |            | (13,699,909 | ) |      |   | (22,248,243 | )
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total stockholders (deficit)                                                                                                      |  |            | (3,164,172  | ) |      |   | (7,944,861  | )
|                                                                                                                                   |  |            |             |   |      |   |             |  
|Total Liabilities and Stockholders (Deficit)                                                                                      |  | $          | 2,428,583   |   |      | $ | 1,870,282   |  
|                                                                                                                                   |  |            |             |   |      |   |             |  

See the accompanying notes to the consolidated financial statements.



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IPtimize, Inc.

Consolidated Statements of Operations

For the Years Ended December 31,



|                                                        |  |            |            |   |      |   |            |  
|------------------------------------------------------- |  | ---------- | ---------- | - | ---- | - | ---------- | -
|                                                        |  | 2007       |            |   | 2008 |  
|                                                        |  | (Restated) |            |   |      |  
|Revenue                                                 |  | $          | 1,025,152  |   |      | $ | 1,696,659  |  
|Cost of Sales                                           |  |            | 734,463    |   |      |   | 1,260,706  |  
|                                                        |  |            |            |   |      |   |            |  
|                                                        |  |            | 290,689    |   |      |   | 435,953    |  
|                                                        |  |            |            |   |      |   |            |  
|General & Administrative Expenses                       |  |            |            |   |      |   |            |  
|Salaries and wages                                      |  |            | 902,378    |   |      |   | 1,739,501  |  
|Consulting                                              |  |            | 760,244    |   |      |   | 3,584,110  |  
|Other General and administrative                        |  |            |            |   |      |   |            |  
|Taxes                                                   |  |            | 76,982     |   |      |   | 281,950    |  
|Rent                                                    |  |            | 77,424     |   |      |   | 114,975    |  
|Legal and Professional                                  |  |            | 236,843    |   |      |   | 153,267    |  
|Marketing                                               |  |            | 233,346    |   |      |   | 1,260,282  |  
|Insurance                                               |  |            | 82,752     |   |      |   | 176,296    |  
|Other                                                   |  |            | 137,286    |   |      |   | 552,442    |  
|Depreciation and amortization                           |  |            | 55,763     |   |      |   | 174,847    |  
|                                                        |  |            |            |   |      |   |            |  
|Total expenses                                          |  |            | 2,563,018  |   |      |   | 8,037,670  |  
|                                                        |  |            |            |   |      |   |            |  
|Net Operating (Loss)                                    |  |            | (2,272,329 | ) |      |   | (7,601,717 | )
|                                                        |  |            |            |   |      |   |            |  
|Other (Expense)                                         |  |            |            |   |      |   |            |  
|Loss on terminated of acquisition                       |  |            | (250,000   | ) |      |   |           |  
|Gain on settlement of liabilities                       |  |            | 37,672     |   |      |   | 395,635    |  
|Interest Income                                         |  |            |           |   |      |   | 5,573      |  
|Beneficial conversion feature interest                  |  |            | (112,500   | ) |      |   | (167,834   | )
|Interest expense                                        |  |            | (318,760   | ) |      |   | (880,801   | )
|                                                        |  |            |            |   |      |   |            |  
|Total other (expense)                                   |  |            | (643,588   | ) |      |   | (647,427   | )
|                                                        |  |            |            |   |      |   |            |  
|Net (Loss)                                              |  |            | (2,915,917 | ) |      |   | (8,249,144 | )
|Beneficial conversion feature Preferred B dividend      |  |            | (217,500   | ) |      |   | (181,250   | )
|Preferred stock dividends                               |  |            | (112,200   | ) |      |   | (117,940   | )
|                                                        |  |            |            |   |      |   |            |  
|Net (Loss) attributable to common shareholders          |  | $          | (3,245,617 | ) |      | $ | (8,548,334 | )
|                                                        |  |            |            |   |      |   |            |  
|Weighted Average Shares Outstanding - Basic and Diluted |  |            | 10,708,717 |   |      |   | 15,470,265 |  
|Net (Loss) per Common Share - Basic and Diluted         |  | $          | (0.30      | ) |      | $ | (0.55      | )
|                                                        |  |            |            |   |      |   |            |  

See the accompanying notes to the consolidated financial statements.



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IPtimize, Inc.

Consolidated Statements of Stockholders (Deficit)

For the Years Ended December 31, 2007
and 2008



|                                                            |        |              |   |        |                   |        |             |  |           |                    |  |           |             |   |  |   |            |  
|----------------------------------------------------------- | ------ | ------------ | - | ------ | ----------------- | ------ | ----------- |  | --------- | ------------------ |  | --------- | ----------- | - |  | - | ---------- | -
|                                                            |        | Common Stock |   |        | AdditionalPaid-in |        | Accumulated |  |           | TotalStockholders | 
|                                                            | Shares |              |   | Amount |                   |        | Capital     |  | (Deficit) |                    |  | (Deficit) |            
|Balance at December 31, 2006 (Restated)                     |        | 8,373,182    |   |        | $                 | 8,373  |             |  | $         | 7,411,156          |  | $         | (10,454,292 | ) |  | $ | (3,034,763 | )
|Stock issued for services                                   |        | 1,292,669    |   |        |                   | 1,293  |             |  |           | 1,248,207          |  |           |            |   |  |   | 1,249,500  |  
|Stock issued for capital formation                          |        | 2,978,333    |   |        |                   | 2,978  |             |  |           | 1,471,783          |  |           |            |   |  |   | 1,474,761  |  
|Stock cancelled for non-performance                         |        | (99,000      | ) |        |                   | (99    | )           |  |           |                   |  |           |            |   |  |   | (99        | )
|Stock issued for compensation                               |        | 83,332       |   |        |                   | 83     |             |  |           | 34,917             |  |           |            |   |  |   | 35,000     |  
|Stock issued for debt                                       |        | 68,170       |   |        |                   | 68     |             |  |           | 28,563             |  |           |            |   |  |   | 28,631     |  
|Stock issued for settlement of accrued compensation         |        | 195,556      |   |        |                   | 196    |             |  |           | 87,804             |  |           |            |   |  |   | 88,000     |  
|Warrants and option value for compensation and fees         |        |             |   |        |                   |       |             |  |           | 194,940            |  |           |            |   |  |   | 194,940    |  
|Stock issued for loan fees                                  |        | 50,005       |   |        |                   | 50     |             |  |           | 45,425             |  |           |            |   |  |   | 45,475     |  
|Beneficial conversion feature dividend                      |        |             |   |        |                   |       |             |  |           |                   |  |           | (217,500    | ) |  |   | (217,500   | )
|Preferred stock dividend                                    |        |             |   |        |                   |       |             |  |           |                   |  |           | (112,200    | ) |  |   | (112,200   | )
|Net (loss)                                                  |        |             |   |        |                   |       |             |  |           |                   |  |           | (2,915,917  | ) |  |   | (2,915,917 | )
|                                                            |        |              |   |        |                   |        |             |  |           |                    |  |           |             |   |  |   |            |  
|Balance at December 31, 2007 (Restated)                     |        | 12,942,247   |   |        | $                 | 12,942 |             |  | $         | 10,522,795         |  | $         | (13,699,909 | ) |  | $ | (3,164,172 | )
|Stock issued for conversion of Preferred A                  |        | 165,813      |   |        |                   | 166    |             |  |           | 397,778            |  |           |            |   |  |   | 397,944    |  
|Stock issued for settlement of debt                         |        | 74,632       |   |        |                   | 75     |             |  |           | 28,550             |  |           |            |   |  |   | 28,625     |  
|Stock issued for services                                   |        | 4,141,668    |   |        |                   | 4,141  |             |  |           | 1,893,045          |  |           |            |   |  |   | 1,897,186  |  
|Stock issued for conversion notes                           |        | 808,754      |   |        |                   | 809    |             |  |           | 364,130            |  |           |            |   |  |   | 364,939    |  
|Stock issued for interest                                   |        | 35,000       |   |        |                   | 35     |             |  |           | 16,215             |  |           |            |   |  |   | 16,250     |  
|Stock issued for loan fees                                  |        | 108,443      |   |        |                   | 109    |             |  |           | 38,808             |  |           |            |   |  |   | 38,917     |  
|Stock issued for directors fees                             |        | 196,422      |   |        |                   | 196    |             |  |           | 94,087             |  |           |            |   |  |   | 94,283     |  
|Beneficial conversion feature issuance of convertible notes |        |             |   |        |                   |       |             |  |           | 503,500            |  |           |            |   |  |   | 503,500    |  
|Warrants and option value for compensation and fees         |        |             |   |        |                   |       |             |  |           | 426,001            |  |           |            |   |  |   | 426,001    |  
|Beneficial conversion feature Preferred B dividend          |        |             |   |        |                   |       |             |  |           |                   |  |           | (181,250    | ) |  |   | (181,250   | )
|Preferred stock dividend                                    |        |             |   |        |                   |       |             |  |           |                   |  |           | (117,940    | ) |  |   | (117,940   | )
|Net (loss)                                                  |        |             |   |        |                   |       |             |  |           |                   |  |           | (8,249,144  | ) |  |   | (8,249,144 | )
|                                                            |        |              |   |        |                   |        |             |  |           |                    |  |           |             |   |  |   |            |  
|Balance at December 31, 2008                                |        | 18,472,979   |   |        | $                 | 18,473 |             |  | $         | 14,284,909         |  | $         | (22,248,243 | ) |  | $ | (7,944,861 | )
|                                                            |        |              |   |        |                   |        |             |  |           |                    |  |           |             |   |  |   |            |  

See the accompanying notes to the consolidated financial statements



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IPtimize, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31,



|                                                                                |  |            |            |   |      |   |            |  
|------------------------------------------------------------------------------- |  | ---------- | ---------- | - | ---- | - | ---------- | -
|                                                                                |  | 2007       |            |   | 2008 |  
|                                                                                |  | (Restated) |            |   |      |  
|Cash Flow from Operating Activities                                             |  |            |            |   |      |   |            |  
|Net (loss)                                                                      |  | $          | (2,915,917 | ) |      | $ | (8,249,144 | )
|Adjustments to reconcile net (loss) to net cash (used in) operating activities: |  |            |            |   |      |   |            |  
|Allowance for bad debt                                                          |  |            | (18,642    | ) |      |   | (23,289    | )
|Amortization of stock compensation for marketing and services                   |  |            | 517,523    |   |      |   | 2,104,587  |  
|Stock compensation for services                                                 |  |            |           |   |      |   | 1,922,885  |  
|Gain on settlement of liabilities                                               |  |            | (37,672    | ) |      |   | (395,635   | )
|Loss on termination of acquisition                                              |  |            | 250,000    |   |      |   |           |  
|Non-cash interest expense                                                       |  |            | 308,628    |   |      |   | 122,573    |  
|Depreciation and amortization                                                   |  |            | 55,763     |   |      |   | 174,834    |  
|Beneficial conversion feature                                                   |  |            | 112,500    |   |      |   | 180,938    |  
|Changes in:                                                                     |  |            |            |   |      |   |            |  
|Accounts receivable                                                             |  |            | (13,039    | ) |      |   | (164,488   | )
|Inventory                                                                       |  |            | 18,313     |   |      |   |           |  
|Prepaid                                                                         |  |            | (15,000    | ) |      |   | 44,313     |  
|Deposits                                                                        |  |            | 1,233      |   |      |   | 6,289      |  
|Accounts payable and accrued expenses                                           |  |            | 626,927    |   |      |   | (213,758   | )
|Deferred revenue                                                                |  |            | 8,692      |   |      |   | 1,007      |  
|Accrued interest                                                                |  |            | 201,014    |   |      |   | 89,984     |  
|                                                                                |  |            |            |   |      |   |            |  
|Net cash (used in) operating activities                                         |  |            | (899,677   | ) |      |   | (4,398,904 | )
|                                                                                |  |            |            |   |      |   |            |  
|Cash Flow from Investing Activities                                             |  |            |            |   |      |   |            |  
|Purchase of fixed assets                                                        |  |            | (111,591   | ) |      |   | (1,333,196 | )
|Issue convent not to compete                                                    |  |            |           |   |      |   | (50,000    | )
|Purchase of customer list                                                       |  |            |           |   |      |   | (69,773    | )
|                                                                                |  |            |            |   |      |   |            |  
|Net cash (used in) investing activities                                         |  |            | (111,591   | ) |      |   | (1,452,969 | )
|                                                                                |  |            |            |   |      |   |            |  
|Cash Flow from Financing Activities                                             |  |            |            |   |      |   |            |  
|Proceeds from bridge loans                                                      |  |            | 325,000    |   |      |   | 1,650,000  |  
|Bank overdraft                                                                  |  |            | (7,565     | ) |      |   | 95,467     |  
|Cash dividend payment Preferred B                                               |  |            | (52,200    | ) |      |   | (47,850    | )
|Payments notes payable                                                          |  |            | (34,211    | ) |      |   | (165,661   | )
|Proceeds from notes payable                                                     |  |            | 808,080    |   |      |   | 1,525,000  |  
|Cash received for issuance of preferred stock                                   |  |            | 20,000     |   |      |   |           |  
|Payments on capital leases                                                      |  |            | (21,612    | ) |      |   | (19,123    | )
|Proceeds from working capital notes                                             |  |            |           |   |      |   | 600,000    |  
|Proceeds from issuance of debentures                                            |  |            |           |   |      |   | 2,188,779  |  
|                                                                                |  |            |            |   |      |   |            |  
|Net cash provided by investing activities                                       |  |            | 1,037,492  |   |      |   | 5,826,612  |  
|                                                                                |  |            |            |   |      |   |            |  
|Net increase (decrease) in cash                                                 |  |            | 26,224     |   |      |   | (25,261    | )
|Cash - beginning of year                                                        |  |            |           |   |      |   | 26,224     |  
|                                                                                |  |            |            |   |      |   |            |  
|Cash  end of year                                                              |  | $          | 26,224     |   |      | $ | 963        |  
|                                                                                |  |            |            |   |      |   |            |  
|Supplemental Disclosure                                                         |  |            |            |   |      |   |            |  
|Interest paid                                                                   |  | $          |           |   |      | $ | 389,748    |  
|Income taxes paid                                                               |  | $          |           |   |      | $ |           |  
|Non-Cash Financing and Investing Activities                                     |  |            |            |   |      |   |            |  
|Stock issued for debt                                                           |  | $          | 28,631     |   |      | $ |           |  
|Stock issued for conversion of bridge notes                                     |  | $          |           |   |      | $ | 185,000    |  
|Stock issued for interest expense                                               |  | $          |           |   |      | $ | 11,750     |  

See the accompanying notes to the consolidated financial statements.



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IPtimize, Inc.

Notes to Consolidated Financial Statements

December 31, 2007 and 2008

Note 1. Summary of Significant Accounting Policies

Organization

The Company was incorporated under the laws of the State of Minnesota in 1983 as Simmetech Inc. (Simmetech). The Company was essentially
dormant until November 2005, when it entered into a business combination with a Colorado corporation, Iptimize, Inc. (Iptimize Colorado). The Company was the legal survivor of the transaction. Following the transaction, the name of the
Company was changed to Iptimize, Inc.

The business combination between Simmetech and Iptimize Colorado has been treated as a reverse merger
for accounting purposes. Since the amount of stock issued by Simmetech in the merger exceeded the amount of stock outstanding before the merger, the transaction is treated as if Iptimize Colorado acquired Simmetech and Iptimize Colorado was the
accounting survivor of the transaction. Iptimize Colorado was thus recapitalized to account for the transaction with Simmetech and an additional 400,811 common shares were issued in the transaction. Simmetech had no assets or liabilities at the time
of the transaction. As a result, the historical financial statements of Iptimize survive for accounting purposes.

The Company has been engaged in the
business of managed voice-over-internet services for businesses since that date. In September 2007, the Company changed its domicile to the State of Delaware through a merger with its wholly-owned subsidiary.

Reclassifications

Certain amounts in the year ended
December 31, 2007 or as of December 31, 2007 have been reclassified to conform to current years presentation.

Revenue Recognition

The Company recognizes revenue from services at the time the services are completed and revenue from the sale of products at the time that title passes to
the buyer.

Cash and Cash Equivalents

For purposes of
balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment, which consists of
computers, software, office furniture and equipment, is stated at cost and is being depreciated using the straight-line method over their estimated economic lives of three to five years.



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Accounts Receivable

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectibility, historical trends are
evaluated and specific customer issues are reviewed to arrive at appropriate allowances. At December 31, 2007 the allowance for doubtful accounts was $14,486 with bad debt expense for the year of $33,465, and at December 31, 2008 the
allowance for doubtful accounts was $37,075 with bad debt expense for the year of $46,601.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per share as required by Statement of Financial Accounting
Standards (SFAS) 128, Earnings per Share. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.

Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents
outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti dilutive.

Income Taxes

The Company follows SFAS 109 Accounting for Income Taxes for recording the provision for income taxes. Deferred
tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be
realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not
be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the
period of change.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2007 & 2008. The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, leases payable, line of credit and notes payable. Fair values were
assumed to approximate carrying values for these financial instruments because they are short term in nature, their carrying amounts approximate fair values, or they are receivable or payable on demand. The carrying value of the Companys
long-term debt approximated its fair value based on the current market conditions for similar debt instruments.



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Impairment of Long-Lived Assets

The Company periodically reviews the carrying amount of long-lived assets to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed
necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets and accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell. As of December 31, 2007 and 2008, management believes that there is no
impairment on long-lived assets.

Segment Reporting

The Company follows SFAS 131, Disclosure about Segments of an Enterprise and Related Information. The Company operates in one industry segment consisting of communications consulting and will evaluate additional segment
disclosure requirements as it expands operations.

Stock-based Compensation

The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the
fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.

Effective January 1,
2006, the Company implemented the provisions of SFAS 123(R), Share Based Payment, requiring the Company to provide compensation costs for the Companys stock option plans determined in accordance with the fair value based method
prescribed in SFAS 123, as revised. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock
option.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). SFAS No. 141R is a revision to SFAS No. 141 and includes substantial changes to the
acquisition method used to account for business combinations (formerly the purchase accounting method), including broadening the definition of a business, as well as revisions to accounting methods for contingent consideration and other
contingencies related to the acquired business, accounting for transaction costs, and accounting for adjustments to provisional amounts recorded in connection with acquisitions. SFAS No. 141R retains the fundamental requirement of SFAS
No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R shall be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating the requirements of SFAS No. 141R.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to
adoption, are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have adopted and there is no impact of adopting SFAS No. 159 on our Consolidated Financial Statements.



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As of January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48). See Note 11, Income Taxes, of Notes to Consolidated Financial Statements for further discussion.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair
value and applies to other accounting pronouncements that require or permit fair value measurements and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. The FASB has provided a one year deferral
for the implementation of SFAS No. 157 for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. We are currently evaluating the impact of adopting SFAS No. 157 on our Consolidated
Financial Statements.

In March 2006, the EITF reached a consensus on EITF Issue No. 06-3, How Taxes Collected from Customers
and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation) (EITF 06-3), which allows companies to adopt a policy of presenting taxes in the income statement on
either a gross or net basis. Taxes within the scope of this EITF include taxes that are imposed on a revenue transaction between a seller and a customer, for example, sales taxes, use taxes, value-added taxes, and some types of excise taxes. As of
January 1, 2007, we adopted EITF 06-3 for interim and annual reporting periods. EITF 06-3 did not impact the method for recording and reporting these sales taxes in our Consolidated Financial Statements as our policy is to exclude all such
taxes from revenue.

In December 2007, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 110 (SAB 110) to
amend the SECs views discussed in Staff Accounting Bulletin 107 (SAB 107) regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective for
us beginning in the first quarter of fiscal year 2008. We will continue to use the simplified method until we have the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB 107, as amended by SAB 110. We
have adopted and there is no effect on the Consolidated Financial Statements.

FASB Statement of Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 (SFAS 161):SFAS 161, issued in March 2008, requires new and expanded disclosures regarding hedging
activities. These disclosures include, but are not limited to, a tabular presentation of derivative data; financial statement presentation of fair values on a gross basis, including those that currently qualify for netting under FASB Interpretation
No. 39; and specific footnote narrative regarding how and why derivatives are used. The disclosures are required in all interim and annual reports. SFAS No. 161 is effective for fiscal and interim periods beginning after November 15,
2008. The Company does not believe that the adoption of SFAS No. 161 will have a material effect on its financial position or results of operations

FASB Statement of Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162): SFAS 162, issued in May 2008, is intended to improve financial
reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles. SFAS No. 162 is effective 60
days following the Security Exchange Commissions approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.



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##### Table of Contents

Note 2. Restatement of 2007 Annual Financial Statements and 2008 Quarterly Financial Statements

On January 14, 2009, the Audit Committee met after a meeting with the SEC, the Companys Chief Financial Officer and Audit Committee Chairman regarding a
Comment Letter received December 19, 2008 to determine if the Company must issue an 8-K stating that the financial statements for December 31, 2006 and 2007 could not be relied upon and the Company must restate its results of operations
for the years ended December 31, 2006 and 2007 and balance sheet as of December 31, 2007. In addition, it was determined that one of the discussed items effected the statements of operations for the fiscal quarterly periods ended
March 31, 2008, June 30, 2008, and September 30, 2008 and the Company would restate those items as part of the filing of the present Annual Report on form 10-K for the current fiscal year 2008.

The Company filed an 8-K/A dated January 27, 2009, that amended the 8-K filed on January 29, 2009, on February 10, 2009 that outlined the issues for the
financial statements non-reliance for the above mentioned fiscal periods. The error in the calculation of the embedded beneficial conversion feature was discovered in the process of the Companys preparation of answers to a comment letter
received from the SEC regarding its filing for Fiscal 2007. The Audit Committee of the Board discussed the foregoing matters with the Companys independent accountants. The Company, with its independent accounting firm, under the supervision of
its Audit Committee and with the assistance of an independent accounting expert, is inquiring into the circumstances relating to the foregoing error to assure that there are no other financial reporting or disclosure control items that may be of
concern.

The restatement of the results of operations for Fiscal 2006 and 2007 will affect the interest expense related to the 2006 bridge notes for both
Fiscal 2006 and 2007 and there will be a restatement of the dividend costs for the Companys preferred B stock for both Fiscal 2006 and 2007. The issues both result from an accounting error relating to the calculation of an embedded beneficial
conversion feature under the accounting provisions EITF 98-5 and EITF 00-27 that require that a calculation be made to reflect the embedded value of a security that is in the money at the date of issuance. These provisions provide that the
calculation includes the value of the benefit be discounted for the length of the holding period.

The embedded beneficial conversion feature for the 2006
bridge notes has a value at the date of issuance of $675,000 to be accreted over the one year term of the loans. The amount for Fiscal 2006 was $562,500 which represents 10 months of expense and has been classified as interest expense on the
restated financial statements and has increased the net loss for Fiscal 2006 to $3,420,035. The affect of this cost on loss per share is $0.07 per share and increases the loss per share to $0.43. The amount for Fiscal 2007 was $112,500 which
represents 2 months of expense and will be classified as interest expense on the restated financial statements. The loss for Fiscal 2007 will increase to $2,915,917. The affect of this cost on loss per share is less then $0.01 per share and the loss
to $0.27 will remain unchanged. The Fiscal 2007 expense was all incurred in the first Fiscal quarter March 31, 2007.

The embedded beneficial
conversion feature for the preferred B stock has a discounted value at the date of issuance of $435,000 to be accreted over the two year term of the preferred B stock term. The amount for Fiscal 2006 was $36,250 which represents 2 months of expense
and will be classified as dividend expense on the restated financial statements. The affect of this cost on loss per share is $0.003 per share to the common shareholder. The amount for fiscal 2007 was $217,500 which represents 12 months of expense
and will be classified as dividend expense on the restated financial statements. The affect of this cost on loss per share is $0.03 per share to the common shareholders. The Fiscal 2008 has an expense for the total year of $181,250 as dividend
expense. Part of this dividend will affect the earnings per share to the common shareholder in the first three fiscal quarters of the 2008. The total added of the dividend expense for the three fiscal quarters 2008 is estimated at $163,125 or an
estimated at $0.01 loss per share to the common shareholder.

The Company restated its 2007 annual financial statements to reflect the above changes. The
Company also restated the 2008 quarterly financial information to the consolidated financial statements in this Annual Report on Form 10-K, in lieu of separately amending each Form 10-Q for the fiscal quarterly periods ended March 31,
2008, June 30, 2008 and September 30, 2008, see tables below.



45



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##### Table of Contents

Restated Balance Sheets for Fiscal 2006 and 2007

(In Thousands)



|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|------------------------------------------------------------------------- |  | -------------- | ------ | - | --------------------- | - | ----- | -------------- |  | - | -------------- | - |  | --------------------- | ------- | - | -------------- | - | ------ | - |  | - | ------- | -
|                                                                          |  | 2006AsReported |        |   | 2006RestateAdjustment |   |       | 2006AsRestated |  |   | 2007AsReported |   |  | 2007RestateAdjustment |         |   | 2007AsRestated |  
|Assets                                                                    |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Current assets                                                            |  | $              | 53     |   |                       | $ |      |                |  | $ | 53             |   |  | $                     | 206     |   |                | $ |       |   |  | $ | 206     |  
|Fixed assets                                                              |  |                | 47     |   |                       |   |      |                |  |   | 47             |   |  |                       | 102     |   |                |   |       |   |  |   | 102     |  
|Other assets                                                              |  |                | 267    |   |                       |   |      |                |  |   | 267            |   |  |                       | 2,121   |   |                |   |       |   |  |   | 2,121   |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Total Assets                                                              |  | $              | 367    |   |                       | $ |      |                |  | $ | 367            |   |  | $                     | 2,429   |   |                | $ |       |   |  | $ | 2,429   |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Liabilities                                                               |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Current liabilities                                                       |  | $              | 2,595  |   |                       | $ | (112  | )              |  | $ | 2,483          |   |  |                       | 4,023   |   |                |   |       |   |  |   | 4,023   |  
|Long-term debt                                                            |  |                | 20     |   |                       |   |      |                |  |   | 20             |   |  |                       | 433     |   |                |   |       |   |  |   | 433     |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Total Liabilities                                                         |  |                | 2,615  |   |                       |   | (112  | )              |  |   | 2,503          |   |  |                       | 4,456   |   |                |   |       |   |  |   | 4,456   |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Preferred Stock                                                           |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Series A                                                                  |  |                | 883    |   |                       |   |      |                |  |   | 883            |   |  |                       | 883     |   |                |   |       |   |  |   | 883     |  
|Series B                                                                  |  |                | 415    |   |                       |   | (399  | )              |  |   | 16             |   |  |                       | 435     |   |                |   | (181   | ) |  |   | 254     |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Total Preferred Stock                                                     |  |                | 1,298  |   |                       |   | (399  | )              |  |   | 899            |   |  |                       | 1,318   |   |                |   | (181   | ) |  |   | 1,137   |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Stockholders Deficit                                                     |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Common stock                                                              |  |                | 8      |   |                       |   |      |                |  |   | 8              |   |  |                       | 13      |   |                |   |       |   |  |   | 13      |  
|Additional paid-in capital                                                |  |                | 6,301  |   |                       |   | 1,110 |                |  |   | 7,411          |   |  |                       | 9,413   |   |                |   | 1,110  |   |  |   | 10,523  |  
|Accumulated (deficit)                                                     |  |                | (9,855 | ) |                       |   | (599  | )              |  |   | (10,454        | ) |  |                       | (12,771 | ) |                |   | (929   | ) |  |   | (13,700 | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Total Stockholders Deficit                                               |  |                | (3,546 | ) |                       |   | 511   |                |  |   | (3,035         | ) |  |                       | (3,345  | ) |                |   | 181    |   |  |   | (3,164  | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Liabilities and Stockholders deficit                                     |  | $              | 367    |   |                       | $ |      |                |  | $ | 367            |   |  | $                     | 2,429   |   |                | $ |       |   |  | $ | 2,429   |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Restated Statements of Operations for Fiscal
2006 and 2007 (In Thousands) | 
|                                                                          |  | 2006AsReported |        |   | 2006RestateAdjustment |   |       | 2006AsRestated |  |   | 2007AsReported |   |  | 2007RestateAdjustment |         |   | 2007AsRestated |  
|Revenue                                                                   |  | $              | 921    |   |                       | $ |      |                |  | $ | 921            |   |  | $                     | 1,025   |   |                | $ |       |   |  | $ | 1,025   |  
|Cost of Sales                                                             |  |                | 515    |   |                       |   |      |                |  |   | 515            |   |  |                       | 734     |   |                |   |       |   |  |   | 734     |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|                                                                          |  |                | 406    |   |                       |   |      |                |  |   | 406            |   |  |                       | 291     |   |                |   |       |   |  |   | 291     |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|General and Administrative Expenses                                       |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Salaries and wages                                                        |  |                | 988    |   |                       |   |      |                |  |   | 988            |   |  |                       | 804     |   |                |   |       |   |  |   | 804     |  
|Consulting                                                                |  |                | 774    |   |                       |   |      |                |  |   | 774            |   |  |                       | 374     |   |                |   |       |   |  |   | 374     |  
|Rent                                                                      |  |                | 63     |   |                       |   |      |                |  |   | 63             |   |  |                       | 78      |   |                |   |       |   |  |   | 78      |  
|Legal and Professional                                                    |  |                | 92     |   |                       |   |      |                |  |   | 92             |   |  |                       | 237     |   |                |   |       |   |  |   | 237     |  
|Marketing                                                                 |  |                | 67     |   |                       |   |      |                |  |   | 67             |   |  |                       | 233     |   |                |   |       |   |  |   | 233     |  
|Other                                                                     |  |                | 813    |   |                       |   |      |                |  |   | 813            |   |  |                       | 781     |   |                |   |       |   |  |   | 781     |  
|Depreciation                                                              |  |                | 22     |   |                       |   |      |                |  |   | 22             |   |  |                       | 56      |   |                |   |       |   |  |   | 56      |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Total Expenses                                                            |  |                | 2,819  |   |                       |   |      |                |  |   | 2,819          |   |  |                       | 2,563   |   |                |   |       |   |  |   | 2,563   |  
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Net Operating (loss)                                                      |  |                | (2,413 | ) |                       |   |      |                |  |   | (2,413         | ) |  |                       | (2,272  | ) |                |   |       |   |  |   | (2,272  | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Other income (expenses)                                                   |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Loss on termination                                                       |  |                |       |   |                       |   |      |                |  |   |               |   |  |                       | (250    | ) |                |   |       |   |  |   | (250    | )
|Gain on settlement                                                        |  |                | 3      |   |                       |   |      |                |  |   | 3              |   |  |                       | 37      |   |                |   |       |   |  |   | 37      |  
|Interest expense                                                          |  |                | (448   | ) |                       |   |      |                |  |   | (448           | ) |  |                       | (319    | ) |                |   |       |   |  |   | (319    | )
|Beneficial conversion feature interest                                    |  |                |       |   |                       |   | (562  | )              |  |   | (562           | ) |  |                       |        |   |                |   | (112   | ) |  |   | (112    | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Total other income (expense)                                              |  |                | (445   | ) |                       |   | (562  | )              |  |   | (1,010         | ) |  |                       | (532    | ) |                |   | (112   | ) |  |   | (644    | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Net (Loss)                                                                |  |                | (2,858 | ) |                       |   | (562  | )              |  |   | (3,420         | ) |  |                       | (2,804  | ) |                |   | (112   | ) |  |   | (2,916  | )
|Preferred stock dividend                                                  |  |                | (50    | ) |                       |   |      |                |  |   | (50            | ) |  |                       | (112    | ) |                |   |       |   |  |   | (112    | )
|Beneficial conversion feature related Series B Preferred stock            |  |                |       |   |                       |   | (36   | )              |  |   | (36            | ) |  |                       |        |   |                |   | (218   | ) |  |   | (218    | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Net (Loss) attributable to common shareholders                            |  | $              | (2,908 | ) |                       | $ | (598  | )              |  | $ | (3,506         | ) |  | $                     | (2,916  | ) |                | $ | (218   | ) |  | $ | (3,246  | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  
|Weighted average shares Basic and Diluted                                 |  |                | 7,898  |   |                       |   | 7,898 |                |  |   | 7,898          |   |  |                       | 10,708  |   |                |   | 10,708 |   |  |   | 10,708  |  
|Net (Loss) per Common share  Basic and Diluted                           |  | $              | (0.36  | ) |                       | $ | (0.08 | )              |  | $ | (0.44          | ) |  | $                     | (0.27   | ) |                | $ | (0.02  | ) |  | $ | (0.29   | )
|                                                                          |  |                |        |   |                       |   |       |                |  |   |                |   |  |                       |         |   |                |   |        |   |  |   |         |  



46



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##### Table of Contents

Restated Statements of Operations for 2008 Quarter Ended

(In Thousands)

(unaudited)



|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ------------------ |  | - | ----------------- | - |  | ----------------- | ------ | - | ----------------- | - | ------ | - |  | - | ------ | -
|                                                               |  | March 31AsReported |        |   | RestateAdjustment |   |        | March 31AsRestated |  |   | June 30AsReported |   |  | RestateAdjustment |        |   | June 30AsRestated |  
|Revenue                                                        |  | $                  | 284    |   |                   | $ |       |                    |  | $ | 284               |   |  | $                 | 286    |   |                   | $ |       |   |  | $ | 286    |  
|Cost of Sales                                                  |  |                    | 223    |   |                   |   |       |                    |  |   | 223               |   |  |                   | 219    |   |                   |   |       |   |  |   | 219    |  
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|                                                               |  |                    | 61     |   |                   |   |       |                    |  |   | 61                |   |  |                   | 67     |   |                   |   |       |   |  |   | 67     |  
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|General and Administrative Expenses                            |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Salaries and wages                                             |  |                    | 230    |   |                   |   |       |                    |  |   | 230               |   |  |                   | 379    |   |                   |   |       |   |  |   | 379    |  
|Consulting                                                     |  |                    | 446    |   |                   |   |       |                    |  |   | 446               |   |  |                   | 233    |   |                   |   |       |   |  |   | 233    |  
|Rent                                                           |  |                    | 26     |   |                   |   |       |                    |  |   | 26                |   |  |                   | 26     |   |                   |   |       |   |  |   | 26     |  
|Legal and Professional                                         |  |                    | 31     |   |                   |   |       |                    |  |   | 31                |   |  |                   | 26     |   |                   |   |       |   |  |   | 26     |  
|Marketing                                                      |  |                    | 143    |   |                   |   |       |                    |  |   | 143               |   |  |                   | 209    |   |                   |   |       |   |  |   | 209    |  
|Other                                                          |  |                    | 133    |   |                   |   |       |                    |  |   | 133               |   |  |                   | 342    |   |                   |   |       |   |  |   | 342    |  
|Depreciation                                                   |  |                    | 10     |   |                   |   |       |                    |  |   | 10                |   |  |                   | 10     |   |                   |   |       |   |  |   | 10     |  
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Total Expenses                                                 |  |                    | 1,019  |   |                   |   |       |                    |  |   | 1,019             |   |  |                   | 1,226  |   |                   |   |       |   |  |   | 1,226  |  
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Net Operating (loss)                                           |  |                    | (958   | ) |                   |   |       |                    |  |   | (958              | ) |  |                   | (1,159 | ) |                   |   |       |   |  |   | (1,159 | )
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Other income (expenses)                                        |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Interest income                                                |  |                    |       |   |                   |   |       |                    |  |   |                  |   |  |                   | 5      |   |                   |   |       |   |  |   | 5      |  
|Gain on settlement                                             |  |                    | 210    |   |                   |   |       |                    |  |   | 210               |   |  |                   | 26     |   |                   |   |       |   |  |   | 26     |  
|Interest expense                                               |  |                    | (158   | ) |                   |   |       |                    |  |   | (158              | ) |  |                   | (179   | ) |                   |   |       |   |  |   | (179   | )
|Beneficial conversion feature interest                         |  |                    |       |   |                   |   |       |                    |  |   |                  |   |  |                   |       |   |                   |   |       |   |  |   |       |  
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Total other income (expense)                                   |  |                    | 52     |   |                   |   |       |                    |  |   | 52                |   |  |                   | (148   | ) |                   |   |       |   |  |   | (148   | )
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Net (Loss)                                                     |  |                    | (906   | ) |                   |   |       |                    |  |   | (906              | ) |  |                   | (1,307 | ) |                   |   |       |   |  |   | (1,307 | )
|Preferred stock dividend                                       |  |                    | (28    | ) |                   |   |       |                    |  |   | (28               | ) |  |                   | (28    | ) |                   |   |       |   |  |   | (28    | )
|Beneficial conversion feature related Series B Preferred stock |  |                    |       |   |                   |   | (54    | )                  |  |   | (54               | ) |  |                   |       |   |                   |   | (54    | ) |  |   | (54    | )
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Net (Loss) attributable to common shareholders                 |  | $                  | (934   | ) |                   | $ | (54    | )                  |  | $ | (988              | ) |  | $                 | (1,335 | ) |                   | $ | (54    | ) |  | $ | (1,389 | )
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  
|Weighted average shares Basic and Diluted                      |  |                    | 13,092 |   |                   |   | 13,092 |                    |  |   | 13,092            |   |  |                   | 14,339 |   |                   |   | 14,339 |   |  |   | 14,339 |  
|Net (Loss) per Common share  Basic and Diluted                |  | $                  | (0.07  | ) |                   | $ | (0.004 | )                  |  | $ | (0.08             | ) |  | $                 | (0.09  | ) |                   | $ | (0.004 | ) |  | $ | (0.10  | )
|                                                               |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                   |        |   |                   |   |        |   |  |   |        |  



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Restated Statements of Operations for 2008 Quarter Ended (continued)

(In Thousands)

(unaudited)



|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|-------------------------------------------------------------- |  | ----------------------- | ------ | - | ----------------- | - | ------ | ---------------------- |  | - | ------ | -
|                                                               |  | September 30As Reported |        |   | RestateAdjustment |   |        | September 30AsRestated | 
|Revenue                                                        |  | $                       | 454    |   |                   | $ |       |                        |  | $ | 454    |  
|Cost of Sales                                                  |  |                         | 226    |   |                   |   |       |                        |  |   | 226    |  
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|                                                               |  |                         | 227    |   |                   |   |       |                        |  |   | 227    |  
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|General and Administrative Expenses                            |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Salaries and wages                                             |  |                         | 449    |   |                   |   |       |                        |  |   | 449    |  
|Consulting                                                     |  |                         | 300    |   |                   |   |       |                        |  |   | 300    |  
|Rent                                                           |  |                         | 26     |   |                   |   |       |                        |  |   | 26     |  
|Legal and Professional                                         |  |                         | 53     |   |                   |   |       |                        |  |   | 53     |  
|Marketing                                                      |  |                         | 189    |   |                   |   |       |                        |  |   | 189    |  
|Other                                                          |  |                         | 234    |   |                   |   |       |                        |  |   | 234    |  
|Depreciation                                                   |  |                         | 86     |   |                   |   |       |                        |  |   | 86     |  
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Total Expenses                                                 |  |                         | 1,336  |   |                   |   |       |                        |  |   | 1,336  |  
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Net Operating (loss)                                           |  |                         | (1,109 | ) |                   |   |       |                        |  |   | (1,109 | )
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Other income (expenses)                                        |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Interest income                                                |  |                         |       |   |                   |   |       |                        |  |   |       |  
|Gain on settlement                                             |  |                         | 129    |   |                   |   |       |                        |  |   | 129    |  
|Interest expense                                               |  |                         | (165   | ) |                   |   |       |                        |  |   | (165   | )
|Beneficial conversion feature interest                         |  |                         |       |   |                   |   |       |                        |  |   |       |  
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Total other income (expense)                                   |  |                         | (35    | ) |                   |   |       |                        |  |   | (35    | )
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Net (Loss)                                                     |  |                         | (1,144 | ) |                   |   |       |                        |  |   | (1,144 | )
|Preferred stock dividend                                       |  |                         | (28    | ) |                   |   |       |                        |  |   | (28    | )
|Beneficial conversion feature related Series B Preferred stock |  |                         |       |   |                   |   | (54    | )                      |  |   | (54    | )
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Net (Loss) attributable to common shareholders                 |  | $                       | (1,172 | ) |                   | $ | (54    | )                      |  | $ | (1,226 | )
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  
|Weighted average shares Basic and Diluted                      |  |                         | 15,357 |   |                   |   | 15,357 |                        |  |   | 15,357 |  
|Net (Loss) per Common share  Basic and Diluted                |  | $                       | (0.08  | ) |                   | $ | (0.003 | )                      |  | $ | (0.08  | )
|                                                               |  |                         |        |   |                   |   |        |                        |  |   |        |  

Note 3. Acquisition Costs

During 2006, the Company paid cash of $250,000 as earnest money based on the terms and conditions of a letter of intent regarding a proposed acquisition of a company engaged in telecommunications services. The Company
terminated the contract in 2007, resulting in a loss on termination.



48



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Note 4. Fixed Assets

As of December 31, 2007 and 2008, the Company owns or has capitalized the following assets under financing leases:



|                              |  |      |          |   |      |   |           |  
|----------------------------- |  | ---- | -------- | - | ---- | - | --------- | -
|                              |  | 2007 |          |   | 2008 |  
|Furniture and fixtures        |  | $    | 31,475   |   |      | $ | 31,475    |  
|Equipment and software        |  |      | 234,417  |   |      |   | 1,567,613 |  
|                              |  |      |          |   |      |   |           |  
|                              |  |      | 265,892  |   |      |   | 1,599,088 |  
|Less accumulated depreciation |  |      | (163,509 | ) |      |   | (321,721  | )
|                              |  |      |          |   |      |   |           |  
|                              |  | $    | 102,383  |   |      | $ | 1,277,367 |  
|                              |  |      |          |   |      |   |           |  

Depreciation expense charged to operations was $55,918 and $158,212 for 2007 and 2008, respectively. Amortization
charged to operations was $0 for 2007 and $16,635 for 2008. The amortization is taken on a five year life for the customer lists and covenant not to compete.

Note 5. Notes Payable

At December 31, notes payable consist of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |         |      |   |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ---------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | 2007 |         | 2008
|Note payable with a vendor as settlement of an outstanding account payable. The note does not bear interest and is due on
demand                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | $    | 7,473   |      | $ |         
|Note payable with a vendor as settlement of an outstanding account payable. The note does not bear interest and is due on
demand                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | 3,274   |      |   |         
|Note payable with a vendor as settlement of an outstanding account payable. The note does not bear interest and is due on
demand                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | 23,958  |      |   | 23,958   
|Note payable with another vendor as settlement of an outstanding account payable. Payments of $18,000 and $74,087 were made in 2007 and 2008
respectively. The note does not bear interest and is due on demand                                                                                                                                                                                                                                                                                                                                                                                     |  |      | 36,925  |      |   |         
|Notes assumed in connection with an acquisition. No payments were made in 2006 or 2007. The note was paid in full in 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 73,000  |      |   |         
|$330,000 Line of Credit Agreement dated July 2, 2007 for working capital financing. The Line of Credit is secured by all of the
Companys un-pledged and unencumbered tangible and intangible assets. In consideration for the Line of Credit, the Company executed a 11.45% Promissory Note and issued an aggregate of 600,000 restricted shares of Common Stock                                                                                                                                                                                                                                   |  |      | 302,255 |      |   | 324,725  
|Note payable to a trust dated September 22, 2008 due October 22, 2008, renewed until monthly on demand, payable 12.99% interest
only, unsecured                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |        |      |   | 50,000   
|Note payable with a company dated August 13, 2008 payable at 12% compound interest at $17,796 per month payable and interest, due August
2012, secured by the switching equipment purchased in IP Solutions, (wholly owned subsidiary) The company also received warrants to purchase 400,000 shares of common stock at $0.45 per share. The warrants are five year warrants and were valued at
$154,236 using the Black-Scholes option pricing methodology and expensed in 2008. The note holder can call the note at their option as the Company has issued more debt. (related party see note 6) |  |      |        |      |   | 760,113  
|Note payable with an individual dated October 20, 2008 payable $8,885 per month principal and 12% interest, due October 20, 2009,
secured by server equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      |        |      |   | 84,151   
|Note payable with an individual dated July 18, 2008 payable 12.99% interest only due July 18, 2009, secured by server equipment.
(related party see note 6)                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |      |        |      |   | 250,000  
|Note payable to a individual dated December 18, 2008, payable on demand, payable no interest, unsecured. (related party see note
6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |        |      |   | 25,000   
|Note payable to a unrelated corporation dated August 1, 2008 due July 31, 2009, payable 12.99% interest only, unsecured, convertible
an $0.30 per share                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |        |      |   | 100,000  
|Note payable to a individual dated December 16, 2008 due on demand, payable 12% interest only, unsecured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   | 100,000  
|Note payable to a partnership dated December 19, 2008 due on demand, payable 12% interest only, unsecured and issued 25,000 restricted
shares of Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |      |        |      |   | 100,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |         |      |   |          
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |      | 446,885 |      |   | 1,817,947
|Less Current Portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | 446,885 |      |   | 1,187,125
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |         |      |   |          
|Long-term Portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $    |        |      | $ | 630,822  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |         |      |   |          



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Note 6. Related Party Debt

The following table below describes the related party debt:



|                                |  |                                                      |  |        |        
|------------------------------- |  | ---------------------------------------------------- |  | ------ | -------
|Name                            |  | Type Debt                                            |  | Amount
|Ron Pitcock (CEO & Director)    |  | Pre-bridge note (Note 7)                             |  | $      | 110,897
|Donald W Prosser (CFO)          |  | Notes Payable (Note 5)                               |  |        | 25,000 
|Donald W Prosser (CFO)          |  | 2008 Bridge Note (Note 7)                            |  |        | 50,000 
|Donald W Prosser (CFO)          |  | 2008 Debentures (Note 9)                             |  |        | 114,140
|Stan McGinnis (Director)        |  | Pre-bridge note (Note 7)                             |  |        | 112,557
|Robert J. McGraw Jr. (Director) |  | 2008 Debentures (Note 9)                             |  |        | 25,750 
|Robert J. McGraw Jr. (Director) |  | Series B Preferred Stock                             |  |        | 35,000 
|Robert J. McGraw Jr. (Director) |  | Notes Payable (Note 5 Part of equipment note August) |  |        | 50,000 
|Michael Geller (Director)       |  | Notes Payable (Note 5)                               |  |        | 250,000
|Michael Geller (Director)       |  | 2008 Bridge Note (Note 7)                            |  |        | 100,000
|Michael Geller (Director)       |  | 2008 Debentures (Note 9)                             |  |        | 51,500 
|                                |  |                                                      |  |        |        
|Total (All Current Debt)        |  |                                                      |  | $      | 924,844
|                                |  |                                                      |  |        |        

The related party debt at December 31, 2007 was comprised of the following $300,500 of Pre-Bridge Loans; $150,000
of Convertible notes, $50,000 of 90 Days notes, and related accrued interest for a total of $760,847. All of these debts are included in their related note categories for December 31, 2008

Note 7. Bridge Notes Payable



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |          |           |      |   |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --------- | ---- | - | ---------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | December
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 2007     |           | 2008
|During 2005, all but one note holder converted their debt from previous years to equity, with interest accruing at 18%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $        | 50,000    |      | $ | 50,000   
|During 2006, the Company entered into $875,000 of Convertible Bridge Notes with fourteen individual lenders. Principle and interest is due
twelve months from the date of each agreement with interest accruing at 18%. As of December 31, 2007, no payments have been made to the lenders and all Notes are currently in default. The Company is negotiating with each individual lender to
covert their Bridge Note to Common Stock at $.25 per share. On January 31, 2008, three lenders have agreed to convert a total of $185,000 of Bridge Notes and accrued interest to 513,848 shares of Common Stock                                                                                                                                                                                                                                                                                                                                                 |  |          | 875,000   |      |   | 668,254  
|In March 2007, the Company sold an aggregate of $325,000 of convertible bridge notes. (Pre-bridge) The notes, which are due in six months and
were extended for an additional year. The extended notes carry an interest rate of 12.99% and include the unpaid interest of $31,950 into the new note The notes are convertible into shares of our Common Stock at $.45 per share. As additional
consideration, each lender was granted a five year warrant to purchase two shares of Common Stock at $1.50 per share for each dollar loaned to the Company. The warrants were valued at $4,104 and expensed in 2007 using the Black-Scholes option
pricing methodology. In addition, concurrent with extending the notes each lender received a five year warrant to purchase 1 share of common stock at $.45 per share for each $.90 loaned to the Company. (2 related parties see Note 6)                                                                   |  |          | 325,000   |      |   | 356,590  
|On February 22, 2008, we consummated Bridge Loan Agreements with a group of investors (the Bridge Loan). Investors were
issued convertible promissory notes of $1,650,000 bearing interest at 12.99% per annum and convertible into 3,666,667 shares of our Common Stock at $0.45 per share The Bridge Loan Agreement granted us the right to prepay the Loan Amount 45 days
prior written notice at any time after the closing bid price for our Common Stock for 20 consecutive trading days is $1.35 or greater and the minimum average daily trading volume during such 20 day trading period shall have been 50,000 shares. The
investors were also issued five year warrants to purchase an aggregate of 1,833,333 restricted shares of our Common Stock at $0.45 per share. We agreed to register the Bridge Warrant Shares in the first registration statement we file under the
Securities Act of 1933, as amended. (2 related parties see Note 6) |  |          |          |      |   | 1,650,000
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |          |           |      |   |          
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          | 1,250,000 |      |   | 2,724,844
|Less Current Portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          | 925,000   |      |   | 2,724,844
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |          |           |      |   |          
|Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          | $325,000  |      | $ |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |          |           |      |   |          



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Note 8. Working Capital Convertible Note





|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------
|On September 20, 2008 the Company entered into a working capital convertible loan agreement with five current investors in the Company.
The terms of the note are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |        
|1) Interest paid at a rate of twelve and 99/100 (12.99%) percent per annum on an actual day /360 day basis and payable on the
18thday of each month beginning on October 18, 2008;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        
|2) All principal, unpaid interest and other costs incurred in connection with this Note shall be due and payable to the Holder on the on the
earlier of: (i) six months from the date of this Working Capital Loan Agreement. (the Due Date) and (ii) have the option of the Lender to extend for one (1) additional year (total of 18 months) or (iii) at the option
of the lender to receive $50,000 per month plus interest after the Due Date. Both options are at the Leaders discretion and upon 60 days notice. The terms of the note are governed by a Working Capital Loan Agreement. In addition, the loan is
convertible at $0.30 per share of Common Stock at the option of the Lender and the Lender received Common Stock purchase warrants for a 1,000,000 shares at $0.45 per share of common stock expiring in five years. The Working Capital Loan includes a
beneficial conversion feature because it allows the holders to acquire common shares of the company at an effective conversion price that is less than their fair value per common share. The beneficial conversion feature was valued based on an
effective conversion price of $0.30 per common share for 2 million shares. Based on the provisions of Emerging Issues Task Force Issue 00-27, the beneficial conversion feature created a discount benefit of $320,000 on the transaction, with
$106,667 being accreted as interest expense in 2008 and remaining valuation balance of $213,333 to be accreted in 2009. The following reconciles the outstanding balance of the Working Capital Loan and its reported balance at December 31, 2008. |  |   |        
|Balance of Working Capital Loan at December 31, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $ | 600,000
|Less: Beneficial conversion feature to be accreted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   | 213,333
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |        
|Reported Balance at December 31, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | $ | 386,667
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |        



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Note 9. Debenture Notes Payable



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------
|On April 2, 2008 the Company closed on the $5,000,000 Debenture offering above the minimum offering of $1,500,000 with $1,813,779 in
debentures. The terms of the notes are 10% due December 31, 2010, interest paid quarterly, and convertible into Common Stock at $0.45 per share. As of December 31, 2008, $132,708 of the debentures has been converted into 294,906 shares of
Common Stock at $0.45 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $ | 1,681,071
|In October 2008 the Company offered a $500,000 Debenture offering. The terms of the notes are 12% due March 31, 2011, interest paid
quarterly, and convertible into Common Stock at $0.30 per share. The offering was completed in March of 2009 and as of December 31, 2008 $375,000 of the funds had been received. The Debenture includes a beneficial conversion feature because it
allows the holders to acquire common shares of the company at an effective conversion price that is less than their fair value per common share. The beneficial conversion feature was valued based on an effective conversion price of $0.30 per common
share for 1.25 million shares. Based on the provisions of Emerging Issues Task Force Issue 00-27, the beneficial conversion feature created a discount benefit of $183,500 on the transaction, with $61,167 being accreted as interest expense in
2008 and remaining valuation balance of $122,333 to be accreted in 2009. The following reconciles the outstanding balance of the Debentures and its reported balance at December 31, 2008. |  |   |          
|Balance of Working Capital Loan at December 31, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   | 375,000  
|Less: Beneficial conversion feature to be accreted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   | 122,333  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |          
|Reported Balance at December 31, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   | 252,667  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |          
|Total Debentures outstanding at December 31, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $ | 1,933,738
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |          

Note 10. Preferred Stock, Series A

The Series A Preferred Stock has 10,000,000 designated shares, convertible to common stock one for one anytime, automatically converted on trading price of $1.50 per 20 trading days, 10% cumulative dividend payable in
Series A Preferred shares, separate voting rights on any matters affecting the Series A Preferred stock, with superior liquidation rights to Series B Preferred Stock and Common Stock. During 2004, the Company paid with 93,750 shares of the
Companys Series A Preferred stock as part of an acquisition The Company sold 656,250 of the Companys Series A Preferred stock for a total of 750,000 shares of Series A Preferred or $600,000. The Company also issued 354,236 shares of
Series A Preferred Stock in 2006 for accrued dividends of $283,389. The Company owes $180,740 in accumulated dividends payable at December 31, 2008. In November 2008 ten (10) of the Series A Preferred holders exchanged 497,429 shares of
the Series A Preferred for 165,810 shares of the Companys common stock.

Note 11. Preferred Shares, Series B

During 2006, the Company issued 415,000 shares of Series B Preferred Shares for cash of $415,000. During 2007, the Company issued 20,000 shares of Series B Preferred
Stock for cash of $20,000. The total issued and outstanding Series B Preferred Stock at December 31, 2008 was 435,000 shares. The Series B Preferred Shares are convertible at any time based on a conversion rate of three (3) Common Stock
Shares for every one (1) Series B Preferred Share. The Series B Preferred Shares accrue simple twelve percent (12%) dividend payable on a monthly basis in cash. The Company may elect, after twelve months from the date of each subscription
agreement, to repurchase the Series B Preferred Shares in whole or in part. The Company shall be required to repurchase all Preferred Shares not converted upon the twenty-fourth month from the date of each subscription agreement at the original
purchase price. The Company has not converted the Series B Preferred Stock or has it paid the December 31, 2008 accrued dividend of $4,350. The Series B Preferred Stock includes a beneficial conversion feature because it allows the holders to
acquire common shares of the company at an effective conversion price that is less than their fair value per common share. The beneficial conversion feature was valued based on an effective conversion price of three common share one share of Series
B Preferred Stock. Based on the provisions of Emerging Issues Task Force Issue 00-27, the beneficial conversion feature created a discount benefit of $435,000 on the transaction, which was the limit of the benefit as the beneficial conversion
feature can not exceed the original invest in the security. The $435,000 was accreted as dividend expense in 2006-2008 over a 24 month period. The final quarter of accretion was the fourth quarter of 2008. (see Note 2)



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Note 12. Common Stock

On October 5, 2007, the Board of Directors approved a 1-for-3 reverse stock split. The common stock began trading on a reverse-split basis on October 10, 2007. All share and per share amounts reflect the effect of this reverse
stock split.

On March 9, 2007 the Company issued 2,718,333 Common Shares and 1,388,333 warrants, exercisable over ten years at a price of $0.75 per
share, in consideration for business advisory services related to restructuring and recapitalization of the Company. The Company has the exclusive right to repurchase the Common Shares in the event that the transaction contemplated in the Business
Advisory Agreement is not completed. The agreement has a term of two years and also requires the Company to pay monthly fees of $5,000 and restructuring advisory fees of $150,000. The warrants were valued at $43,149 using the Black-Scholes option
pricing methodology. The value of the common stock and warrants has been recorded as deferred compensation on the Companys financial statements and will be amortized for 24 months, the term of the Agreement. The Agreement affords the Company
the option to repurchase the Common Shares and the warrant for $12,500 in the event the financing contemplated by the Agreement is not consummated.

On
July 27, 2007 the Company and the former Chairman of the Board of Directors, who resigned on June 22, 2007, entered into an agreement to terminate the former Directors employment contract and accept 195,556 shares of common stock,
valued at $88,000, as compensation for accrued salary and expenses.

On September 10, 2007, the Company entered into a settlement and release
agreement with a vendor whereby the parties agreed to terminate the service agreement and issued 9,333 shares of common stock as compensation for accrued expenses of $7,000.

On August 20, 2007 the Company entered into an agreement with an independent contractor to provide strategic planning and business advisory services. The agreement terminates the earlier of:
(i) December 31, 2007 or (ii) upon the closing of financing in the amount of $4,000,000 and the full payment of all federal withholding tax obligations. Compensation for services includes a monthly fee of $10,000 and the option to
purchase common stock as more fully described below.

On August 20, 2007 the Company entered into an agreement with an independent contractor to
provide strategic planning and financial advisory services. The agreement terminates the earlier of: (i) December 31, 2007 or (ii) upon the closing of financing in the amount of $4,000,000 and the full payment of all federal
withholding tax obligations. Compensation for services includes a monthly fee of $7,500 and the option to purchase common stock as more fully described below.

In January 2008, the Company issued 513,848 shares of Companys common stock upon the conversion of three Secured Promissory Notes from the 2006 Debt Offering. The holders accepted restricted shares of common stock and converted the
principal loan amount and the accrued interest at the price of $0.45 per share. The principal loan amounts totaled $185,000 and the accrued interest totaled $44,231.

On February 14, 2008, the Company entered into a Settlement and Release Agreement with one of our vendors as settlement of a long-standing dispute concerning services delivered by the party to the Company. The
Company issued 25,000 shares of restricted common stock, valued at $11,750 for the acceptance of the settlement.

In February, the Company issued a total
of 25,000 shares of Common Stock to three of its shareholders as compensation for extending to the Company a temporary interest free loan to meet temporary cash needs over a thirty-day period, the interest was valued at $11,750. The Company repaid
the loans in full out of the proceeds of the Bridge Loan Agreement.

On April 2, 2008 the Company closed on the $5,000,000 Debenture offering above
the minimum offering of $1,500,000 with $1,813,779 in debentures. The terms of the notes are 10% due in five years, interest paid quarterly, and convertible into Common Stock at $0.45 per share. The Company issued 294,906 shares of common stock for
$132,708 of converted debenture notes in 2008.



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On April 24, 2008, the Company entered into a Termination and Settlement Agreement with FCBD related to the Advisory
Agreement, pursuant to which we agreed to pay FCBD $159,000 and issue to FCBD an aggregate of 311,111 shares of our stock in full settlement of all of our monetary obligation to FCBD under the Advisory Agreement, valued at $140,000. We agreed to
register the shares of stock issued to FCBD in the first registration statement filed by us under the Securities Act. (See Note 6)

On April 21, 2008,
the Company entered into a Waiver and Release Agreement with Clay Storer to release one another including obligations, duties or liabilities arising from Storers employment by the Company. The sole consideration for Storers agreement was
the issuance of 49,632 shares of the Companys Common Stock for a value of $16,875. The number of shares was calculated by dividing the $16,875 by the closing price of the Companys Common Stock in the Pink Sheets Market on the date of the
agreement, April 21, 2008. Was this accrued in 2007 as he was terminated in 2007.

In July 2008 the Company issued 10,000 shares of common stock for
interest and the settlement of debt, valued at $4,500. In addition, the Company issued 55,666 shares of common stock in August 2008 and October the Company issued 52,777 shares of common stock for payment of loan fees, with a value of $29,167.

In October 2008 the Company offered a $500,000 Debenture offering. The terms of the notes are 12% due March 31, 2011, interest paid quarterly, and
convertible into Common Stock at $0.30 per share. The offering was completed in March of 2009 and as of December 31, 2008 $375,000 of the funds had been received. The Debenture includes a beneficial conversion feature because it allows the
holders to acquire common shares of the company at an effective conversion price that is less than their fair value per common share. The beneficial conversion feature was valued based on an effective conversion price of $0.30 per common share for
1.25 million shares. Based on the provisions of Emerging Issues Task Force Issue 00-27, the beneficial conversion feature created a discount benefit of $183,500 on the transaction, with $61,167 being accreted as interest expense in 2008 and
remaining valuation balance of $122,333 to be accreted in 2009.

On October 25, 2008 the Company issued 196,422 shares of common stock to the board of
directors for service on the board of directors for the second half of 2008, valued at $94,283.

In November the Company issued 165,813 shares of common
stock, valued at $397,944, in exchange for series A preferred stock of the Company. (see note 10 Preferred Stock, Series A)

Note 13. Warrants and
options

On August 20, 2007 the Company granted options to two independent contractors to purchase a total of 1,288,333 shares of Common Stock at
$0.24 per share. The options were valued at $32,649 using the Black-Scholes option pricing methodology. The option shares vest on a quarterly schedule over a three year term. 215,000 shares were cancelled during the year.

On August 20, 2007 the Company granted options to two employees, including one Executive Officer, to purchase a combined total of 282,500 shares of Common Stock at
$0.24 per share as part of the Companys 2007 Equity Incentive Plan. The options were valued at $11,684 using the Black-Scholes option pricing methodology. The option shares vest on a quarterly schedule over a five year term. 94,167 shares were
cancelled during the year.

On August 20, 2007 the Company granted options to one Executive Officer and Director to purchase a total of 565,000 shares
of Common Stock at $0.24 per share. The options were valued at $14,318 using the Black-Scholes option pricing methodology. The option shares vest on a quarterly schedule over a three year term.



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On December 27, 2007 the Company granted options to two employees to purchase a total of 100,000 shares of Common
Stock at $0.28 per share. The options were valued at $13,695.62 using the Black-Scholes option pricing methodology. The options vest at the rate of 2,500 shares per calendar quarter commencing on January 1, 2008.

On February 22, 2008 the Company granted options to one Executive Officer and Director to purchase a total of 250,000 shares of Common Stock at $0.45 per share. The
options were valued at $106,846 using the Black-Scholes option pricing methodology, using volatility of 180%, risk free rate of 2.75%, no dividend rate, and three year term. The option shares are fully vested in 2008.

On March 25, 2008 the Company granted options to one Executive Officer to purchase a total of 188,333 shares of Common Stock at $0.45 per share. The options were
valued at $98,450 using the Black-Scholes option pricing methodology, using volatility of 181%, risk free rate of 2.6%, no dividend rate. The option shares vest on a quarterly schedule over a two year term. Under the vesting schedule $32,816 were
expensed in 2008, leaving deferred compensation expense of $65,634 at December 31, 2008.

On March 10, 2008 the Company granted options to one
Executive Officer to purchase a total of 250,000 shares of Common Stock at $0.45 per share. The options were valued at $111,675 using the Black-Scholes option pricing methodology, using volatility of 180%, risk free rate of 2.75%, no dividend rate,
and three year term. The option shares are fully vested at December 31, 2008.



|                               |  |                           |   |      |                               |         |        |           |   |                               |   |        
|------------------------------ |  | ------------------------- | - | ---- | ----------------------------- | ------- | ------ | --------- | - | ----------------------------- | - | -------
|                               |  | Analysis of Stock Options
|                               |  | 2007                      |   | 2008
|                               |  | Shares                    |   |      | WeightedAverageExercisePrices |         | Shares |           |   | WeightedAverageExercisePrices
|Outstanding, beginning of year |  |                          |   |      | $                             |        |        | 1,926,666 |   |                               | $ |       
|Granted                        |  | 2,235,833                 |   |      |                               | .24-.28 |        | 688,334   |   |                               |   | .45-.56
|Exercised                      |  |                          |   |      |                               |        |        |          |   |                               |   |       
|Canceled                       |  | (309,167                  | ) |      |                               |        |        | (        | ) |                               |   |       
|Expired                        |  |                          |   |      |                               |        |        |          |   |                               |   |       
|                               |  |                           |   |      |                               |         |        |           |   |                               |   |        
|Outstanding, end of year       |  | 1,926,666                 |   |      | $                             | .24-.28 |        | 2,615,000 |   |                               | $ | .45-.56
|Exercisable, end of year       |  | 97,296                    |   |      |                               |         |        | 1,010,898 |   |                               |   |        

Stock options outstanding and exercisable at December 31, 2008, are as follows:



|                    |      |        |           |                                     |   |                                |   |     
|------------------- | ---- | ------ | --------- | ----------------------------------- | - | ------------------------------ | - | ----
|ExercisePrice Range |      | Number |           | RemainingContractual Life (InYears) |   | Weighted AverageExercise Price
|$                   | 0.24 |        | 1,821,666 |                                     | 4 |                                | $ | 0.24
|$                   | 0.28 |        | 100,000   |                                     | 4 |                                | $ | 0.28
|$                   | 0.45 |        | 500,000   |                                     | 5 |                                | $ | 0.45
|$                   | 0.56 |        | 188,334   |                                     | 5 |                                | $ | 0.56
|                    |      |        |           |                                     |   |                                |   |     
|                    |      |        | 2,610,000 |                                     |   |                                | $ | 0.30
|                    |      |        |           |                                     |   |                                |   |     



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On January 2, 2008 the Company granted warrants to one Executive Officer and one Director to purchase a total of
41,000 shares each of Common Stock at $0.24 per share for services. The warrants were valued at $10,214 each using the Black-Scholes option pricing methodology, using volatility of 161%, risk free rate of 2.9%, no dividend rate, and three year term.
The option shares are fully vested in 2008.

On February 22, 2008 the Company granted warrants to seventeen individuals as part of the 2008 Bridge
Note financing. The group included one Executive Officer and one Director. The total shares represented by these warrants are 1,833,333 shares of Common Stock at $0.45 per share. The warrants are five year term.

On February 24, 2008 the Company granted warrants to five individuals as part of the extension of the Pre-bridge financing. The group included one Executive Officer
and one Director. The total shares represented by these warrants are 396,205 shares of Common Stock at $0.45 per share. The warrants are five year term.

On July 18, 2008 the Company granted warrants to a director as part of loan to purchase equipment. The total shares represented by these warrants are 416,667 shares of Common Stock at $0.30 per share. The warrants are five year term.

On August 16, 2008 the Company granted warrants to twenty-three individuals as part of the financing for the purchase of the AFS assets. The group
included one Director. The total shares represented by these warrants are 400,000 shares of Common Stock at $0.45 per share. The warrants were valued at $154,236 each using the Black-Scholes option pricing methodology, using volatility of 154%, risk
free rate of 3.129%, no dividend rate. The option shares are fully vested in 2008.

The warrants are five year term.

On September 22, 2008 the Company granted warrants to five individuals as part of the Working Capital Loan. The total shares represented by these warrants are
1,000,000 shares of Common Stock at $0.45 per share. The warrants are five year term.



|                                         |  |                            |   |      |                               |           |        |           |   |                               |   |          
|---------------------------------------- |  | -------------------------- | - | ---- | ----------------------------- | --------- | ------ | --------- | - | ----------------------------- | - | ---------
|                                         |  | Analysis of Stock Warrants
|                                         |  | 2007                       |   | 2008
|                                         |  | Shares                     |   |      | WeightedAverageExercisePrices |           | Shares |           |   | WeightedAverageExercisePrices
|Outstanding, beginning of year           |  | 1,140,405                  |   |      | $                             | 0.80-1.00 |        | 2,602,596 |   |                               | $ | 0.75-1.00
|Granted                                  |  | 1,571,666                  |   |      | $                             | 0.24-0.75 |        | 4,128,205 |   |                               |   | 0.24     
|Exercised                                |  |                           |   |      |                               |          |        |          |   |                               |   |         
|Canceled                                 |  |                           |   |      |                               |          |        |          |   |                               |   |         
|Expired                                  |  | (109,375                   | ) |      | $                             | 0.80-1.00 |        | (12,667   | ) |                               |   | 1.00     
|                                         |  |                            |   |      |                               |           |        |           |   |                               |   |          
|Outstanding and exercisable, end of year |  | 2,602,596                  |   |      | $                             | .75-1.00  |        | 6,718,135 |   |                               | $ | .45-1.00 



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Stock warrants outstanding and exercisable at December 31, 2008, are as follows:



|                    |      |        |           |                                     |   |                                |   |     
|------------------- | ---- | ------ | --------- | ----------------------------------- | - | ------------------------------ | - | ----
|ExercisePrice Range |      | Number |           | RemainingContractual Life (InYears) |   | Weighted AverageExercise Price
|$                   | 1.00 |        | 166,667   |                                     | 1 |                                | $ | 1.00
|$                   | 0.80 |        | 21,875    |                                     | 1 |                                | $ | 0.80
|$                   | 0.75 |        | 549,167   |                                     | 1 |                                | $ | 0.75
|$                   | 0.75 |        | 100,000   |                                     | 1 |                                | $ | 0.75
|$                   | 0.50 |        | 83,333    |                                     | 2 |                                | $ | 0.50
|$                   | 0.75 |        | 97,221    |                                     | 1 |                                | $ | 0.75
|$                   | 0.75 |        | 1,388,333 |                                     | 8 |                                | $ | 0.75
|$                   | 0.50 |        | 183,334   |                                     | 4 |                                | $ | 0.50
|$                   | 0.30 |        | 416,667   |                                     | 5 |                                | $ | 0.30
|$                   | 0.24 |        | 82,000    |                                     | 5 |                                | $ | 0.24
|$                   | 0.45 |        | 3,629,538 |                                     | 5 |                                | $ | 0.45
|                    |      |        |           |                                     |   |                                |   |     
|                    |      |        | 6,718,135 |                                     |   |                                | $ | 0.55
|                    |      |        |           |                                     |   |                                |   |     

Note 14. Income Taxes

The Company accounts for income taxes under SFAS 109, Accounting for Income Taxes, which requires use of the liability method. SFAS 109 provides that deferred tax assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized. The tax effects of temporary differences and net operating losses that give rise to significant
portions of deferred tax assets and liabilities consisted of the following:



|                                  |  |      |            |   |      |   |            |  
|--------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                  |  | 2007 |            |   | 2008 |  
|Deferred tax assets (liabilities) |  |      |            |   |      |   |            |  
|Net operating loss carry forwards |  | $    | 2,339,270  |   |      |   | 2,744,850  |  
|Less valuation allowance          |  |      | (2,339,270 | ) |      |   | (2,744,850 | )
|                                  |  |      |            |   |      |   |            |  
|Net deferred tax asset            |  | $    |           |   |      | $ |           |  
|                                  |  |      |            |   |      |   |            |  

The net operating loss carry forward of $14,109,729 will expire through 2028. The deferred tax asset has been
fully reserved as of December 31, 2007 and 2008. The primary difference between book and tax loss is stock compensation. The change in the valuation allowance for the deferred tax asset during the year ended December 31, 2007 was $741,016
and $405,580 for the year ended December 31, 2008.

Note 15. Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates
continuation of the Company as a going concern. The Company has a working capital deficit of $5,665,270 and an accumulated deficit of $22,248,243 as of December 31, 2008.



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The Company is currently seeking equity capital. The Company has tentative commitments from various parties to provide
additional capital however there is no assurance that such funding will be available when needed, or if available, that the terms will be favorable or acceptable to the Company.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern.

Note 16. Commitments

The Company has entered into two capital leases relating to computers and network equipment. The leases have terms up to 48 months, expiring in 2008 and monthly payments
with interest rates ranging from 14.2 14.6%. The future minimum lease payments for the year ending December 31, 2008 are $13,598

During 2008,
the Company entered into a building lease, on a verbal month to month lease at $8,333 per month, expiring in 2010. Lease payments for the year ending December 31, 2008 are $114,975.

Note 17. Other Matters

The Company is the defendant in Civil Action No. 2008-CV-6792, pending in the
District Court for the City and County of Denver, Colorado, and titled Michael Dozier v. IPtimize, Inc. The plaintiff, who formerly worked with the Company, alleges that he is entitled to 750,000 more shares of stock in the
Company than he has received and is claiming the monetary value of those shares, damages for mental and emotional suffering, and associated fees and costs. The Company has denied all liability. Though settlement negotiations have
begun, the case is set for a jury trial commencing 17 August 2009.



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- | -------------------------------------------------------------------------------------

None.



|Item 9A(T). | Controls and Procedures
|----------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, the Company carried out, under the
supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer (the Certifying Officers), an evaluation of the effectiveness of its
disclosure controls and procedures (as the term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on this evaluation, the Certifying
Officers have concluded that the Companys disclosure controls and procedures were not effective. The Certifying Officers conclusion that the Companys disclosure controls and procedures were not effective was based upon a
determination that a deficiency existed at the time of the evaluation in the Companys ability to produce accurate financial information on a timely basis, which deficiency as well as the Companys remedial steps are described in detail
below.

On January 14, 2009, following joint consultations of the Audit Committee of the Board of Directors of the Company and the
Companys Chief Financial Officer, the Company determined that a correction of the prior accounting on the BCF (as defined below) matters as applied to the Companys previously issued convertible debentures and preferred stock (as
discussed below) was required. Having considered the circumstances underlying the accounting errors and their effects upon the Companys prior filings, and having discussed the matter with its independent public accountants as well as the
Companys management, the Audit Committee concluded that the previously issued financial statements should not be relied upon and approved and authorized the Companys management to amend and restate certain previously filed public
reports. Specifically, the Audit Committee determined that the Companys financial statements for December 31, 2006 and 2007 could not be relied upon and the Company had to restate its results of operations for the years ended
December 31, 2006 and 2007 and balance sheet as of December 31, 2008. In addition, it was determined that the statements of operations for the quarterly periods ended March 31, 2008, June 30, 2008, and September 30,
2008 were also affected by the same deficiency and that the Company would be required to restate those items as well as part of the filing of the this Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

The Company filed an 8-K/A dated February 10, 2009, amending the 8-K previously filed on January 29, 2009 outlining the non-reliance issues and
the financial statements affected by the restatements. The Company determined that the restatements were caused by an error in the calculation of the embedded beneficial conversion feature which was discovered in the process of the Companys
preparation of its responses to the SEC comments outstanding from the fiscal year 2007. Namely, the error related to the calculation of an embedded beneficial conversion feature under the accounting provisions Emerging Issues Task Force Issue Nos.
EITF 98-5 and EITF 00-27 regarding the accounting for Beneficial Conversion Features (BCF) on convertible debt and preferred stock instruments. The Company determined that such accounting provisions had not been properly applied in
current and prior years to its previously issued convertible debentures and preferred stock. The Audit Committee discussed its determinations with the Companys independent accountants. The Company, with its independent accounting firm, under
the supervision of its Audit Committee and with the assistance of an independent accounting expert, inquired into the circumstances relating to the foregoing



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error to assure that there were no other financial reporting or disclosure control items are affected and to prevent such error for occurrence in the future.
The Company restated its 2007 annual financial statements to redress the error. It also restated the 2008 quarterly financial information to the consolidated financial statements in this Annual Report on Form 10-K, in lieu of separately amending
each Form 10-Q for the fiscal quarterly periods ended March 31, 2008, June 30, 2008 and September 30, 2008. Note 2 to the financial statements included in the Annual Report provide a detailed description of the effect the
foregoing error had on the affected fiscal periods in 2006 and 2007.

Additionally, management and the Audit Committee considered what
changes, if any, were necessary to the Companys disclosure controls and procedures to ensure that the errors described above would not recur and to provide that material information is recorded, processed, summarized and reported by management
of the Company on a timely basis in order to comply with the Companys disclosure obligations under the Exchange Act, and the rules and regulations promulgated thereunder. In its review the Audit Committee noted that the errors described above
(i) related principally to periods that preceded changes the Company has already made to consolidate and upgrade its accounting staff, and (ii) that the errors described above did not result from the failure of the Companys
disclosure controls and procedures to make known to the appropriate officials and auditors the facts concerning the Companys convertible debentures or preferred stock. As a result management and the Audit Committee determined that education
and professional development of accounting staff on the complications of EITF 00-27 and its application would be sufficient to prevent a reoccurrence. In addition, in July 2008, the Company appointed new Chief Financial and Accounting Officer with
significant public company background and experience. No additional changes to the Companys disclosure controls and procedures were needed in response to the discovery of the errors described above.

Managements Annual Report on Internal Control Over Financial Reporting

The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting, in accordance with Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the
supervision and with the participation of the Companys management, including the Certifying Officers, we conducted an evaluation of the effectiveness of the Companys internal control over financial reporting based on the framework in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The COSO framework summarizes each of the components of a companys internal control system, including the:
(i) control environment; (ii) risk assessment; (iii) information and communication; and (iv) monitoring (collectively, the entity-level controls), as well as a companys control activities (process-level
controls). Managements evaluation of the design and operating effectiveness of our internal controls over financial reporting identified material weaknesses resulting from design and operating deficiencies in the internal control system. A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.

The Companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as



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necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

The Companys management has concluded that there was a
material weakness in the Companys internal control over financial reporting as of December 31, 2008, which resulted in the restatements of the Companys previously issued financial statements, described in detail above. As a result,
the Companys management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2008. The Company did not maintain effective controls with respect to the review, supervision, and
monitoring of accounting operations to ensure the completeness and timeliness of the financial and accounting process and accuracy in accounting for certain complex transactions. In order to remediate the financial controls of the Company, the
management has committed to improving its staff competency in application of complex accounting principles in transactions involving convertible debentures and preferred stock.

This Report does not include an attestation report of the Companys independent registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the Companys independent registered public accounting firm pursuant to temporary rules of the U.S. Securities and Exchange Commission that permit the Company to
provide only managements report in this Report.

Changes in Internal Controls over Financial Reporting

Except as set forth above, there were no changes in our internal control over financial reporting during the fourth fiscal quarter of 2008 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
|-------- | ------------------------------------------------------------

a) Identify Directors and Executive Officers.

The following table sets forth: (1) names and
ages of all persons who presently are and who have been selected as our directors; (2) all positions and offices with our company held by each such person; (3) the term or office of each person named as a director; and 4) any period during
which he or she has served:



|                      |  |                                                                                |  |                                                                 |  |                      
|--------------------- |  | ------------------------------------------------------------------------------ |  | --------------------------------------------------------------- |  | ---------------------
|Name                  |  | Duration and Date ofExpiration of Present Term                                 |  | Position and Office withOur Company                             |  | Age andDirector Since
|                      |  |                                                                                | 
|Clinton J. Wilson     |  | Resigned March 9, 2009                                                         |  | President,Chief Operating Officerand Director                   |  | 53June 25, 2004      
|                      |  |                                                                                | 
|Ron W. Pitcock        |  | Director; eligible for re-election at the 2011 Annual Meeting of Stockholders; |  | Chief Executive Officerand Chairman                             |  | 60February 22, 2008  
|                      |  |                                                                                | 
|Robert T. Flood       |  | Officer                                                                        |  | Chief Operating Officer,Chief Informationand Technology Officer |  | 57July 15, 2004      
|                      |  |                                                                                | 
|Jeffrey R. Galgano    |  | Director eligible for re-election at the 2010 Annual Meeting of Stockholders   |  | Independent Director                                            |  | 42September 23, 2008 
|                      |  |                                                                                | 
|Michael A. Geller     |  | Director eligible for re-election at the 2010 Annual Meeting of Stockholders   |  | Independent Director                                            |  | 62September 23, 2008 
|                      |  |                                                                                | 
|Martin A. Grusin      |  | Director eligible for re-election at the 2011 Annual Meeting of Stockholders   |  | Independent Director                                            |  | 64September 3, 2008  
|                      |  |                                                                                | 
|Robert J. McGraw, Jr. |  | Director eligible for re-election at the 2010 Annual Meeting of Stockholders   |  | Independent Director                                            |  | 53May 9, 2008        
|                      |  |                                                                                | 
|Paul S. Maxwell       |  | Director eligible for re-election at the 2009 Annual Meeting of Stockholders   |  | Independent Director                                            |  | 64May 9, 2008        
|                      |  |                                                                                | 
|Stanley F. McGinnis   |  | Director eligible for re-election at the 2009 Annual Meeting of Stockholders   |  | Independent Director                                            |  | 60May 9, 2008        

There is no understanding or arrangement between any directors or any other person or persons pursuant to which
such individual, was or is to be, selected as one of our directors or as a nominee.

Employment Agreements

During the period covered by this Report, we did not enter into any employment agreements with any of our executive officers or directors. However, and
subsequent to December 31, 2007, we entered into: (i) a three year employment with Ron Pitcock, our Chief Executive Officer and Chairman; (ii) a three year employment agreement with Clinton J. Wilson, our President, Chief Operating
Officer and Secretary; (iii) a three year employment agreement with Robert T. Flood our Chief Information and Technology Officer; and (iv) a one year independent contractor agreement with Donald Prosser P.C. to supply the services of
Donald W. Prosser as our Chief Financial Officer. See Item 12, Certain Relationships and Related Transactions.



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Business Experience

Provided below are descriptions of the backgrounds of our executive officers and directors and their principal occupations for the past five years:

Ron W. Pitcock,chairman and chief executive officer, age 60 joined our Company as a consultant and advisor in April 2007, became our chairman and chief executive officer on February 22, 2008.
Mr. Pitcock is a successful technology entrepreneur, who brings us 35 years of cable and communications experience principally as a chief executive officer or as head of the business. From 1997 through 2000, he founded and took public High
Speed Access Corporation, a publicly owned Delaware corporation (NASDAQ: HSAC). High Speed Access Corporation was a leading provider of high-speed internet access via cable modem to residential and commercial end users in exurban areas with an
eventual market cap of $2.5 billion. Mr. Pitcock was employed in increasingly responsible positions including Vice Chairman and former Chief Executive Officer, President and Chief Operating Officer. Prior to 1997, and since 1990, he was
employed by Antec Corp., a publicly owned Delaware corporation (NASDAQ: ANTC) a wholly owned subsidiary of Anixter International and a developer, manufacturer and distributor of optical and radio frequency transmission equipment for broadband
communications systems and developer of emerging opportunities in the cable television and telecommunications industry. Mr. Pitcock was employed in increasingly responsible positions including Executive Vice President of Antecs TeleWire
Division with $230 million in sales where he was responsible for business forecasting, expense control, sales and marketing programs, new product development and corporate re-engineering. Prior thereto since 1980, he was employed by Anixter
Brothers, then a privately owned Illinois corporation that was subsequently acquired by Sam Zell of Intel Corporation and became Anixter International (NYSE: AXE), the worlds leading supplier of communications products with 7,500 employees and
$4.9 billion in 2006 revenue. Mr. Pitcock was employed in increasingly responsible positions including Regional Vice President where he was responsible for growing the Midwest Region sales from $5 million to $100 million. From 1974 through
1980, Mr. Pitcock was engaged in the cable television industry including serving as Vice President and General Manager of Comsec Corporation, a privately owned cable television company in Corpus Christi, Texas that developed a six town
franchise that was sold to Telecommunications, Inc.; and Regional Engineer and Chief Technician for Contental Cablevision, a privately owned cable television system in Dover, New Hampshire. He received a Bachelor of Business Administration
degree from Corpus Christi State University (now part of Texas A&M University) in Corpus Christi, TX in 1978 and a Master of Science degree in Telecommunications from the University of Denver in 1992. Mr. Pitcock entered the army in
1967 as an enlisted man and exited in 1974 as a Major. During his enlistment he served in the United States, Ethiopia, and Vietnam.

Clinton J. Wilson, president, age 53 a co-founder of our Company in May 2003 and served as our Executive Vice President of Corporate Development until June 2004 when he was elected to our board of directors until August 2008,
was the chief executive officer from 2006 to February 2008, and in April 2005 when he was elected president. Mr. Wilson has more than 31 years of senior sales and marketing management experience. In 2001, Mr. Wilson was president of
InDigiNet, Inc., a Denver based data networking solutions provider. Prior to this engagement, he was the senior vice president and general manager of AuraServ Communications, a venture-backed VoIP service platform for business clients. Between 1997
and 2000, Mr. Wilson was a vice president for Convergent Communications, Inc. From 1992 to 1997, Mr. Wilson was the vice president of sales for ICG Communications, Inc. His industry experience also includes positions with both MCI and
AT&T. He earned his Bachelor of Science degree in Finance and Marketing from the University of Colorado at Boulder.

Robert T.
Flood,chief operations officer and chief technology officer, age 54 has been our chief information and technology officer since August 2004, and was a director from 2004 to 2005. Mr. Flood has more than 30 years of technical leadership
experience within the telecommunications industry. In 2001, he founded and became chief executive officer and chief technology officer of Virginia-based Pingtone Communications, Inc. (Pingtone), a telephone service company which supplied
IP telephony services to desktop and permitting customers. From 1999 to 2001, Mr. Flood was chief information officer and chief technology officer for Cable & Wireless Global, an international communications carrier with operations in
more than 70 countries. From 1993 to 1999, Mr. Flood served as senior vice-president of engineering and chief technology officer for ICG Communications, Inc. Beginning



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in 1974, Mr. Flood worked at Centel (Centel), a local telephone service provider that was acquired by Sprint in 1992. In 1988,
Mr. Flood became the general engineering manager for Centels Nevada and Texas territories. Mr. Flood received a Bachelor of Arts degree in Economics from the University of Nebraska and a Masters degree in Economics from the
University of Nevada-Las Vegas. He has participated in the Kellogg Executive Development Program at the J.L. Kellogg Graduate School of Management at Northwestern University in Chicago. Mr. Flood has authored two books on IP telephony.

Donald W. Prosser,chief financial officer, age 58 has been our chief financial officer since July 1 2008, and our
secretary & treasurer. He served a director and chief financial officer from 2001 until June 2007 of VCG Holding Corp. Mr. Prosser currently sits on the board of directors of Arete Industries, Inc. and Veracity Global Management Corp.
Mr. Prosser also has served as chief financial officer and director of three other publicly traded companies: from 1997 to 1999, Chartwell International, Inc., a publisher of high school athletic information and recruiting services; from 1999
to 2000, Anything Internet Corporation, a computer equipment and internet services provider; and from 2001 to 2002, NetCommerce, Inc., an Internet services provider. Mr. Prosser has a M.A. in taxation (1975) and a B.A. in accounting and
history from Western State College of Colorado (1973). He is a certified public accountant licensed in Colorado (active).

Michael A.
Geller,director, age 62 was appointed by a director in August 2008. He has been and currently is chairman and CEO of several non-public companies in Colorado, Best Card LLC and Lowell 17 Hospital. He was CEO of Beverage Distributors, Inc. for
20 years and was in management for 11 years with Seagram Distillers. Mr. Geller is board member of several charities and a member for a number large trade organizations relating to the wholesale business and a member of Whos Who
Worldwide. Mr. Geller graduated from Pace University with a BBA marketing and accounting in 1969.

Robert J. McGraw, Jr.,
director, age 54, has been a director of VCG Holding Corp., a publicly owned Colorado engaged in the ownership and operation of nightclubs that provide quality live adult entertainment and food and beverage services since November 2002.
Mr. McGraw is president of McGraw and McGraw CPA PC of Westminster, Colorado, a firm which specializes in accounting and bookkeeping for restaurants, lounges and small businesses. Mr. McGraw has a B.A. in accounting from the Western State
College of Colorado (1977). Mr. McGraw is a certified public accountant currently licensed in the state of Colorado and is a member of the American Institute of Certified Public Accountants and Colorado Society of Certified Public Accountants.

Stanley F. McGinnis, director, age 60, is the chief executive officer and principal stockholder of Secure Signals
International, Inc., a Delaware corporation and successor to McGinnis Group International, LLC, a Colorado limited liability company, d/b/a Secure Signals International that he founded in 1987 (SSI). SSI is a leading cable risk
management company that developed an industry-unique theft of services program resulting in the collection of over $300 million in stolen signal revenue, the recovery of over 500,000 illegal devices and over 13,000 theft-of-service interrogations
for its Big 3 and other cable system clients. Mr. McGinnis, who has been active in the cable and satellite television industry for over 19 years, is a Certified Fraud Specialist, a Certified Fraud Examiner and a court certified
expert witness for piracy. In addition to spearheading several national and regional piracy device investigations that resulted in multi-million dollar recoveries, he has recovered over $300 million for the cable industry during his
career. Prior to his involvement with SSI, he served as the president and chief operating officer for four successful retail companies with locations nationwide. Mr. McGinnis is also a qualified expert witness in the areas of labor
relations, employee defalcations, workers compensation fraud, wrongful terminations, sexual harassment, and bonding insurance claims. He attended the College of Marin in Kentfield, California for two years of criminal law courses and three
years of law school at LaSalle University in Chicago.

Paul S. Maxwell,director, age 64, is the owner and CEO of Media Business
Corp., which publishes, skyreport.com, The BRIDGE Suiteof news and analysis products and ancillary periodicals as well as provides research and database services. Mr. Maxwell is a founding board member of The Walter Kaitz Foundation;
honorary board member of Cable Positive; founding



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member of C-TAM; Cable TV Pioneer (1990) and member of the pioneer board; and a board member of the Cable Center. Mr. Maxwell studied theology at
Southern Methodist University and Perkins Theological Seminary; and studied journalism at the University of Colorado Graduate School of Journalism.

Jeffrey R. Galgano,director, age 42, was appointed as a director in August 2008. Mr. Galgano has been president and a director of Sentinel Technologies, Inc. (a privately held company) and CFO of Sentinels operating
company Tidel Engineering, L.P. since October 2006. Mr. Galgano previously was the managing director of Stifel Nicolaus & Company, Incs. Denver Corporate Finance office from 2000 to 2006; and prior to that was the Managing
Director of A.G. Edwards & Sons, Incs. Denver Corporate Finance office from 1998 to 2000. Both Stifel Nicolaus & Company and A.G. Edwards & Sons are brokerage and investment banking companies. Mr. Galgano holds
an MBA from the J.L. Kellogg Graduate School of Management, Northwestern University and a BSC from DePaul University.

Martin A. Grusin,director, age 64, was appointed as a director in August 2008. Mr. Grusin has been practicing law since 1973, currently in the JG Law Firm. In addition to the active practice of law Mr. Grusin has served as: an officer, general counsel
and director of Aqua Glass Corporation, a producer of plastic and acetate tub and shower enclosures; president and chief executive officer, and director of United American Bank, Memphis, Tennessee; and its holding company W.B.T. Holding Company; a
director of Regions Bank of Memphis, a company that acquired United American Bank; an associate professor at the University of Arkansas and the University of Memphis; and as general counsel and director of Davis Cartage Company of Corunna, Michigan,
a regional general commodities truck line that services industries in central Michigan and the surrounding states. Mr. Grusin received a B.S. degree from the University of Memphis, a Juris Doctor degree from Memphis State University School of
Law (1972) and a LLM from the University of Miami, School of Law (1973).

Each of our Directors has indicated to us that he is not
presently a director in any other company with a class of securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as amended or subject to the requirements of Section 15(d) of such act or any investment
company registered under the Investment Company Act of 1940.

(b) Identification of Certain Significant Employees.

We do not presently employ any person as a significant employee who is not an executive officer but who makes or is expected to make a significant
contribution to our business.

(c) Family Relationships.

No family relationship exists between any of our director or executive officers.

(d) Involvement in Certain Legal
Proceedings.

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



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(e) Committees of the Board of Directors.

On May 9, 2008, a special meeting of the Board of Directors was held at which the following committees were formed and Chairs of those committees
were duly elected:

Audit Committee. Upon resolution made and seconded, Robert J. McGraw was elected Chairman of the Audit Committee.
Mr. McGraw is also a member of the Compensation Committee and the Nominating Committee.

Compensation Committee. Upon resolution made and
seconded, Stanley F. McGinnis was elected Chairman of the Compensation Committee. Mr. McGinnis is also a member of the Audit Committee and the Nominating Committee.

Nominating Committee. Upon resolution made and seconded, Paul S. Maxwell was elected Chairman of the Nominating Committee. Mr. Maxwell is also a member of the Audit Committee and the Compensation
Committee.

(f) Code of Ethics.

We
have adopted a code of ethics within the meaning of Item 406(b) of Regulation S-B under the Securities Act and the Exchange Act. The code of ethics applies to our principal executive officer, principal financial officer, principal accounting
officer or controller, and persons performing similar functions.

The code of ethics is designed to deter wrongdoing and to promote:



| |  |  | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications we
make;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Compliance with applicable governmental laws, rules and regulations;
| | - |  | --------------------------------------------------------------------



| |  |  | The prompt internal reporting of violations of the code of ethics to an appropriate person or persons identified in the code of ethics; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Accountability for adherence to the code of ethics.
| | - |  | ---------------------------------------------------

We undertake to provide a copy of the code of ethics to any person, at no charge, upon a written request. All written requests should be directed to: Donald W. Prosser, IPtimize, Inc., Corporate Secretary, 1720
Bellaire Street, Suite 200, Denver, CO 80222.

(g) Directors Independence.

Presently, our Board of Directors is comprised of seven directors, six of whom are independent.

On March 23, 2007, our board of directors amended our bylaws to divide the directors into three classes, one of which includes three directors and
two of which include two directors. Starting with our 2008 annual meeting of our shareholders, the director nominees in each class up for election at such annual meeting will be elected for three years and serve until the election and qualification
of their successors. However, in the election of directors at the 2007 annual meeting and in order to create a staggered board, the following director nominees are up for election for the following terms:



|                 |  |                                                                              
|---------------- |  | -----------------------------------------------------------------------------
|Stan F. McGinnis |  | One year; eligible for re-election at our 2009 Annual Meeting of Stockholders



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|                      |  |                                                                                 
|--------------------- |  | --------------------------------------------------------------------------------
|Paul S. Maxwell       |  | One year; eligible for re-election at our 2009 Annual Meeting of Stockholders   
|                      | 
|Jeffrey R. Galgano    |  | Two years; eligible for re-election at our 2010 Annual Meeting of Stockholders  
|                      | 
|Michael A. Geller     |  | Two years; eligible for re-election at our 2010 Annual Meeting of Stockholders  
|                      | 
|Robert J. McGraw, Jr. |  | Three years; eligible for re-election at our 2011 Annual Meeting of Stockholders
|                      | 
|Martin A. Grusin      |  | Three years; eligible for re-election at our 2011 Annual Meeting of Stockholders
|                      | 
|Ron W. Pitcock        |  | Three years; eligible for re-election at our 2011 Annual Meeting of Stockholders

Our officers are appointed by our Board of Directors and hold office until removed by the Board.
Currently there are no vacancies on our board of directors. The current authorized number of directors is seven. As of December 31, 2008, our Directors were compensated for their services.



|ITEM 11. | COMPENSATION OF OUR EXECUTIVE OFFICERS AND DIRECTORS
|-------- | ----------------------------------------------------

Summary
compensation table

The following Summary Compensation Table shows certain compensation information for each of the named executive
officers. Compensation data is shown for the years ended December 31, 2008 and 2007. This information includes the dollar value of base salaries, bonus awards, the number of stock options granted, and certain other compensation, if any, whether
paid or deferred.



|                                                                                   |      |      |   |              |         |             |    |   |                 |   |              |         |                                     |   |                                           |   |                             |   |       |    |        |   |         |        
|---------------------------------------------------------------------------------- | ---- | ---- | - | ------------ | ------- | ----------- | -- | - | --------------- | - | ------------ | ------- | ----------------------------------- | - | ----------------------------------------- | - | --------------------------- | - | ----- | -- | ------ | - | ------- | -------
|Name and Principal Position                                                        |      | Year |   | Salary($)(1) |         | Bonus(3)(4) |    |   | StockAwards (a) |   | OptionAwards |         | Non-equityincentiveplancompensation |   | Non-qualifieddeferredcompensationearnings |   | All OtherCompensation(b)(2) |   | Total
|Ron W. Pitcock, Chief Executive Officer and Chairman                               |      | 2008 |   | $            | 127,450 |             | $  |  |                 |   | $            | 150,000 |                                     |   |                                           |  |                             |  |       | $  | 5,800  |   | $       | 283,250
|                                                                                   | 2007 |      | $ |             |         | $           |   |   |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ |       
|                                                                                   | 2006 |      | $ |             |         | $           |   |   |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ |       
|Donald W. Prosser, Chief Financial Officer                                         |      | 2008 |   | $            |        |             | $  |  |                 |   | $            | 90,000  |                                     |  |                                           |  |                             |  |       | *$ | 86,000 |   | $       | 176,000
|                                                                                   | 2007 |      | $ |             |         | $           |   |   |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ |       
|                                                                                   | 2006 |      | $ |             |         | $           |   |   |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ |       
|Clinton J. Wilson, President                                                       |      | 2008 |   | $            | 155,000 |             | $  |  |                 |   | $            | 150,000 |                                     |  |                                           |  |                             |  |       | $  | 30,550 |   | $       | 335,550
|                                                                                   | 2007 |      | $ | 132,750      |         | $           | (3 | ) |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 132,750
|                                                                                   | 2006 |      | $ | 108,000      |         | $           |   |   |                 | $ | 79,350       |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 187,350
|Robert T. Flood, Chief Operating Officer, Chief Information and Technology Officer |      | 2008 |   | $            | 120,000 |             |    |   |                 |   | $            | 20,000  |                                     |   |                                           |   |                             |   |       | $  | 28,966 |   | $       | 268,966
|                                                                                   | 2007 |      | $ | 82,500       |         | $           | (4 | ) |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 82,500 
|                                                                                   | 2006 |      | $ | 60,000       |         | $           |   |   |                 | $ | 27,600       |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 87,600 
|John R. Evans, Director                                                            |      | 2008 |   | $            |        |             | $  |  |                 |   | $            |        |                                     |  |                                           |  |                             |  |       |    |       |   |         |        
|                                                                                   | 2007 |      | $ |             |         | $           |   |   |                 | $ |             |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 88,800 
|                                                                                   | 2006 |      | $ | 13,125       |         | $           |   |   |                 | $ | 13,800       |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 26,925 
|Clay Storer, Vice President                                                        |      | 2008 |   | $            |        |             | $  |  |                 |   | $            |        |                                     |  |                                           |  |                             |  |       |    |       |   |         |        
|                                                                                   | 2007 |      | $ | 64,375       |         | $           |   |   |                 | $ | 35,000       |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 99,375 
|                                                                                   | 2006 |      | $ | 35,000       |         | $           |   |   |                 | $ | 12,075       |         |                                    |   |                                          |   |                            |   |       |   |        | $ | 47,075 



|* | Donald W. Prosser was a consultant during 2008 and was paid as such for the entire year.
|- | ----------------------------------------------------------------------------------------



|(1) | Comprised of remuneration paid by us during the fiscal year ended December 31, 2007 and presented on an unaudited basis.
|--- | ------------------------------------------------------------------------------------------------------------------------



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|(2) | Comprised of an aggregate of $15,000 in accrued expenses and 586,667 pre-split (195,556 post-split) shares of our common stock issued in settlement of our $88,000 obligation to
Mr. Evans for accrued remuneration contained in our July 27, 2007 Termination, Waiver and Release Agreement with Mr. Evans.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Comprised of an aggregate of a $37,500 settlement of our deferred salary obligation for the 12 months ended December 31, 2007 and a $37,500 settlement of our deferred salary
obligation for the 24 months ended December 31, 2006 contained in our March 2008 employment agreement with Mr. Wilson.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Comprised of an aggregate of a $37,500 settlement of our deferred salary obligation for the 12 months ended December 31, 2007 and a $37,500 settlement of our deferred salary
obligation for the 24 months ended December 31, 2006 contained in our March 2008 employment agreement with Mr. Flood.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(a) | Option/SAR Grant Table. During the fiscal year ended December 31, 2007, we made no grants of stock options or freestanding SARs.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



|(b) | Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table. During the fiscal year ended December 31, 2007 no options or SARs were exercised.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Long-Term Incentive Plan (LTIP) Awards Table. During the fiscal year ended December 31, 2007, we made no made no LTIP awards.
|--- | -------------------------------------------------------------------------------------------------------------------------------



|(d) | Compensation of Directors. (1) and (2). During the fiscal year ended December 31, 2007, none of our directors received any compensation, whether pursuant to any
standard or other arrangement or otherwise.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Employment Contracts and Termination of Employment, and Change-in Control Arrangements. (1) and (2). Except as set forth below, none of our executive officers, directors
or employees is serving pursuant to the terms of a written employment or other compensation agreement, understanding or arrangement with us; and no such agreement was entered into during the fiscal year ended December 31, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On May 1, 2006, Mr. Evans resigned as chief executive officer and chairman and his base salary was reduced to
$60,000. On the same date, Mr. Wilson assumed the duties of chief executive officer and his base salary was increased to $180,000. On July 27, 2007, we entered into a Termination, Waiver and Release Agreement with Mr. Evans where in
consideration of his waiver of all rights under his employment agreement and his resignation as a member of our Board of directors, we agreed to pay Mr. Evans $15,000



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in accrued expenses. We also agreed to convert his $88,000 in accrued remuneration into 586,667 pre-split (195,556 post-split) shares of our common stock
which Mr. Evans agreed to voluntarily lock up until July 27, 2008. We also agreed upon mutual general releases. On April 10, 2008, subsequent to the period required to be reported in this Annual Report, and as described in detail in
Item 12, we entered into a new three year employment agreement with Clinton J. Wilson as our President and Chief Operating Officer, which agreement superseded and replaced his October 1, 2005 agreement.

We do not currently maintain any equity compensation plans for the benefit of our employees, officers or directors.

(h) Report on Repricing of Options/SARs. During the fiscal year ended December 31, 2007, no stock options or freestanding SARs were repriced.

Our Board of directors, in its discretion, may award stock and stock options to key executives for achieving financing or expenditure
guidelines, meeting our business plan objectives, as part of their compensation for employment or for retention purposes.

Employment contracts and
termination of employment and change-in-control arrangements

We currently do not have any employment contracts or termination of
employment and change-in-control arrangements with our named executive officers.

Securities authorized for issuance under equity compensation plans

The following table sets forth, as of December 31, 2007, information with respect to equity compensation plans (including
individual compensation arrangements) under which our securities are authorized for issuance:



|                                                           |  |                                                                                     |  |                                                                       |  |                                                                                                                           
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------
|Plan category                                              |  | Number ofsecuritiesto beissued uponexercise ofoutstandingoptions,warrantsand rights |  | Weighted-averageexerciseprice ofoutstandingoptions,warrantsand rights |  | Number ofsecuritiesremainingavailable forfutureissuanceunderequitycompensationplans(excludingsecuritiesreflected incolumn)
|Equity compensation plans approved by security holders     |  | -0-                                                                                 |  | -0-                                                                   |  | 6,325,000                                                                                                                 
|Equity compensation plans not approved by security holders |  | -0-                                                                                 |  | -0-                                                                   |  | 601,666                                                                                                                   
|                                                           |  |                                                                                     |  |                                                                       |  |                                                                                                                           
|                                                           |  | -0-                                                                                 |  | -0-                                                                   |  | 6,926,666                                                                                                                 

Compensation of directors

The Company did not pay its directors in our 2007 fiscal year.



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The table below sets forth the compensation we paid to our non-employee directors during our 2008 fiscal
year.



|                      |  |                               |  |                 |     |  |                  |  |                                        |  |                                                                      |  |                          |  |         
|--------------------- |  | ----------------------------- |  | --------------- | --- |  | ---------------- |  | -------------------------------------- |  | -------------------------------------------------------------------- |  | ------------------------ |  | --------
|Name                  |  | Fees earned orpaid in cash($) |  | Stock awards($) |     |  | Option awards($) |  | Non-equityincentiveplancompensation($) |  | Change inpensionvalue andnonqualifieddeferredcompensationearnings($) |  | All othercompensation($) |  | Total($)
|Robert J. McGraw, Jr. |  | -0-                           |  | 25,313          | (1) |  | -0-              |  | -0-                                    |  | -0-                                                                  |  | -0-                      |  | 25,313  
|Stanley F. McGinnis   |  | -0-                           |  | 25,063          | (2) |  | -0-              |  | -0-                                    |  | -0-                                                                  |  | -0-                      |  | 25,063  
|Paul S. Maxwell       |  | -0-                           |  | 22,344          | (3) |  | -0-              |  | -0-                                    |  | -0-                                                                  |  | -0-                      |  | 22,344  
|Jeffrey R. Galgano    |  | -0-                           |  | 7,656           | (4) |  | -0-              |  | -0-                                    |  | -0-                                                                  |  | -0-                      |  | 7,656   
|Michael A. Geller     |  | -0-                           |  | 7,032           | (5) |  | -0-              |  | -0-                                    |  | -0-                                                                  |  | -0-                      |  | 7,032   
|Martin A. Grusin      |  | -0-                           |  | 6,875           | (6) |  | -0-              |  | -0-                                    |  | -0-                                                                  |  | -0-                      |  | 6,875   



|(1) | Consists of an award of 52,735 shares of our common stock as a retainer for services on our board of directors. The fair
market value of the shares at the time of grant is $0.48, the closing market price on that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Consists of an award of 52,214 shares of our common stock as a retainer for services on our board of directors. The fair
market value of the shares at the time of grant is $0.48, the closing market price on that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Consists of an award of 46,550 shares of our common stock as a retainer for services on our board of directors. The fair
market value of the shares at the time of grant is $0.48, the closing market price on that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Consists of an award of 15,951 shares of our common stock as a retainer for services on our board of directors. The fair
market value of the shares at the time of grant is $0.48, the closing market price on that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Consists of an award of 14,649 shares of our common stock as a retainer for services on our board of directors. The fair
market value of the shares at the time of grant is $0.48, the closing market price on that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Consists of an award of 14,323 shares of our common stock as a retainer for services on our board of directors. The fair
market value of the shares at the time of grant is $0.48, the closing market price on that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We currently do not pay
cash compensation to our directors. Each director receives shares of our common stock per year as a retainer for services on our board of directors. These shares varied in fiscal 2008 based on time on the board of directors and committees served on.
(see chart above for number shares issued) We reimburse our directors for all reasonable expenses related to their attending board and committee meetings. No director has received stock options to date.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Our common stock constitutes our only voting securities. As of December 31, 2008, we had 18,204,398 shares of common stock issued and outstanding.



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Shareholders owning at least 5% of IPtimizes common stock

The following table shows, as of December 31, 2008 and to the best of our knowledge, all persons we know to be beneficial owners of more than 5% of
our common stock.



|                                                                                   |  |                                  |  |                                  |  
|---------------------------------------------------------------------------------- |  | -------------------------------- |  | -------------------------------- | -
|Name and address of beneficial owner(1)                                            |  | Number ofSharesBeneficiallyOwned |  | Percent ofCommonstockOutstanding |  
|First Capital Business Development, LLC 16293 E. Dorado Place Centennial, CO 80015 |  | 1,034,350                        |  | 5.68                             | %
|Kenneth McSpadden 4960 E. Evans Ave. Denver, Co 80222                              |  | 1,012,650                        |  | 5.56                             | %



|(1) | Unless noted, all of such shares of common stock are owned of record by each person or entity named as beneficial owner
and such person or entity has sole voting and dispositive power with respect to the shares of common stock owned by each of them. As to each person or entity named as beneficial owners, such persons or entitys percentage of ownership is
determined by assuming that any options or convertible securities held by such person or entity, which are exercisable or convertible within 60 days from the date of determination have been exercised or converted, as the case may be.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock ownership of our directors and executive officers

The following table sets forth as of December 31, 2008 the beneficial ownership of our common stock by each of our directors and executive officers
and all of our directors and executive officers as a group. As of December 31, 2008, our present directors and executive officers, as a group of nine persons, own beneficially 2,223,858 shares (a beneficial ownership of 12.22%) of our common
stock.



|                                                  |  |                                  |     |  |                                   |  
|------------------------------------------------- |  | -------------------------------- | --- |  | --------------------------------- | -
|Name of Beneficial Owner(1)                       |  | Number ofSharesBeneficiallyOwned |     |  | Percent ofCommon stockOutstanding |  
|Ron W. Pitcock                                    |  | 277,777                          |     |  | 1.53                              | %
|Clinton J. Wilson                                 |  | 779,936                          |     |  | 4.28                              | %
|Robert T. Flood                                   |  | 260,334                          |     |  | 1.43                              | %
|Donald W. Prosser                                 |  | 326,972                          |     |  | 1.80                              | %
|Robert J. McGraw, Jr.                             |  | 206,152                          | (2) |  | 1.13                              | %
|Jeffrey R. Galgano                                |  | 19,951                           |     |  | *                                 |  
|Stan F. McGinnis                                  |  | 52,214                           |     |  | *                                 |  
|Michael A. Geller                                 |  | 239,649                          |     |  | 1.32                              |  
|Paul S. Maxwell                                   |  | 46,550                           |     |  | *                                 |  
|Martin A. Grusin                                  |  | 14,323                           |     |  | *                                 |  
|All executive officers and directors (as a group) |  | 2,223,858                        |     |  | 12.22                             | %



|* | Indicates less than 1%.
|- | -----------------------



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|(1) | Unless noted, all of such shares of common stock are owned of record by each person or entity named as beneficial owner
and such person or entity has sole voting and dispositive power with respect to the shares of common stock owned by each of them. As to each person or entity named as beneficial owners, such persons or entitys percentage of ownership is
determined by assuming that any options or convertible securities held by such person or entity, which are exercisable or convertible within 60 days from the date of determination have been exercised or converted, as the case may be.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes (i) 191,152 shares owned by Mr. McGraw, (ii) 10,000 shares beneficially owned by the Robert J.
McGraw SEP over which Mr. McGraw has voting and dispositive power. and (iii) 5,000 shares owned by the Marji McGraw SEP over which Mr. McGraw has voting and dispositive power.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Section 16(a) beneficial ownership reporting compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership of IPtimizes equity
securities with the SEC. Officers, directors, and greater than 10% shareholders are required by the SECs rules and regulations to furnish us with copies of all Section 16(a) forms that they file.

We believe that our officers and directors, and persons who own more than 10% of a registered class of our equity securities complied with all
Section 16(a) filing requirements during our 2008 fiscal year. In making these statements, we have relied upon examination of copies of Forms 3, 4 and 5, and amendments thereto, provided to us and written representations of our executive
officers and directors, and persons who own more than 10% of a registered class of our equity securities.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

Board policies regarding transactions with related persons

All material related party transactions
after May 9, 2008 have to be ratified by the independent directors of our board of directors. The independent directors will review future material related party transactions for fairness and have access, at our expense, to our legal counsel or
to independent legal counsel. Prior to acquiring any properties owned by or affiliated with our management, an appraisal or valuation must be conducted by an independent third party and a majority of the independent directors are required to approve
any such transaction. In addition, our management is required to present to the company all property acquisition opportunities of which management is or becomes aware and we have a right of first refusal with respect to any such opportunity before
members of our management may pursue such opportunities independently.

In determining whether to approve a related party transaction, the
Audit Committee will consider, among other things, the following factors to the extent relevant to the related party transaction:



| |  |  | Whether the terms of the related party transaction are fair to the Company and such term would be on the same basis if the transaction did not involve a related
party;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Whether there are business reasons for the Company to enter into the related party transaction;
| | - |  | -----------------------------------------------------------------------------------------------



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| |  |  | Whether the related party transaction would impair the independence of an independent Director;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Whether the related party transaction would present an improper conflict of interest for any Director or Executive Officer of the Company, taking into account:
(i) the size of the transaction, (ii) the overall financial position of the Director or Executive Officer, (iii) the direct or indirect nature of the Directors or Executive Officers interest in the transaction, and
(iv) the ongoing nature of any proposed relationship, and any factors determined relevant; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Whether the related party transaction is material, taking into account: (i) the importance of the interest to the related party, (ii) the relationship of
the related party to the transaction and of the related parties to each other, (iii) the dollar amount involved, and (iv) the significance to the Companys investors in light of all of the circumstances.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Transactions with Related Persons.

Transactions with First
Capital Business Development, LLC

Business Advisory Agreement. On March 9, 2007, at a time when we were insolvent with a
negative shareholder equity balance, we entered into an exclusive written Business Advisory Agreement (the Advisory Agreement) with First Capital Business Development, LLC, an otherwise non-affiliated Colorado limited liability company
controlled by or under common control of Gary J. Graham (FCBD). Pursuant to the Advisory Agreement, FCBD has been performing restructuring and recapitalization advisory activities and business development services, including
restructuring pending acquisitions and/or recapitalization plans, and the establishment of one or more short-term and permanent capital facilities designed to fund our outstanding liabilities and the development of our acquisition business model. In
consideration for FCBDs services, we issued FCBD an aggregate of 8,335,000 pre-split (2,778,333 post-split) shares of our Common stock, at par value or an aggregate of $833.50 and representing a 24.8% equity interest as of the date of the
Advisory Agreement. In addition, we agreed to pay to FCBD: (i) a fee of $5,000 per month for the two year term of the Advisory Agreement; (ii) a restructuring advisory fee of $150,000; and (iii) with respect to each of the first three
acquisitions we consummate, a $10,000 modeling fee and a $40,000 success fee. Finally, we agreed to issue FCBD a ten year warrant to purchase an aggregate of 4,165,000 pre-split (1,388,333 post-split) shares of our Common stock at an exercise price
of $0.75 per share or such greater price as shall be paid by investors in any permanent financing. The Advisory Agreement afforded us the opportunity to repurchase the 8,335,000 pre-split (2,778,333 post-split) shares of our Common stock for $833.50
as well as the warrant in the event the financing contemplated by the Advisory Agreement is not consummated.

Line of Credit
Agreement. On July 2, 2007, while still insolvent with a negative shareholder equity balance, we entered into a written $330,000 Line of Credit Agreement with FCBD wherein FCBD made a $330,000 line of credit available to us for working
capital financing to sustain operations and develop our business model. The line of credit was secured by all of our un-pledged and unencumbered tangible and intangible assets. In consideration for a drawdown in the amount of $325,000 on the line of
credit, we executed a 9% promissory note due in one lump sum on October 2, 2007 and issued an aggregate of 600,000 pre-split (200,000 post-split) restricted (i.e., unregistered) shares of our Common stock to FCBD.

First Amendment to Business Advisory Agreement. On September 5, 2007, we entered into a written amendment to the Advisory Agreement with FCBD
wherein FCBD agreed to the accrual of its $5,000 per month contract fee until the closing of our then proposed $4,000,000 acquisition financing. FCBD also agreed to the accrual of our restructuring advisory fee payments of $30,000 payable on or
before May 1, 2007 and the balance on or before July 15, 2007 until the closing of our then proposed $4,000,000 acquisition financing.



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Second Amendment to Business Advisory Agreement.On February 22, 2008, we entered into a
second amendment to the Advisory Agreement with FCBD. Pursuant to the second amendment, we agreed to the following:

1. Monthly Contract
Fee. Payment of $5,000 of the accrued and unpaid advisory fees in the amount of $60,000 with the balance to be paid from the proceeds of any financing consummated in excess of $3,000,000 (the First Financing Closing). Thereafter, we
agreed to pay timely the monthly contract fee;

2. Advisory Fee. To pay the full $150,000 advisory fee plus accrued interest at the
First Financing Closing and the grant of the right and option. On five days prior written notice, to convert all or any portion of the advisory fees to shares of our Common stock, at a conversion price of $.45 per share and the right to include such
shares in the first registration statement filed by us under the Securities Act;

3. Full Vesting of Common stock. The 2,778,333
post-split shares of our Common stock previously issued to FCBD under the Advisory Agreement became fully vested, and our right to repurchase the same was relinquished;

4. Full Vesting and Modification of Warrant. The ten year Warrant to purchase 1,388,333 post-split shares of our Common stock previously issued to FCBD under the Advisory Agreement became fully vested and our
right to repurchase the same was relinquished. In addition, the exercise price of the warrant was increased to $.45 per share to conform to our then recently conducted private financings and amended to provide a cashless exercise;

5. Future Compensation. A success fee equal to eight percent (8%) (the Success fee) of any joint venture, licensing or
sub-licensing agreement, resell agreement, product sales and/or marketing, distribution agreement, merger, acquisition, business combination, sale of our assets or our common stock or any divestiture of any of our assets or business introduced to us
by FCBD or with respect to which FCBDs active involvement has been requested by us. The Success Fee shall be payable at the closing of the transaction in cash or shares of our Common stock, at the election of FCBD unless we only receive
securities of the buyer, in which case the Success Fee shall be similarly paid;

6. Bonus Shares. As a bonus for FCBDs
performance of services in excess of those required of it in the Advisory Agreement, and simultaneously with the execution of the second agreement, we agreed to issue 317,777 restricted (i.e. unregistered) shares of our Common stock (the Bonus
Shares) to FCBD and further agreed to include the same in the first registration statement filed by us under the Securities Act;

7.
Payment of Expenses. Payment of all accrued and unpaid expenses due to FCBD in the amount of $187,525. Following the execution of the second amendment, we agreed to pay FCBDs expenses monthly on a current basis;

8. Cash Bonus. As an additional bonus for FCBDs performance of services in excess of those required of it in the Advisory Agreement and
specifically related to the closing of the February 2008 $1,650,000 bridge loan financing, we agreed to pay a special cash bonus of $28,525 to FCBD.

Line of Credit Extension Agreement. On February 24, 2008, we entered into a Line of Credit Extension Agreement with FCBD. Pursuant to the agreement, FCBD agreed to extend the due date of the $324,725 it
advanced to us under our July 2, 2007 line of credit agreement from October 2, 2007 to March 31, 2009. FCBD also granted us the right to prepay the note provided: (i) the last sale price for our Common stock in the Pink Sheet
Market or the OTC Bulletin Board market for 20 consecutive trading days shall be $1.35 or greater; and (ii) a minimum average daily trading volume of 50,000 shares shall be maintained during such 20 day trading period. In consideration for the
extension, we: recalculated the overdue interest, increasing it from 11.45% per annum to 12.99% per annum through March 1, 2008, bringing the total balance to $324,725 and payable monthly on a current basis; issued a new promissory
note with interest at the rate of 12.99% upon FCBDs surrender of the original note; granted FCBD the right to convert all or any portion of the $324,725 credit line balance into an aggregate of 721,611 shares of our Common stock at $.45 per
share; and issued FCBD a five year warrant to purchase an aggregate of 360,806 shares of our Common stock at $.45 per shares on a cashless basis and computed on the basis of one share of our Common stock for each $.90 of the credit line
balance advanced to us by FCBD. We also agreed to register the shares issuable upon FCBDs exercise of the warrant in the first registration statement filed by us under the Securities Act; and



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9. Termination and Settlement Agreement. On April 24, 2008, we entered into a
Termination and Settlement Agreement with FCBD related to the Advisory Agreement, pursuant to which we agreed to pay FCBD $159,000 and issue to FCBD an aggregate of 311,111 shares of our common stock in full settlement of all of our monetary
obligation to FCBD under the Advisory Agreement. We agreed to register the shares of stock issued to FCBD in the first registration statement filed by us under the Securities Act.

Transaction with John R. Evans. On July 27, 2007, we entered into a Termination, Waiver and Release Agreement with Mr. Evans, then a director of our Company. Pursuant to the agreement, and in
consideration of Mr. Evans waiver of all rights under his employment agreement and his resignation as a member of our Board of directors, we agreed to pay Mr. Evans $15,000 in accrued expenses. We also agreed to convert his $88,000
in accrued remuneration into 586,667 pre-split (195,556 post-split) shares of our common stock which Mr. Evans agreed to voluntarily lock up until July 27, 2008. The agreement also provided for mutual general releases.

Transactions with Ron Pitcock.

Consulting
Agreement. On April 1, 2007, Mr. Pitcock began serving as an independent consultant to our Company at an agreed upon $10,000 per month accrued consulting fee without the benefit of a written agreement. On August 20, 2007, and we
executed an Independent Contractor Agreement and Option Agreement with Mr. Pitcock as an independent consultant. Pursuant to which, we: (i) agreed to accrue a $10,000 per month consulting fee retroactive to April 1, 2007;
(ii) granted Mr. Pitcock a five year option to purchase an aggregate of 1,073,333 post-reverse split shares of our Common stock, $.001 par value per share, at $.24 per share (the Consulting Option Shares); (iii) agreed to
reimburse Mr. Pitcock for his expenses; and (iv) agreed to increase the monthly accrued consulting fee to $12,500 per month after January 1, 2008. An aggregate of 357,778 Consulting Option Shares vested upon the execution of the
August 20, 2007 consulting agreement, and the remaining 715,555 Consulting Option Shares shall vest at the rate of 59,629 shares per quarter commencing on September 1, 2007.

Employment Agreement. On February 22, 2008, and as previously reported in our current report on Form 8-K dated February 22, 2008, we
entered into a three year employment agreement with Mr. Pitcock as our the chief executive officer. Pursuant to the agreement, and in addition to a base salary of $150,000 and customary health and hospitalization, vacation, confidentiality, and
non-competition provisions, the agreement: (i) settled our $125,000 accrued monthly consulting obligation for an aggregate of 277,777 shares of our common stock valued at $.45 per share; (ii) granted Mr. Pitcock an Incentive Stock
Option under our 2007 Stock Option Plan to purchase an aggregate of 250,000 shares of our Common stock at $.45 per share all of which vested upon the execution of the employment agreement; and (iii) granted Mr. Pitcock the right to have
all of his option shares registered under the Securities Act in the first Registration Statement filed by us under the Securities Act following the date of the agreement.

Loan Extension Agreement. On February 24, 2008, we entered into a Loan Extension Agreement with Mr. Pitcock. Pursuant to the agreement, Mr. Pitcock agreed to extend the due date of the $100,000
he advanced to us under his May 4, 2007 written loan agreement and which was due and payable on August 4, 2007 to March 31, 2009. Mr. Pitcock also granted us the exclusive and non-transferable right and option, on 30 days advance
written notice, to demand that he surrender his promissory note for prepayment of the outstanding principal and accrued interest due thereunder. Our right to exercise our option was made explicitly conditioned upon the following two conditions:
(i) the last sale price for our Common stock in the Pink Sheet Market or the OTC Bulletin Board market for 20 consecutive trading days shall be $1.35 or greater; and (ii) a minimum average daily trading volume of 50,000 shares during such
20 day trading period. In consideration for the extension, we:

1. Recalculated the overdue interest from 11.45% per annum to
12.99% per annum through March 1, 2008, bringing the total due to $110,897 and pay the same monthly;



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2. Issue a new promissory note with interest at the rate of 12.99% upon Mr. Pitcocks surrender
of the original note;

3. Granted Mr. Pitcock the right to convert all or any portion of the $110,897 loan balance into an aggregate
of 246,438 shares of our Common stock at $.45 per share; and

4. Issued to Mr. Pitcock a five year warrant to purchase
an aggregate of 123,219 shares of our common stock at $.45 per shares and computed on the basis of one share of our common stock, for each $.90 of the loan balance advanced to us by Mr. Pitcock. We also agreed to register the shares issuable
upon Mr. Pitcocks exercise of the warrant in the first Registration Statement filed by us under the Securities Act.

Transaction with
Donald W. Prosser and Donald Prosser, P.C. We entered into a one year non-exclusive independent contractor agreement (the Contractor Agreement) with Donald Prosser, P.C., a Colorado professional corporation controlled by and under
common control of Donald W. Prosser (the Consultant) to act as our consulting Chief Financial Officer. In addition to the customary representations and warranties and indemnification and confidentiality provisions, the Contractor
Agreement consolidated our October 20, 2007 verbal agreement and understanding with Mr. Prosser by settling our $12,000 consulting debt with 26,666 shares of our common stock; and granting the Consultant a five year non-incentive stock
option to purchase 85,000 restricted (i.e., unregistered) shares of our Common stock at $.24 per share, the price we verbally agreed upon with Mr. Prosser in October 2007. This option, which vests at the rate of 21,250 shares per calendar
quarter commencing as of October 20, 2007, was conditioned on our successfully closing the $1,500,000 minimum of our then ongoing private offering of Convertible Subordinated Debentures pursuant to a November 26, 2007 Private Placement
Memorandum (the Debenture Offering).

In addition, and in the Contractor Agreement, we agreed to pay the Consultant the following compensation:
(i) a monthly fee of $8,000 per month payable in cash on the first day of the first month following the execution of the Contractor Agreement; (ii) 75,000 shares of the our common stock valued at $.45 per share subject to the closing of
the Debenture Offering; and (iii) a five year non-incentive stock option to purchase 250,000, restricted (i.e., unregistered) shares of our Common stock at $.45 per share subject to the closing of the Debenture Offering.

Transaction with Clinton J. Wilson. On April 10, 2008, we entered into a three year employment agreement with Clinton J. Wilson as our president and chief
operating officer, which supersedes in its entirety the October 1, 2005 employment agreement. Pursuant to the agreement, and in addition to a base salary of $150,000 and customary health and hospitalization, vacation, confidentiality, and
non-competition provisions, the agreement contains the following three compensation provisions:

1. The settlement of our deferred salary
obligation for the 12 months ended December 31, 2007 for $37,500 payable one third upon the execution of the agreement, one third on June 1, 2008 and the balance on September 1, 2008;

2. The settlement of our deferred salary obligation for the 24 months ended December 31, 2006 by providing 36 weeks of paid vacation, which
Mr. Wilson shall be entitled to request, on ten days prior written notice, at the rate of one week per month or a maximum of 12 weeks per year (the Paid Vacations). The Paid Vacations are subject to the sole discretion of our chief
executive officer. In the event any request for a week of Paid Vacations is declined by our chief executive officer, we shall be obligated to pay the requested one week of Paid Vacation at the end of the month in which the week was requested. All
unpaid but accrued Paid Vacations shall be paid in cash at the end of the five year term of the agreement. In the event the agreement is terminated other than by us for cause, all unpaid but accrued Paid Vacations shall be paid in cash as of the
date of termination; and

3. The agreement acknowledged that in light of the non-qualified, non-transferable, five year option to purchase
and aggregate of 565,000 post-reverse split shares of our common stock at an exercise price of $.24 per share that we granted August 20, 2007 pursuant to an option agreement of even date therewith, no incentive stock option was granted to
Mr. Wilson. The August 20, 2007 option vests at the rate of 28,250 shares per calendar quarter commencing on September 1, 2007 until fully vested.



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Transaction with Robert Flood. On March 25, 2008, we entered into a three year employment agreement with
Robert Flood as our chief information and technology officer. Pursuant to the agreement, and in addition to a base salary of $120,000 and customary health and hospitalization, vacation, confidentiality, and non-competition provisions, the agreement
contained the following three compensation provisions:

1. The settlement of our deferred salary obligation for the 12 months ended
December 31, 2007 for $37,500 payable one third upon the execution of the agreement, one third on June 1, 2008 and the balance on September 1, 2008;

2. The settlement of our deferred salary obligation for the 24 months ended December 31, 2006 by providing 52 weeks of paid vacation, which Mr. Flood shall be entitled to request, on ten days prior written
notice, at the rate of one week per month or a maximum of 12 weeks per year (the Paid Vacations). The Paid Vacations are subject to the sole discretion of our Chief Executive Officer. In the event any request for a week of Paid Vacations
is declined by our Chief Executive Officer, we shall be obligated to pay the requested one week of Paid Vacation at the end of the month in which the week was requested. All unpaid but accrued Paid Vacations shall be paid in cash at the end of the
five year term of the agreement. In the event the agreement is terminated other than by us for cause, all unpaid but accrued Paid Vacations shall be paid in cash as of the date of termination; and

3. The issuance of a five year incentive stock option to purchase an aggregate of 188,334 shares of our Common stock at $.45 per share. The options vest
at the rate of 15,695 shares per calendar quarter starting on June 1, 2008.

Loan transactions with board of director members and executive
officers

Some of the board of directors, executive officers, and two five present shareholders invested in several of the financings with the Company
all of the transactions are on the same terms as was offered to the other people who invested. The following table outlines the investments by the these board of directors and executive officers



|                                |  |                          |  |        |        
|------------------------------- |  | ------------------------ |  | ------ | -------
|Name                            |  | Type Debt                |  | Amount
|Ron Pitcock (CEO & Director)    |  | Pre-bridge note          |  | $      | 110,897
|Donald W Prosser (CFO)          |  | Notes Payable            |  |        | 25,000 
|Donald W Prosser (CFO)          |  | 2008 Bridge Note         |  |        | 50,000 
|Donald W Prosser (CFO)          |  | 2008 Debentures          |  |        | 114,140
|Stan McGinnis (Director)        |  | Pre-bridge note          |  |        | 112,557
|Robert J. McGraw Jr. (Director) |  | 2008 Debentures          |  |        | 25,750 
|Robert J. McGraw Jr. (Director) |  | Series B Preferred Stock |  |        | 35,000 
|Robert J. McGraw Jr. (Director) |  | Notes Payable            |  |        | 50,000 
|Michael Geller (Director)       |  | Notes Payable            |  |        | 250,000
|Michael Geller (Director)       |  | 2008 Bridge Note         |  |        | 100,000
|Michael Geller (Director)       |  | 2008 Debentures          |  |        | 51,500 
|Kenneth McSpadden (5% Holder)   |  | 2008 Bridge Note         |  |        | 200,000
|Kenneth McSpadden (5% Holder)   |  | 2008 Debentures          |  |        | 210,504
|Kenneth McSpadden (5% Holder)   |  | Working Capital Notes    |  |        | 150,000
|FCBD (5% Holder)                |  | Notes Payable            |  |        | 324,725
|                                |  |                          |  |        |        
|Total (All Current Debt)        |  |                          |  | $      | 924,844
|                                |  |                          |  |        |        

Except as disclosed above, none of our directors or executive officers, nor any proposed nominee for election as a
director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children,
siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction over the last two years or in any presently proposed transaction which, in either case, has or will materially affect us.



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|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Stark, Winters,
Schenkein & Co., LLC (SWS) served as our registered independent accountants audited our annual financial statements for the fiscal years 2006 and 2007. Ronald R. Chadwick PC CPA served as our registered independent accountants audited our
annual financial statements for the fiscal year for 2008. The following tables present fees for professional audit services rendered for our 2006, 2007, and 2008 fiscal years:

Stark Winters Schenkein & Co., LLP



|              |  |      |        |      |   |       
|------------- |  | ---- | ------ | ---- | - | ------
|              |  | 2006 |        | 2007
|Audit         |  | $    | 68,679 |      | $ | 71,450
|Audit-Related |  |      | 20,000 |      |   | 0     
|Tax           |  |      | 8,750  |      |   | 8,750 
|All Other     |  |      | 0      |      |   | 0     
|              |  |      |        |      |   |       
|Total:        |  | $    | 97,429 |      | $ | 80,200
|              |  |      |        |      |   |       

Ronald R. Chadwick PC CPA



|              |  |      |   |      |   |       
|------------- |  | ---- | - | ---- | - | ------
|              |  | 2007 |   | 2008
|Audit         |  | $    | 0 |      | $ | 27,500
|Audit-Related |  |      | 0 |      |   | 0     
|Tax           |  |      | 0 |      |   | 0     
|All Other     |  |      | 0 |      |   | 0     
|              |  |      |   |      |   |       
|Total:        |  | $    | 0 |      | $ | 27,500
|              |  |      |   |      |   |       

Audit Fees

Fees for audit services from SWS totaled approximately $69,000 in 2006 and approximately $71,450 in 2007. Fees for audit services from Ronald R Chadwick PC CPA totaled approximately $28,000 in 2008 (These are estimated as the final billing
has not been received). These fees include fees for professional services rendered for the audit of our annual financial statements, the review of the financial statements included in our quarterly reports on Form 10-QSB and services in connection
with our statutory and regulatory filings.



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Audit-Related Fees

Fees for audit-related services from SWS totaled approximately $20,000 in 2006 and approximately $0 in 2007. These fees represent the aggregate fees billed for assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and that are not reported above under the caption Audit Fees. We incurred these fees for services related to acquisition audits and new pronouncement reviews.

Tax Fees

We did not incur any tax fees during our 2008 fiscal
year because we prepared internally income tax returns and used internal sources for related services. We incurred a tax fee from SWS for $8,500 for 2006 and $8,500 for 2007.

All Other Fees

All other fees represent the aggregate fees billed for products and services other than the
services reported in the other categories. There were no aggregate fees of all other fees billed for products and services other than the services reported in the other categories.

Audit Committee Pre-Approval Policies and Procedures

Beginning for fiscal 2008 as set forth in its charter,
our audit committee has the sole authority to pre-approve all audit and non-audit services provided by our independent accountants. The audit committee has adopted policies and procedures for the pre-approval of services provided by the independent
accountants. The audit committee on an annual basis reviews audit and non-audit services performed by the independent accountants. All audit and non-audit services are pre-approved by the audit committee, which considers, among other things, the
possible effect of the performance of such services on the accountants independence. All requests for services to be provided by the independent accountants, which must include a description of the services to be rendered and the amount of
corresponding fees, are submitted to the chief financial officer. The chief financial officer has the authority to authorize services that fall within the category of services that the audit committee has pre-approved. If there is any question as to
whether a request for services falls within the category of services that the audit committee has pre-approved, our chief financial officer will consult with the chairman of the audit committee. The chief financial officer submits requests or
applications to provide services that the audit committee has not pre-approved, which must include an affirmation by the chief financial officer and the independent accountants in question that the request or application is consistent with the
SECs rules on auditor independence, to the audit committee (or its chairman or any of its other members pursuant to delegated authority) for approval.

As permitted under the Sarbanes-Oxley Act of 2002, the audit committee may delegate pre-approval authority to one or more of its members. Any service pre-approved by a delegate must be reported to the audit committee at the next scheduled
quarterly meeting.

Our audit committee per-approved all services performed by Ronald R. Chadwick during our 2008 fiscal year. The audit committee
considered whether the provision of the auditors services, other than for the annual audit and quarterly reviews, is compatible with its independence concluded that it is.

The engagement of Stark Winter Schenkein & Co., LLC. to render audit and/or non-audit services required the prior approval of our Board of Directors since we did not yet have an audit committee in place for
the year ended December 31, 2007.



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PART IV



|ITEM 15. | EXHIBITS
|-------- | --------



|            |  |                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                
|            | 
|2.1         |  | Certificate of Merger and Agreement and Plan of Merger between Simmetech, Inc. and IPtimize, Inc. as filed with the Minnesota Secretary of State on November 7, 2005 [1]                                   
|            | 
|2.2         |  | Articles of Correction as filed with the Minnesota Secretary of State on August 7, 2007, including Amended Agreement and Plan of Merger between the Company and IPtimize, Inc. dated September 20,
2005 [1]
|            | 
|2.3         |  | Agreement and Plan of Merger between the Company and IPtimize, Inc., a Delaware corporation dated September 5, 2007 [1]                                                                                    
|            | 
|3.1         |  | Certificate of Incorporation of the Company as filed with the Delaware Secretary of State on June 6, 2007 [1]                                                                                              
|            | 
|3.2         |  | Bylaws of the Company [1]                                                                                                                                                                                  
|            | 
|4.1         |  | Form of Certificate for Common Stock [1]                                                                                                                                                                   
|            | 
|4.2         |  | Form of Convertible Promissory Note [1]                                                                                                                                                                    
|            | 
|4.3         |  | Form of 2006 Senior Secured Promissory Note (included in Exhibit 10.3) [1]                                                                                                                                 
|            | 
|10.1        |  | Form of Subscription Agreement for Common Stock of the Company [1]                                                                                                                                         
|            | 
|10.2        |  | Form of Subscription Agreement Units of the Company [1]                                                                                                                                                    
|            | 
|10.3        |  | Form of Bridge Note and Stock Purchase Agreement [1]                                                                                                                                                       
|            | 
|10.4        |  | Form of Common Stock Purchase Warrant [1]                                                                                                                                                                  
|            | 
|10.5        |  | Employment Agreement between the Company and Clint J. Wilson dated October 1, 2005 [1]                                                                                                                     
|            | 
|10.6        |  | Business Advisory Agreement between the Company and First Capital Business Development, LLC dated March 9, 2007 [1]                                                                                        
|            | 
|10.7        |  | Settlement Agreement between the Company and Toshiba America Information Systems, Inc. dated June 23, 2007 [1]                                                                                             
|            | 
|10.8        |  | Line of Credit Agreement between the Company and First Capital Business Development, LLC dated July 2, 2007 [1]                                                                                            
|            | 
|10.9        |  | Settlement Agreement between the Company and Dare 2 Share Ministries, Inc. dated July 12, 2007 [1]                                                                                                         
|            | 
|10.10       |  | Termination, Waiver and Release Agreement between the Company and John R. Evans dated July 27, 2007 [1]                                                                                                    
|            | 
|10.11       |  | 2007 Equity Incentive Plan [1]                                                                                                                                                                             
|            | 
|10.12       |  | Form of Stock Option Agreement [1]                                                                                                                                                                         



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|      |  |                                                                                                                         
|----- |  | ------------------------------------------------------------------------------------------------------------------------
|      | 
|10.13 |  | Form of Pre-Bridge Loan Agreement [1]                                                                                   
|      | 
|10.14 |  | Alternate Form of Common Stock Warrant [1]                                                                              
|      | 
|10.15 |  | Agreement and Plan of Merger between the Company, WTI, L.L.C. and a subsidiary of the Company dated August 31, 2007 [1] 
|      | 
|10.16 |  | Bridge Loan Agreement dated February 22, 2008 [3]                                                                       
|      | 
|10.17 |  | Independent Contractor Agreement with Ron Pitcock dated August 20, 2007 [3]                                             
|      | 
|10.18 |  | Option Agreement with Ron Pitcock dated August 20, 2007 [3]                                                             
|      | 
|10.19 |  | First Amendment to Business Advisory Agreement with First Capital Business Development, LLC dated September 5, 2007 [3] 
|      | 
|10.20 |  | Employment Agreement with Ron Pitcock dated February 22, 2008 [3]                                                       
|      | 
|10.21 |  | Second Amendment to Business Advisory Agreement with First Capital Business Development, LLC dated February 22, 2008 [3]
|      | 
|10.22 |  | Loan Extension Agreement with Ron Pitcock dated February 24, 2008 [3]                                                   
|      | 
|10.23 |  | Line of Credit Extension Agreement with First Capital Business Development, LLC dated February 24, 2008 [3]             
|      | 
|10.24 |  | Employment Agreement with Clinton J. Wilson dated April 10, 2008 [3]                                                    
|      | 
|10.25 |  | Employment Agreement with Robert Flood dated March 25, 2008 [3]                                                         
|      | 
|10.26 |  | Independent Contractor Agreement with Donald Prosser dated March 26, 2008 [3]                                           
|      | 
|10.27 |  | Part II, Item 4 Recent Sales of Equity Securities Registration Statement on Form 10-SB [1]                            
|      | 
|10.28 |  | WTI, LLC Termination Letter dated November 15, 2007 [3]                                                                 
|      | 
|10.29 |  | Master Service Agreement with Allens TV Cable Service, Inc., effective March 26, 2008 [2]                              
|      | 
|10.30 |  | Purchase Agreement AFS Dated August 16, 2008 [4]                                                                        
|      | 
|10.31 |  | Note Payable IPZA Acquisitions Funding LLC [4]                                                                          
|      | 
|10.32 |  | Termination and Settlement Agreement FCBD [5]                                                                           
|      | 
|10.33 |  | Settlement Agreement FCBD [5]                                                                                           
|      | 
|21.1  |  | Subsidiaries of IPtimize Inc [6]                                                                                        
|      | 
|23.1  |  | Consent Of Registered Public Accounting Firm [6]                                                                        
|      | 
|23.2  |  | Consent Of Registered Public Accounting Firm [6]                                                                        
|      | 
|31.1  |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [6]                                           
|      | 
|31.2  |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [6]                                           



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|     |  |                                                                             
|---- |  | ----------------------------------------------------------------------------
|     | 
|32.1 |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [6]
|     | 
|32.2 |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [6]



|1 | Incorporated by reference from Registration Statement on Form10-SB filed on September 26, 2007.
|- | -----------------------------------------------------------------------------------------------



|2 | Incorporated by reference from Current Report filed on Form 8-K on March 31, 2008.
|- | ----------------------------------------------------------------------------------



|3 | Incorporated by reference from Current Report filed on Form 10-KSB on June 28, 2008.
|- | ------------------------------------------------------------------------------------



|4 | Incorporated by reference from Current Report filed on Form 8-K on August 18, 2008.
|- | -----------------------------------------------------------------------------------



|5 | Incorporated by reference from Current Report filed on Form 10-Q on November 12, 2008.
|- | --------------------------------------------------------------------------------------



|6 | Filed herewith
|- | --------------



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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|             |  |  |  |               |  |                 |  |                                   
|------------ |  |  |  | ------------- |  | --------------- |  | ----------------------------------
|             |  |  |  | IPtimize, Inc
|             |  |  | 
|May 29, 2009 |  |  |  | By:           |  | /s/ Ron Pitcock
|             |  |  |  |               |  |                 |  | Ron Pitcock, Chairman of the Board
|             |  |  |  |               |  |                 |  | Chief Executive Officer           

In accordance with the Exchange Act, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.



|                                                |  |                                                   |  |             
|----------------------------------------------- |  | ------------------------------------------------- |  | ------------
|                                                |  |                                                  
|/s/ Ron Pitcock Ron
Pitcock                     |  | Chairman of the Board and Chief Executive
Officer |  | May 29, 2009
|                                                |  |                                                  
|/s/ Donald W. Prosser Donald W. Prosser         |  | Chief Financial and Accounting Officer            |  | May 29, 2009
|                                                |  |                                                  
|/s/ Stan McGinnis Stan
McGinnis                 |  | Director                                          |  | May 29, 2009
|                                                |  |                                                  
|/s/ Robert J. McGraw, Jr. Robert J. McGraw, Jr. |  | Director                                          |  | May 29, 2009
|                                                |  |                                                  
|/s/ Paul Maxwell Paul
Maxwell                   |  | Director                                          |  | May 29, 2009
|                                                |  |                                                  
|/s/ Jeffrey Galgano Jeffrey Galgano             |  | Director                                          |  | May 29, 2009
|                                                |  |                                                  
|/s/ Michael Geller Michael Geller               |  | Director                                          |  | May 29, 2009
|                                                |  |                                                  
|/s/ Martin Grusin Martin
Grusin                 |  | Director                                          |  | May 29, 2009



83