**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        DC 20549
 
  **FORM
        10-QSB**
 
 x  QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
        OF
        1934
 
 **For
        the quarterly period ended: March 31, 2007**
 
 o  QUARTERLY
        REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES AND EXCHANGE ACT
        OF
        1934
 
 For
        the
        transition period from ______________ to _______________
 
  Commission
        File Number: **000-30061**
 
 **ELEPHANT
        TALK COMMUNICATIONS, INC.**
 (Exact
        name of small business issuer as specified in its charter)
   **California**
 (State
        or
        other jurisdiction of incorporation or organization)
  **95-4557538**
 (IRS
        Employer Identification No.)
  **438
        East Katella Avenue, Suite 217, Orange, California 92867**
 (Address
        of principal executive offices)
  **(714)
        288-1570**
 (Issuer's
        telephone number)
 
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days: **Yes** x No o
 
 As
        of May
        18, 2007, Elephant Talk Communications, Inc. had 238,265,927 shares of Common
        Stock Outstanding.
 
 Transitional
        Small Business Disclosure Format (check one): Yes o  **No** x
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              -
 *Table
              of Contents*
  **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 
 **TABLE
        OF CONTENTS**
 
 Report
        on
        Form 10-QSB
 For
        the
        quarter ended
 March
        31,
        2007
 
 **Page**PART
                  1 FINANCIAL INFORMATIONItem
                  1.Financial
                  StatementsConsolidated
                  Balance Sheet at March 31, 2007
                  (Unaudited)
              3Consolidated
                  Statements of Operations for the Three Months
                  ended March 31, 2007 and 2006 (Unaudited)
              4Consolidated
                  Statements of Cash Flows for the Three Months
                  ended March 31, 2007 and 2006 (Unaudited)
              5Notes
                  to the Consolidated Financial Statements
                  (Unaudited)
              6 -
                  16Item
                  2.Management's
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              17Item
                  3.Controls
                  and Procedures
              24PART
                  II OTHER INFORMATIONItem
                  1. Legal Proceedings
              25Item
                  2. Changes in Securities
              26Item
                  3. Defaults upon Senior Securities
              26Item
                  4. Submission of Matters to Vote of Security
                  Holders
              26Item
                  5. Other Information
              26Item
                  6. Exhibits and Reports on Form
                  8-K
              26Signatures
                  and Certifications
              27
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              2
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 *Table
              of Contents*
 **PART
        1 FINANCIAL INFORMATION**
 
 Item
        1.  Financial
        Statements
 
 **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET (UNAUDITED)**
 **MARCH
        31, 2007**
 
 **ASSETS****CURRENT
                  ASSETS**Cash and cash equivalents
              
              $
              742,063Accounts receivable, net
              
              
              5,017,122Earnest deposits
              
              
              240,032Prepaid expenses
              
              
              647,752Total
                  Current Assets
              
              
              6,646,969**PROPERTY
                  AND EQUIPMENT - NET**
              
              
              2,705,445**OTHER
                  ASSETS**Due from related parties
              
              
              315,876Intangible assets, net
              
              
              10,912,055Total
                  Other Assets
              
              
              11,227,931**TOTAL
                  ASSETS**
              
              $
              20,580,345**LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCY****CURRENT
                  LIABILITIES**Overdraft
              
              $
              177,567Accounts payable
              
              
              5,245,584Deferred revenue
              
              
              101,438Accrued expenses
              
              
              837,278Accrued interest
              
              
              826,722Shares to be issued
              
              
              5,726,896Payable to third parties
              
              
              788,629Loans payable - bank
              
              
              881,427Due to related parties
              
              
              122,429Total
                  Current Liabilities
              
              
              14,707,970**LONG-TERM
                  LIABILITIES**Convertible promissory note
              
              
              5,979,861**TOTAL
                  LIABILITIES**
              
              
              20,687,831**MINORITY
                  INTEREST**
              
              
              258,754**COMMITMENT
                  AND CONTINGENCIES**
              
              
              --**STOCKHOLDERS'
                  DEFICIENCY**Preferred stock Class B, no par value, 5,000,000 shares authorized,
                  none
                  issued and outstanding
              
              
              --Common stock, no par value, 250,000,000 shares authorized, 238,265,927
                  issued and outstanding
              
              
              17,814,984Subscriptions receivable
              
              
              (9,784
              )Accumulated comprehensive loss
              
              
              (224,168
              )Accumulated deficit
              
              
              (17,947,271
              )Total
                  Stockholders' Deficiency
              
              
              (366,239
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIENCY**
              
              $
              20,580,345
 
 **The
        accompanying notes are an integral part of these consolidated unaudited
        financial statements.**
 -
              3
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 *Table
              of Contents*
 **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**
 **(UNAUDITED)**
 
 **For
                  the three months ended March 31,****2007**
              
              **2006**REVENUES,
                  net
              
              $
              11,170,615
              
              $
              52,228COST
                  OF REVENUE
              
              
              10,726,310
              
              
              41,628GROSS
                  PROFIT
              
              
              444,305
              
              
              10,600OPERATING
                  EXPENSESSelling, general and administrative
              
              
              1,152,926
              
              
              540,002Depreciation and amortization
              
              
              513,375
              
              
              9,056Total
                  Operating Expenses
              
              
              1,666,302
              
              
              549,058LOSS
                  FROM OPERATIONS
              
              
              (1,221,997
              )
              
              (538,458
              )OTHER
                  INCOME (EXPENSE)Interest income
              
              
              2,202
              
              
              21Interest expense
              
              
              (176,644
              )
              
              (100,260
              )Loss on currency fluctuations
              
              
              (1,228
              )
              
              (115
              )Miscellaneous income
              
              
              --
              
              
              121Total
                  Other Expense
              
              
              (175,670
              )
              
              (100,233
              )LOSS
                  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY
                  INTEREST
              
              
              (1,397,666
              )
              
              (638,691
              )Income taxes
              
              
              800
              
              
              800LOSS
                  FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
              
              
              (1,398,466
              )
              
              (639,491
              )MINORITY
                  INTEREST
              
              
              (2,299
              )
              
              (8,225
              )LOSS
                  FROM CONTINUING OPERATIONS:
              
              
              (1,396,167
              )
              
              (631,266
              )DISCONTINUED
                  OPERATIONS:Income from operations of abandoned entity
              
              
              --
              
              
              7,229Abandonment of investment
              
              
              --
              
              
              (7,229
              )--
              
              
              --NET
                  LOSS
              
              $
              (1,396,167
              )
              $
              (631,266
              )OTHER
                  COMPREHENSIVE INCOME (LOSS)Foreign currency translation gain
              
              
              21,133
              
              
              64421,133
              
              
              644COMPREHENSIVE
                  LOSS
              
              $
              (1,375,034
              )
              $
              (630,622
              )Net
                  loss per common share and equivalents - basic and dilutedLoss from continuing operations
              
              $
              (0.01
              )
              $
              (0.01
              )Loss from discontinued operations
              
              $
              0.00
              
              $
              0.00$
              (0.01
              )
              $
              (0.01
              )Weighted
                  average shares outstanding during the period - basic and
                  diluted
              
              
              212,265,928
              
              
              109,772,900
 
 **The
        accompanying notes are an integral part of these unaudited financial
        statements.**
 -
              4
              -
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              of Contents*
 **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **For
                    the three months ended**
                  **March
                    31,****2007**
                
                **2006****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    loss
                
                $
                (1,396,167
                )
                $
                (636,212
                )Adjustments to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                513,375
                
                
                9,056Stock
                    issued for acquisition
                
                
                --
                
                
                250,000Issuance
                    of stock for compensation and services
                
                
                --
                
                
                147,125Provision
                    for uncollectible amounts
                
                
                --
                
                
                --Gain
                    on disposal of subsidiary
                
                
                --
                
                
                (1,752,750
                )Loss
                    from discontinued operations
                
                
                --
                
                
                152,750Minority
                    interest
                
                
                1,346
                
                
                (3,280
                )Changes in operating assets and liabilities:(Increase)
                    Decrease in accounts receivable
                
                
                (165,134
                )
                
                (4,194
                )Decrease
                    in prepaid expenses, deposits and other assets
                
                
                (472,964
                )
                
                (56,732
                )Increase
                    in accounts payable and customer deposits
                
                
                2,315,154
                
                
                49,900Decrease
                    in deferred revenue
                
                
                (3,481
                )
                
                (1,780
                )Increase
                    (Decrease) in accrued expenses and other payable
                
                
                (2,721,495
                )
                
                100,618Net cash used in operating activities
                
                
                (1,929,366
                )
                
                (1,745,499
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Purchase
                    of property and equipment
                
                
                (84,920
                )
                
                (4,419
                )Cash
                    received on acquisition
                
                
                406,118
                
                
                --Earnest
                    deposit reduced on acquisitions, net
                
                
                5,832,231
                
                
                617,037Net
                    cash provided by investing activities
                
                
                6,153,429
                
                
                612,618**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Payment
                    on notes payable
                
                
                (2,567,291
                )
                
                --Cash
                    overdraft
                
                
                6,061
                
                
                5,214Proceeds
                    from bank loans
                
                
                --
                
                
                14,808Proceeds
                    from note payable
                
                
                --
                
                
                856,030Proceeds
                    from sale of shares
                
                
                944,500
                
                
                --Proceeds
                    from related parties
                
                
                (1,344,682
                )
                
                492,947Payments
                    to related parties
                
                
                (763,211
                )
                
                --Net
                    cash provided by (used in) financing activities
                
                
                (3,724,623
                )
                
                1,368,999**EFFECT
                    OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS**
                
                
                (89,378
                )
                
                12,753**NET
                    INCREASE IN CASH AND CASH EQUIVALENTS**
                
                
                410,062
                
                
                248,871**CASH
                    AND CASH EQUIVALENTS, BEGINNING OF THE YEAR**
                
                
                332,001
                
                
                198,816**CASH
                    AND CASH EQUIVALENTS, END OF THE YEAR**
                
                $
                742,063
                
                $
                447,687**SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                    paid during the period for interest
                
                $
                --
                
                $
                48,308Cash
                    paid during the period for income taxes
                
                $
                800
                
                $
                800
  **The
        accompanying notes are an integral part of these consolidated unaudited
        financial statements.**
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              5
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              of Contents*
 **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
 **(UNAUDITED)**
 
 
 **NOTE
        1** **Organization
        and Nature of Operations**
 
 Elephant
        Talk Communications, Inc. (herein referred to as “Elephant Talk”, “ETCI” or
“Company”, formerly known as Staruni Corporation), incorporated on February 5,
        1962 under the laws of the state of California as Altius Corporation, was
        involved in manufacturing of freeway signs. In March 1997, Altius acquired
        Starnet Universe Internet, Inc., a web developer and Internet Service Provider
        (ISP) and changed its name to Staruni Corporation. On January 4, 2002, Staruni
        Corporation merged with Elephant Talk Limited, a company incorporated in
        Hong
        Kong, and filed a Certificate of Amendment of Articles of Incorporation to
        amend
        the corporate name to Elephant Talk Communications, Inc. This name change
        was
        done in conjunction with the merger and to emphasize that the Company’s new
        focus to be the business of Elephant Talk Limited. On January 1, 2007, the
        Company completed its acquisition of Elephant Talk Communications Europe
        Holding
        AG, formerly known as Benoit Telecom Holding AG (herein referred to as “Benoit
        Telecom”), an
        international telecom operator and multi-media distributor servicing primarily
        the business-to-business segment of the telecommunications and media market.
        Benoit Telecom offers a broad range of products and services based on the
        integration of telecom, VoIP, SMS, FAX, Conferencing and Streaming services
        all
        integrated with a sophisticated Customer Relationship Management and Billing
        application.
  **NOTE
        2** **Basis
        of Presentation**
 
 The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with generally accepted accounting principles for interim financial
        information and with the instructions to Form 10-QSB. Accordingly, they do
        not
        include all of the information and footnotes required by generally accepted
        accounting principles for complete financial statements and related notes
        included in the Company's 2006 Form 10-KSB. These consolidated financial
        statements should be read in conjunction with the audited consolidated financial
        statements of the Company for the year ended December 31, 2006 which were
        filed
        on April 16, 2007 with the Securities and Exchange Commission and are hereby
        referenced. In the opinion of management, the accompanying unaudited
        consolidated financial statements contain all adjustments (which include
        only
        normal recurring adjustments) considered necessary for fair presentation
        has
        been included.
 
 The
        results of operations for the three months ended March 31, 2007, are not
        necessarily indicative of the results to be expected for the entire year.
        Certain 2006 amounts have been reclassified to conform to current period
        presentation. These reclassifications have no effect on previously reported
        net
        income (loss).
 
 
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 *Table
              of Contents*
 
 **NOTE
        3** **Principles
        of Consolidation**
 
 The
        accompanying consolidated financial statements for the three months ended
        March
        31, 2007 included the accounts of Elephant Talk Communications, Inc., its
        wholly-owned subsidiary Elephant Talk Limited and its subsidiaries, and its
        wholly-owned subsidiary Elephant Talk Europe Holding BV and its subsidiaries.
        The consolidated financial statements for the three months ended March 31,
        2006
        included the accounts of Elephant Talk Communications, Inc., its wholly-owned
        subsidiary Elephant Talk Limited and its 60% owned subsidiary True Precise
        Technology Limited. Minority interest principally represents minority
        shareholders’ proportionate share of equity in our consolidated subsidiaries.
        All significant inter-company accounts and transactions have been eliminated
        in
        consolidation.
 
 **NOTE
        4** **Foreign
        Currency Translation**
 
 The
        functional currency was the Hong Kong Dollar for the subsidiary Elephant
        Talk
        Limited, and Euros for the Elephant Talk Europe Holding BV. The March 31,
        2007
        financial statements of the Company were translated to United States dollars
        using year-end exchange rates as to assets and liabilities and average exchange
        rates as to revenues and expenses. Capital accounts were translated at their
        historical exchange rates when the capital transactions occurred. Net gains
        and
        losses resulting from translation of foreign currency financial statements
        are
        included in the statements of stockholder’s equity as other comprehensive income
        or (loss). Foreign currency transaction gains and losses are included in
        consolidated income (loss).
 
 **NOTE
        5** **Use
        of Estimate**
 
 In
        preparing financial statements in conformity with generally accepted accounting
        principles, management is required to make estimates and assumptions that
        affect
        the reported amounts of assets and liabilities and the disclosure of contingent
        assets and liabilities at the date of the financial statements and revenues
        and
        expenses during the reported period. Actual results could differ from those
        estimates.
 
 **NOTE
        6** **Recently
        Issued Accounting Pronouncements**
 
 In
        September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. This Statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
 
 
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              -
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              of Contents*
 
 In
        September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
        Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
        88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
        employer to recognize the over funded or under funded status of a defined
        benefit postretirement plan (other than a multiemployer plan) as an asset
        or
        liability in its statement of financial position and to recognize changes
        in
        that funded status in the year in which the changes occur through comprehensive
        income of a business entity or changes in unrestricted net assets of a
        not-for-profit organization. This Statement also improves financial reporting
        by
        requiring an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. An
        employer with publicly traded equity securities is required to initially
        recognize the funded status of a defined benefit postretirement plan and
        to
        provide the required disclosures as of the end of the fiscal year ending
        after
        December 15, 2006. An employer without publicly traded equity securities
        is
        required to recognize the funded status of a defined benefit postretirement
        plan
        and to provide the required disclosures as of the end of the fiscal year
        ending
        after June 15, 2007. However, an employer without publicly traded equity
        securities is required to disclose the following information in the notes
        to
        financial statements for a fiscal year ending after December 15, 2006, but
        before June 16, 2007, unless it has applied the recognition provisions of
        this
        Statement in preparing those financial statements:
 
 a)
              A
                  brief description of the provisions of this
                  Statement
 b)
              The
                  date that adoption is required
 c)
              The
                  date the employer plans to adopt the recognition provisions of
                  this
                  Statement, if earlier.
 
 The
        requirement to measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end statement of financial position is effective for
        fiscal years ending after December 15, 2008. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
 
 In
        February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
        for
        Financial Assets and Financial Liabilities. FASB 159 is effective for fiscal
        years beginning after November 15, 2007. Early adoption is permitted subject
        to
        specific requirements outlined in the new Statement. Therefore, calendar-year
        companies may be able to adopt FASB 159 for their first quarter 2007 financial
        statements.
 
 The
        new
        Statement allows entities to choose, at specified election dates, to measure
        eligible financial assets and liabilities at fair value that are not otherwise
        required to be measured at fair value. If a company elects the fair value
        option
        for an eligible item, changes in that item's fair value in subsequent reporting
        periods must be recognized in current earnings. FASB 159 also establishes
        presentation and disclosure requirements designed to draw comparison between
        entities that elect different measurement attributes for similar assets and
        liabilities.
 
 
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              of Contents*
 
 **NOTE
        7** **Property
        & Equipment**
 
 Property
        and equipment at March 31, 2007 consists of:
 
 Leasehold
                  improvements
              
              $
              6,399Communication
                  and computer equipment
              
              
              5,288,125Furniture
                  and fixtures
              
              
              91,726Software
                  and network systems
              
              
              1,309,947Construction
                  in progress
              
              
              110,3216,806,519Less
                  accumulated depreciation
              
              
              (4,101,074
              )$
              2,705,445
 
 Depreciation
        expense for the three months ended March 31, 2007 and 2006 was $210,435 and
        $9,056, respectively.
 
 **NOTE
        8** **Customer
        Contracts, Licenses and Interconnects**
 
 Customer
        contracts, licenses and interconnects include the acquisitions of large customer
        contracts, telecommunication licenses and integrated multi-country, centrally
        managed switch-based national interconnects in Europe. The telecommunications
        services acquired and customers obtained are primarily in the “service number”
industry (also “Premium Rate Services”), low-cost telephony services such as
        Carrier Select and Carrier Pre Select” and Freephone (Toll-Free) number
        services. These services offered and customers served are done through Benoit
        Telecom’s European fixed-line switch-based telecom network, including the
        acquired interconnections and licenses with the National Incumbents and
        Regulators in Spain, Netherlands, Italy, Switzerland, Austria and
        Belgium.
 
 Customer
        contracts, licenses and interconnects, net of accumulated amortization of
        $1,205,554 was $10,912,055 at March 31, 2007. Amortization expense for the
        three
        months ended March 31, 2007 and 2006 was $302,940 and $0,
        respectively.
 
 Amortization
        expense for the above intangible assets over the next five fiscal years is
        estimated to be $1,211,760 for each year.
 
 **NOTE
        9** **Acquisition
        of Elephant Talk Communication Europe Holding AG**
 
 On
        January 1, 2007, the Company completed its acquisition of Elephant Talk
        Communication Europe Holding AG (formerly known as “Benoit Telecom Holding AG”
or “Benoit Telecom”), a European telecom company. Benoit Telecom is an
        international telecom operator and multi-media distributor servicing primarily
        the business-to-business segment of the telecommunications and media market.
        Benoit Telecom offers a broad range of products and services based on the
        integration of telecom, VoIP, SMS, FAX, Conferencing and Streaming services
        all
        integrated with a sophisticated Customer Relationship Management and Billing
        application. The Company purchased all of the 100,000 issued and outstanding
        shares of Benoit Telecom in exchange for a) cash payment of $6,643,080 and
        b)
        40,000,000 shares of the Company’s common stock valued at $3,000,000. The common
        shares were valued at the actual date of issuance of such shares. The total
        consideration for the purchase of Benoit Telecom was valued at
        $9,643,080.
 
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            of Contents*
  A
        summary
        of the assets acquired and liabilities assumed for Benoit Telecom
        are:
 
 Estimated
                  fair values:Assets acquired
              
              $
              19,861,430Liabilities assumed
              
              
              9,305,378Net assets acquired
              
              
              10,556,052Consideration paid
              
              
              9,643,080Negative
                  goodwill
              
              $
              (912,972
              )
 
 The
        Company has reduced the recorded value of the non-current assets acquired,
        by
        the negative goodwill of $912,972. The purchase price allocation for Benoit
        Telecom acquisition is based on management's estimates and overall industry
        experience. Immediately after the execution of the definitive agreement,
        the
        Company obtained effective control over Benoit Telecom. Accordingly, the
        operating results of Benoit Telecom have been consolidated with those of
        the
        Company starting January 1, 2007.
 
 In
        accordance with paragraph 44 of SFAS 142, any excess of cost over net assets
        acquired shall be allocated as a pro rata reduction of the amounts that
        otherwise would have been assigned to all of the acquired assets except
        financial assets other then investments accounted for by the equity method,
        assets to be disposed of by sale, deferred tax assets, prepaid assets relating
        to pension or other postretirement benefit plans and any other current assets
 
 The
        value
        of the shares issued by the corporation in connection with this acquisition
        exceeded the fair market value of the net assets acquired. Thus, “negative
        goodwill” was generated; this amount was allocated to reduce the cost of the
        non-current assets acquired.
 
 UNAUDITED
        PRO FORMA CONSOLIDATED FINANCIAL INFORMATION DISCLOSURE FOR THE THREE MONTHS
        ENDED MARCH 31, 2007 AND 2006
  The
        following un-audited pro forma consolidated financial information for the
        three
        months ended March 31, 2006 and 2006, as presented below, reflects the results
        of operations of the Company as
        of January
        1, 2007 and assuming
        that the acquisition occurred on January 1, 2006,
        respectively, and after giving effect to the purchase accounting adjustments.
        These pro forma results have been prepared for information purposes only
        and do
        not purport to be indicative of what operating results would have been had
        the
        acquisitions actually taken place on January 1, 2007 and 2006 respectively,
        and
        may not be indicative of future operating results.
  -
              10
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 *Table
              of Contents*
  Three
                  months ended March 312007
              
              2006Revenues
              
              $
              11,170,615
              
              $
              3,915,230Operating
                  loss
              
              
              (1,221,996
              )
              
              (857,607
              )Net
                  loss
              
              
              (1,396,167
              )
              
              (2,576,783
              )Loss
                  per share - basic and fully diluted
              
              
              ($0.01
              )
              
              ($0.02
              )
  The
        Company included the financial results of Benoit Telecom in its consolidated
        2007 financial results from the date of the purchase, January 1, 2007 through
        March 31, 2007.
 
 **NOTE
        10** **Due
        From Related Parties**
 
 The
        Company provided guarantees to third parties for funds advanced by them to
        entities that officers and/or shareholders have an ownership interest in.
        The
        funds were advanced to these entities prior to 2002. The balances of funds
        advanced as of March 31, 2007 are:
 
 Due
                  from ET Network Services, Ltd.
              
              $
              301,547Due
                  from entities related to shareholders
              
              
              14,329$
              315,876
 
 The
        amounts due from related parties are due on demand and unsecured.
 
 **NOTE
        11** **Loans
        Payable**
 
 Loans
        payable at March 31, 2007 are summarized as follows:
 
 Installment
                  loan payable, bank, monthly principal and interest payments of
                  $12,804
                  including interest at bank's prime rate plus 1.5% per annum, 9.5%
                  at March
                  31, 2007, due December 24, 2006, secured by personal guarantees
                  of two
                  shareholders, a director, and a third party
              
              $
              325,452Installment
                  loan payable, bank, monthly principal and interest payments of
                  $2,921
                  including interest at bank's prime rate plus 1.5% per annum, 9.5%
                  at March
                  31, 2007, due December 24, 2011, secured by personal guarantees
                  of three
                  shareholders and a director
              
              
              189,965Installment
                  loan payable, bank, monthly principal and interest payments of
                  $1,749
                  including interest at bank's prime rate plus 1.5% per annum, 9.5%
                  at March
                  31, 2007, due June 28, 2009, secured by personal guarantees of
                  three
                  shareholders and a director
              
              
              84,464Term
                  loan payable, bank, monthly payments of interest at bank's prime
                  rate,
                  8.0% at March 31, 2007
              
              
              281,546$
              881,427
 
 
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              11
              -
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              of Contents*
 
 The
        Company has executed a credit facility with a bank in Hong Kong since June
        29,
        2004 under which the Company has borrowed funds from the bank under three
        installment loans and a term loan arrangements. The Company is in default
        of
        making loan payments on all the loans and as a result, the entire loan balance
        outstanding at March 31, 2007 is immediately due and payable to the bank.
        Furthermore, the Company is obligated to pay a default interest rate at the
        rate
        of 4.5% per annum in addition to the prescribed interest rate of the installment
        loans and term loan. The Company has recorded $17,692 and $8,495 in interest
        expense and default interest expense on loans payable as of March 31, 2007
        and
        $14,044 and $6,737 in interest expense and default interest expense on loans
        payable as of March 31, 2006.
 
 **NOTE
        12** **Due
        to Related Parties**
 
  
 The
        Company received advances from entities that certain officers and/or
        shareholders have an ownership interest. The balances as of March 31, 2007
        are:
 
 Due
                  to entities related to certain officers, directors and
                  shareholders
              
              $
              119,997Due
                  to an officer and director
              
              
              2,432$
              122,429
 
 The
        amount due to entities related to certain officers, directors and shareholders
        is due on demand, unsecured and non-interest bearing.
 
 **NOTE
        13** **Convertible
        Promissory Note**
 
 On
        December 15, 2005, the Company executed on a Convertible Promissory Note
        (the
“Note”) in the principal amount of $3.5 million to Rising Water Capital (“RWC”),
        funds to be drawn in stages. The Note is convertible during the term, in
        whole
        or in part, into shares of common stock at the conversion price of three
        and
        one-half cents ($0.035) of principal amount per share of common stock. The
        Note
        did not have any beneficial conversion factor attached to it since the
        conversion rate was equal to the market price of $0.035, on the closing of
        agreement. The conversion right of the Note is not an absolute right of RWC,
        nor
        is it an unconditional obligation of the Company. Rather, the Note is
        convertible to the extent that the Company has sufficient authorized common
        stock. In that regard, there are currently 5,586,573 shares out of the Company’s
        250,000,000 authorized common shares available for issuance upon conversion.
        The
        Note has a term of thirty (30) months during which time interest at the rate
        of
        10% per annum will accrue from the date advances drawn by the Company. The
        Note
        is secured by shares owned or to be owned by the Company in its proposed
        acquisitions of entities for which the Company has made earnest deposits.
        The
        Note will be paid in full at the end of the thirty month term with a balloon
        payment of principal and accrued interest. RWC has not converted the principal
        drawn by the Company as of March 31, 2007 in exchange for the common shares
        of
        the Company. As of March 31, 2007 the Company has drawn the entire principal
        of
        $3.5MM and recorded accrued interest of $464,473 in the accompanying financial
        statements at March 31, 2007.
 
 
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              12
              -
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              of Contents*
 
 On
        May
        26, 2006, the Company executed a second Convertible Promissory Note (the
        “2 nd Note”)
        in the principal sum of $3,000,000 with Rising Water Capital, an investor.
        The
        2 nd Note has
        a term of thirty (30) months, during which time interest on the Principal
        Amount
        will accrue from the date of this 2 nd Note at
        an annual interest rate of 10%. The 2 nd Note
        will be paid in full at the end of the thirty month term with a balloon payment
        of principal and interest accrued. The 2 nd Note
        shall be convertible during the term, in whole or in part, into common shares
        at
        the conversion price of seven cents ($0.07) per share provided, however,
        that
        this 2 nd Note
        shall not be convertible during the term when the Company has insufficient
        authorized common shares to issue to the 2 nd Note
        holder when a demand for conversion is made. The 2 nd Note is
        secured by shares owned or to be owned by the Company in the entities Beijing
        China Wind, ET ME&A Holding and ET ME&A. As of March 31, 2007, the
        Company has received the principal balance of $2,479,871 and has recorded
        accrued interest of $169,285 in the accompanying financial statements as
        of
        March 31, 2007.
 
 **NOTE
        14** **Stockholders’
        Equity**
 
 **(A)
        Common Stock**
 
 The
        Company is presently authorized to issue 250,000,000 shares of no par value
        Common Stock. The Company currently has 238,265,927 common shares issued
        and
        outstanding as of March 31, 2007. The holders of Common Stock, and of shares
        issuable upon exercise of any Warrants or Options, are entitled to equal
        dividends and distributions per share, with respect to the Common Stock when,
        as
        and if declared by the Board of Directors from funds legally available
        therefore. No holders of any shares of Common Stock has a pre-emptive right
        to
        subscribe for any securities of the Company nor are any common shares subject
        to
        redemption or convertible into other securities of the Company. Upon
        liquidation, dissolution or winding up of the Company, and after payment
        of
        creditors and preferred stockholders, if any, the assets will be divided
        pro-rata on a share-for-share basis among the holders of the shares of Common
        Stock.
 
 All
        shares of Common Stock now outstanding are fully paid, validly issued and
        non-assessable. Each share of Common Stock is entitled to one vote with respect
        to the election of any director or any other matter upon which shareholders
        are
        required or permitted to vote. Holders of the Company’s Common Stock do not have
        cumulative voting rights, so that the holders of more than 50% of the combined
        shares voting for the election of directors may elect all of the directors,
        if
        they choose to do so and, in that event, the holders of the remaining shares
        will not be able to elect any members to the Board of Directors.
 
 Pursuant
        to a Stock Purchase Agreement, on December 28, 2006, the Company agreed to
        sell
        109,480,000 restricted common shares to five accredited investors for a total
        consideration of $4,105,500. The Company received a cash consideration of
        $1,889,000 pursuant to the above Agreement and recorded the amount received
        as a
        liability in shares to be issued of $5,726,896 in the accompanying financial
        statements as of March 31, 2007. The Company has not issued any common shares
        to
        the investors as of March 31, 2007.
 
 
 
 -
              13
              -
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              of Contents*
 
 **(B)
        Class B Preferred Stock**
 
 The
        Company’s Articles of Incorporation (Articles”) authorize the issuance of
        50,000,000 shares of no par value Class B Preferred Stock. No shares of
        Preferred Stock are currently issued and outstanding. Under the Company’s
        Articles, the Board of Directors has the power, without further action by
        the
        holders of the Common Stock, to designate the relative rights and preferences
        of
        the preferred stock, and issue the preferred stock in such one or more series
        as
        designated by the Board of Directors. The designation of rights and preferences
        could include preferences as to liquidation, redemption and conversion rights,
        voting rights, dividends or other preferences, any of which may be dilutive
        of
        the interest of the holders of the Common Stock or the Preferred Stock of
        any
        other series. The issuance of Preferred Stock may have the effect of delaying
        or
        preventing a change in control of the Company without further shareholder
        action
        and may adversely affect the rights and powers, including voting rights,
        of the
        holders of Common Stock. In certain circumstances, the issuance of preferred
        stock could depress the market price of the Common Stock.
 
 During
        the three months ended March 31, 2007, the Company did not issue any shares,
        warrants or granted any stock options.
  **NOTE
        15** **Basic
        and Diluted Net Loss Per Share**
 
 Net
        loss
        per share is calculated in accordance with the Statement of financial accounting
        standards No. 128 (SFAS No. 128), “Earnings per share”. Basic net loss per share
        is based upon the weighted average number of common shares outstanding. Dilution
        is computed by applying the treasury stock method. Under this method, options
        and warrants are assumed to be exercised at the beginning of the period (or
        at
        the time of issuance, if later), and as if funds obtained thereby were used
        to
        purchase common stock at the average market price during the period. Weighted
        average number of shares used to compute basic and diluted loss per share
        is the
        same since the effect of dilutive securities is anti-dilutive.
 
 **NOTE
        16** **Employee
        benefit Plan and Non-Qualified Stock Option and Compensation
        Plan**
 
 **Employee
        Benefit Plan**
  The
        Company adopted an employee benefit plan “The 2000 Employee Benefit Plan” (the
“Plan”) on May 30, 2000. Under the Plan, the Company may issue shares or grant
        options to acquire the Company’s common stock, no par value, from time to time
        to employees of the Company or its subsidiaries. In addition, at the discretion
        of the Board of Directors, shares may be granted under this Plan to other
        individuals, including consultants or advisors, who contribute to the success
        of
        the Company or its subsidiaries, provided that bona fide services shall be
        rendered by consultants and advisors and such services must not be in
        conjunction with the offer or sale of securities in a capital raising
        transaction. No stock may be issued or options granted under the Plan to
        consultants, advisors or other persons who directly or indirectly promote
        or
        maintain a market for the Company’s securities. The Plan is intended to aid the
        Company in maintaining and developing a management team, attracting qualified
        officers and employees capable of assuring the future success of the Company,
        and rewarding those individuals who have contributed to the success of the
        Company. The Plan is administrated under the direction of the Board of
        Directors. A total of 4,000,000 (four million) common shares and 4,000,000
        (four
        million) stock options to acquire common shares may be subject to, or issued
        pursuant to, benefits granted under the Plan. At any time any stock option
        is
        granted under the terms of this Plan, the Company will reserve for issuance
        the
        number of shares of Stock subject to such option until it is exercised or
        expired. The Plan Administrator shall determine from time to time the terms,
        conditions and price of the options granted. Options shall not be construed
        to
        be stock and cannot be exercised after the expiration of its term. Under
        the
        Plan, 300,000 shares of common stock and 4,000,000 stock options remain
        available for grant at March 31, 2007.
 
 -
            14
            -
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            of Contents*
   **2006
        Non-Qualified Stock and Option Compensation Plan**
  On
        July
        21, 2006, the Company adopted a 2006 Non-Qualified Stock and Option Compensation
        Plan and filed a Registration Statement on Form S-8 with the Commission to
        register shares awarded under the Plan on the same date. The Compensation
        Committee of the Board of Directors issues common stock and awards options
        to
        employees, directors, officers, consultants, advisors and other persons
        associated with the Company. The 2006 Plan is intended to provide a method
        whereby the Company would be stimulated by the personal involvement of our
        employees, directors, officers, consultants, advisors and other persons in
        our
        business and reward such involvement, thereby advancing the interests of
        the
        Company and all of its shareholders. A total of 15,000,000 shares of common
        stock for stock awards and 10,000,000 shares of common stock underlying option
        grants were authorized under the 2006 Plan. None of the shares under the
        plan
        were issued as of March 31, 2007.
 
 **NOTE
        17** **Commitments
        and Contingencies**
 
 The
        Company leases its corporate offices space under a month-to-month operating
        lease. Monthly rental expense under the leases is $4,575 per month. The
        Company’s majority owned subsidiary leases its office space from a third party.
        The lease term is for one year and monthly rent expense is $1,085 per month.
        The
        Company’s USA hosting facility space is leased from a third party at a monthly
        rent of $2,694. The lease term expires on April 30, 2008.
 
 The
        Company has commitments to pay annual regulatory fees for various national
        interconnects, telecom lines and co-locations rents. Rent expense under
        operating leases for the three months period ended March 31, 2007 and 2006
        was
        $60,331 and $ 42,351 ,
        respectively.
 
 Commitments
        of the Company relating to leases, co-location and office rents, regulatory
        and
        interconnection fees as of March 31, 2007 are as follows:
 
 2007
              
              $
              865,8972008
              
              
              209,8302009
              
              
              87,1122010
              
              
              65,2722011
              
              
              43,331**Total**
              
              $
              1,271,442




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              15
              -
 *Table
              of Contents*
 
 **NOTE
        18** **Litigation**
 
 On
        September 25, 2006, Beijing Zhongrun Chuantou Technology Co., Ltd., a company
        organized and existing under the laws of the People’s Republic of China
        (“Beijing Zhongrun”) and a minority shareholder of Beijing Chinawind
        Telecommunication Information Technology Company Limited, a company organized
        and existing under the laws of the People’s Republic of China (“Beijing
        Chinawind”), filed two lawsuits in the Beijing Civil Courts against Guangdong
        Elephant Talk Network Consulting Limited (“ETGD”), a company organized and
        existing under the laws of the People’s Republic of China and an agent of the
        Company. The lawsuit alleges that a) ETGD failed to pay the remaining
        consideration of $787,748 under an Equity Transfer Agreement, dated January
        4,
        2006 (the “Agreement”) between ETGD and Beijing Zhongrun, which provided for the
        acquisition by ETGD from Beijing Zhongrun of 60% of the registered capital
        of
        Beijing Chinawind; and b) ETGD induced the minority shareholders of Beijing
        Chinawind to accept, pursuant to the Agreement, consideration of $1,000,000
        through the issuance of 10,000,000 common shares of the Company valued at
        $0.10
        per common share. The lawsuit further alleges that Chinese law prohibits
        citizens of the People’s Republic of China from accepting shares of companies
        listed on the United States Over-The-Counter Bulletin Board Quotation Service,
        which is regulated by the National Association of Securities Dealers, Inc.,
        as
        compensation in an acquisition transaction.
 
 Beijing
        Zhongrun has demanded that ETGD exchange the issued stock for $1,000,000,
        pay
        the outstanding payment under the Agreement and compensate Beijing Zhongrun
        for
        breach of contract in the sum of RMB524,664 (approximately $64,773). In the
        alternative, Beijing Zhongrun has asked the Court to void the Agreement and
        award compensation to Beijing Zhongrun for its economic loss in the amount
        of
        RMB6,591,000 (approximately $813,704).
  The
        Company has retained a legal counsel licensed to practice Civil law in the
        People’s Republic of China, who has advised the Company that Beijing Zhongrun’s
        lawsuits are not supported by valid facts nor have sufficient legal evidence.
        Accordingly, the Company considers that the claims of Beijing Zhongrun are
        without merit and the Company plans to vigorously defend these
        lawsuits.
 
 **NOTE
        19** **Going
        Concern**
 
 The
        accompanying financial statements have been prepared in conformity with
        generally accepted accounting principle, which contemplate continuation of
        the
        Company as a going concern. The Company has an accumulated deficit of
        $17,947,271 including a net loss of $1,396,167 for the three months ended
        March
        31, 2007. This raises a substantial doubt about the Company’s ability to
        continue as a going concern. In view of the matters described below,
        recoverability of a major portion of the recorded asset amounts shown in
        the
        accompanying balance sheet is dependent upon continued operations of the
        Company, which in turn is dependent upon the Company’s ability to raise
        additional capital, obtain financing and to succeed in its future
        operations.
 
 The
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded asset amounts or amounts and
        classification of liabilities that might be necessary should the Company
        be
        unable to continue as a going concern.
 
 Management
        has taken the following steps to revise its operating and financial
        requirements, which it believes are sufficient to provide the Company with
        the
        ability to continue as a going concern. Management has devoted considerable
        efforts during the period ended March 31, 2007 towards (i) obtaining additional
        equity financing (ii) controlling of salaries and general and administrative
        expenses (iii) management of accounts payable (iv) settlement of debt by
        issuance of common shares and (v) acquire profitable companies that bring
        synergies to the Companies products and services.
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            16
            -
 *Table
            of Contents*
 
 **ITEM
        2.** **Management
        Discussion and Analysis or Plan of
        Operation**
 
 Elephant
        Talk Communications Inc. (“ETCI”), until recently was engaged in the long
        distance telephone business in China and the Special Administrative Region
        Hong
        Kong.
 
 In
        2006
        the Company started to position itself as an international telecom operator
        and
        enabler to the multi-media industry by facilitating this industry to distribute
        all forms of content to various customers all over the globe. In January
        2007,
        through the acquisition of various assets in Europe, the Company established
        a
        strong foothold in the European Telecommunications Market, particularly in
        the
        market of the “Service Number Industry”. Currently the Company is active in ten
        (10) European countries and has offices in Europe, the Far East, Middle East
        and
        USA. ETCI is servicing primarily the business-to-business segment of
        telecommunications market.
 
 The
        Company operates a switch-based telecom network with national licenses and
        direct interconnects in seven (7) countries and through partnerships in another
        three countries. This enables the Company to implement geographical, personal,
        nomadic and VoIP numbers on a European level. Services provided include
        traditional telecom services, VOIP, media streaming and distribution including
        the necessary, billing and collection. In addition, ETCI develops in-house
        telecom and media related systems and software.
 
 ETCI
        aims
        to become the carrier with the largest footprint in Europe and to be the
        first
        choice for the “service number industry” (i.e. 0800/0900-numbers), a prominent
        distributor for media related companies and international access partner
        for
        tier 1 & 2 carriers. At the same time it is the Company’s intention to
        leverage its multi-country presence, pan-European experience and in-house
        technological developments to set-up telecom operations outside Europe in
        order
        to built (in a very low cost manner) a worldwide telecom and media distribution
        system.
 
 ETCI ́s
        overall strategy is to fulfill its mission by developing and operating a
        multi
        country network with one set of network- and billing-applications all monitored
        and controlled from a highly qualified and from the point of view of costs
        efficiency, low profile central office, partially established in Hong Kong
        and
        the Netherlands. In order to achieve this ETCI has rolled out a focused
        corporate strategy whereby it aims at building a worldwide telecommunications
        and content distribution network through the acquisition or exchange of licenses
        for interconnection with tier 1 carriers on a bilateral basis.
 
 In
        the
        structuring of the Company, it is ETCI’s goal to realize a fully integrated
        organization, not only on a corporate level but also technically and
        operationally, whereby planning is significantly more simple and faster
        eventually resulting in a far quicker and cheaper implementation of new
        services, connectivity of new countries and extra capacity. This is planned
        to
        be accomplished without giving in on quality and uninterrupted supply of
        services.
 
 -
            17
            -
 *Table
            of Contents*
  **Material
        Transactions to an Understanding of our MD&A
        Discussion**
 
 On *January
        17, 2005* ,
        the
        Company entered into a Memorandum of Understanding to acquire all of the
        issued
        and outstanding shares of Benoit Telecom Holding A.G., a European telecom
        company from an accredited investor and owner based in Europe. The Company
        completed its acquisition of Benoit Telecom on January 1, 2007 and included
        the
        financial results of Benoit Telecom in its consolidated financial statements
        as
        of March 31, 2007.
 
 On *April
        20, 2005* ,
        the
        Company formed a joint venture Free Zone Limited Liability company to be
        incorporated in the Dubai Technology, Electronic Commerce and Media Free
        Zone,
        Dubai, United Arab Emirates (UAE) under the name Elephant Talk Middle East
&
Africa FZ-LLC (“ET Dubai”). The Company through its wholly owned subsidiary
        Elephant Talk Limited incorporated the joint venture company on November
        6, 2005
        and contributed $50,907 towards its equity share capital as of December 31,
        2005. The Company owns 50.54% share of this newly formed joint venture company.
        ET Dubai is committed to expend the necessary funds to keep its share of
        equity
        investment and is currently seeking regulatory approvals for obtaining trade
        and
        business licenses from the UAE government to conduct its business. ET Dubai
        has
        not yet begun the operations and plans to operate various telecom related
        business in the Middle East and Africa.
 
 After
        evaluating the processes to expand our business and the costs of setting
        up
        regional subsidiaries in the Middle East under the name ET ME&A, the Company
        decided to create a new holding company in Bahrain. On *June
        17, 2006* ,
        the
        Company through its subsidiary Elephant Talk Limited, incorporated a limited
        liability company in the Kingdom of Bahrain under the name Elephant Talk
        Middle
        East & Africa (Holding) W.L.L (“ET ME&A Holding”). The registered
        capital of ET ME&A Holding is $387,787 and Elephant Talk Limited has
        contributed $197,771 towards its 51% equity interest in ET ME&A Holding as
        of March 31, 2007.
 
 On *June
        17, 2006* ,
        the
        Company through its subsidiary Elephant Talk Limited, incorporated a limited
        liability company in the Kingdom of Bahrain under the name **** Elephant
        Talk Middle East & Africa (Holding) W.L.L ("ET ME&A Holding"). The
        registered capital of ET ME&A Holding is $387,787 and Elephant Talk Limited
        has contributed $197,771 towards its 51% equity interest in ET ME&A Holding
        as of March 31, 2007.
 
 On *June
        19, 2006* ,
        the
        Company through its subsidiary ET ME&A Holding, incorporated a limited
        liability company in the Kingdom of Bahrain under the name Elephant Talk
        Bahrain
        W.L.L. (“ET Bahrain”) to manage the Company’s operations in Bahrain. The
        registered capital of ET Bahrain is $387,787 and ET ME&A Holding owns 99% of
        the equity ownership in ET Bahrain. ET ME&A Holding has contributed $383,909
        as its share of registered capital as of March 31, 2007. ET ME&A Holding and
        ET Bahrain have not yet begun operations.
 
 On *August
        3, 2006* ,
        the
        Company formed and incorporated an entity under the name Elephant Talk Europe
        Holding BV (“ET Europe”), a private limited liability company registered in
        Amsterdam, Holland with an authorized capital of $113,670 (90,000 Euros).
        The
        Company owns 100% equity in ET Europe. The purpose of forming ET Europe was
        to
        help the Company conclude its pending acquisition of Benoit Telecom Holding
        AG.
        The Company has contributed $22,734 towards its share of the registered capital
        of ET Europe. On November 17, 2006, the Company executed the definitive Stock
        Purchase Agreement and completed its acquisition of Benoit Telecom Holding
        AG
        effective on January 1, 2007.
 
 On *July
        28, 2006* ,
        ET
        Europe participated in the incorporation of Elephant Talk Communications
        PRS UK
        Ltd. (“ET UK”), a company registered under the laws of United Kingdom. The
        registered capital of ET UK is $19760 and ET Europe has 51% ownership interest
        in ET UK. ET Europe has contributed $2,312 towards its share of ownership
        interest and $5,882 remains to be contributed as of March 31, 2007. ET UK
        was
        formed to expand ET Europe’s operations in United Kingdom.
 
 -
            18
            -
 *Table
            of Contents*
   On *September
        12, 2006* ,
        the
        Company through its subsidiary ET ME&A Holding, incorporated a limited
        liability company under the name Elephant Talk Middle East & Africa Jordan
        (“ET Jordan”) to manage the Company’s operations in Jordan. The registered
        capital of ET Jordan is $210,918 (81,585 BHD) and ET ME&A owns 100% of the
        equity ownership in ET Jordan. ET ME&A Holding has contributed $210,918 as
        its 100% share of the registered capital as of March 31, 2007. ET Jordan
        has
        applied for the telecommunication licenses and has not begun its
        operations.
  In
        order
        to successfully carry out its operations, the Company agreed to sell to Rising
        Water Capital pursuant to the execution of the Stock Purchase Agreement,
        195,947,395 shares of the Company’s common stock for an aggregate purchase price
        of $7,837,896. The purpose of this transaction was to enable Rising Water
        Capital to infuse capital so that the Company could complete its pending
        acquisitions.
 
 On *December
        15, 2005* ,
        the
        Board of Directors of the Company authorized the execution and delivery of
        a
        Convertible Promissory Note in the principal amount of $3.5 million (the
“Note”)
        to Rising Water Capital, in exchange for a loan in the same principal amount
        to
        be drawn down in stages. This Note shall be convertible during the term,
        in
        whole or in part, into common shares at the conversion price of seven cents
        ($0.035) per share. The Company has received all of the funding of $3.5 million
        Note by January 26, 2006. Assuming that the Note is fully converted into
        common
        stock, the Company would be obligated to issue 100,000,000 shares of common
        stock to Rising Water Capital as of March 31, 2007. None of the principal
        amount
        of the Note has been converted into shares of common stock as of May 18,
        2007.
 
 On *May
        26, 2006* ,
        the
        Company executed a second Convertible Promissory Note (the “2 nd Note”)
        in the principal sum of $3,000,000 with Rising Water Capital. The 2 nd Note
        shall be convertible during the term, in whole or in part, into common shares
        at
        the conversion price of seven cents ($0.07) per share provided, however,
        that
        this 2 nd Note
        shall not be convertible during the term when the Company has insufficient
        authorized common shares to issue to the 2 nd Note
        holder when a demand for conversion is made. The Company has received the
        principal balance of $2,025,221 against the 2 nd Note as
        of December 31, 2006 and further received cash consideration of $569,520
        as of
        April 14, 2007. Assuming that the 2 nd Note is
        fully converted into common stock, the Company would be obligated to issue
        42,857,143 shares of common stock to Rising Water Capital as of March 31,
        2007 **.** None of
        the principal amount of the Note has been converted into shares of common
        stock
        as of May 18, 2007.
  
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            19
            -
 *Table
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  On
        December 28, 2006, the Company signed five subscription agreements with the
        investors providing that they agreed to purchase 109,480,000 shares of
        restricted common stock of the Registrant, subject to the satisfaction of
        certain conditions precedent, including, but not limited to, an increase
        in the
        authorized common stock of the Company, in a transaction intended to be exempt
        from registration pursuant to Regulation S under the Securities Act of 1933,
        as
        amended. The consideration for purchase of such common stock amounted to
        $4,105,500. As of March 31, 2007, the Company received a funding of $1,889,000
        against the purchase of such shares and no shares of common stock have been
        issued. Three of the investors are the directors of the Company. Furthermore,
        all the investors are affiliated with Q.A.T. Investments S.A., an investment
        company organized under the laws of Luxembourg and a control person of the
        Company.
 
 Results
        of Operations: Our results of operations for the three months ended March
        31,
        2007 consisted of operations of Elephant Talk Communications, Inc., its
        wholly-owned subsidiary Elephant Talk Limited and its subsidiaries, and its
        wholly-owned subsidiary Elephant Talk Communication Europe Holding BV and
        its
        subsidiaries. The results of operations of the Company for the three months
        ended March 31, 2006 consisted of our operations of Elephant Talk
        Communications, Inc. and our wholly-owned subsidiary Elephant Talk Limited
        and
        its subsidiaries. The Company reported net loss of $1,396,167 for the three
        months period ended March 31, 2007 compared to a net loss of $631,266 for
        the
        same period in 2006.
 
 Revenues
        and Cost of Revenues: The Company reported revenues of $11,170,615 for the
        three
        months ended March 31, 2007 compared to $52,228 for the same period in 2006.
        Revenues for the three months ended March 31, 2007 consisted of $11,142,536
        primarily from the premium rate services provided by the Company’s subsidiary
        Benoit Telecom to its customers. The Company provides technical, operational
        and
        financial telecom infrastructure to information providers so that these parties
        can operate and place their service numbers in the market and collect revenues
        from end-users of the service numbers. During the three months ended March
        31,
        2006, the Company recorded revenues by only selling telecommunications products
        business such as voice and data transmission like IDD, pre-paid calling cards,
        eTalk and facsimile services provided to a wide range of customers including
        major telecommunication companies to retail customers in China, Japan and
        Hong
        Kong.
 
 Cost
        of
        revenues was $10,726,310 for the three months periods ended March 31, 2007
        compared to $41,628 for the same period in 2006. Cost of revenues for the
        three
        months period ended March 31, 2007 consisted of $10,700,777 for the cost
        of
        services provided to premium rate services customers of our subscriber base,
        compared to the cost of revenues of $41,628 for the three months period ended
        March 31, 2006 for the cost of leasing transmission facilities, international
        gateway switches for voice, data transmission and facsimile services and
        discounts offered on eTalk cards sold by Elephant Talk Limited. Gross margins
        for the three months ended March 31, 2007 was $444,305 or 4% of revenues
        as
        compared to $10,600 or 20% of revenues for the same period in 2006. Gross
        margins for the three months ended March 31, 2007 consisted of $441,759 and
        $2,546 from the Company’s subsidiary Benoit Telecom and Elephant Talk Limited,
        compared to a gross margin of $10,600 for the three months ended March 31,
        2006
        resulted from Elephant Talk Limited subsidiary. The decrease in gross margin
        for
        the three months ended March 31, 2007 compared to the same period in 2006
        was
        due to the change in the revenue mix due to the new focus of the Company
        to
        offer premium rate telecommunications services offered to its customer base
        in
        European markets due to the strategic acquisition of Benoit
        Telecom.
 
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  Operating
        Expenses: Selling, general and administrative expenses (S,G&A) were
        $1,152,926 for the three months ended March 31, 2007 compared to $540,002
        for
        the same period in 2006. S,G&A expenses for the three months ended March 31,
        2007 consisted of $668,309 and $232,792 from the Company’s subsidiaries Benoit
        Telecom and Elephant Talk Limited. S,G&A expenses increased during the three
        months ended March 31, 2007 compared to the same periods in 2006, primarily
        due
        to the increase in marketing and promotion expenses of the premium rate services
        offered to our subscriber base and increased payroll and other legal and
        administrative expenses of the newly acquired businesses. Depreciation expense
        increased to $513,375 for the three months ended March 31, 2007 compared
        to
        $9,056 for the same period in 2006 primarily due to the acquisition of assets
        by
        the subsidiaries of the Company.
 
 Other
        Income and Expenses: Interest income was $2,202 for the three months period
        ended March 31, 2007 compared to $21 for the same period in 2006. Interest
        expense was $176,644 for the three months ended March 31, 2007 compared to
        $100,260 for the same period in 2006. Interest expense increased due to the
        Company borrowing additional loans from investors and bank.
 
 Minority
        Interest: The Company’s majority owned (50.54%) subsidiary Elephant Talk Middle
        East & Africa FZ-LLC (Dubai) incurred a loss of $82 for the three months
        ended March 31, 2007 compared to a loss of $23,262 for the same period in
        2006.
        Elephant Talk Middle East and Africa (Holding) WLL, a majority owned subsidiary
        (51%) incurred a net loss of $4,600 for the three months period ended March
        31,
        2007 compared to none for the same period in 2006. The Company recorded net
        losses of $2,299 and $3,280 for the three months period ended March 31, 2007
        and
        2006 attributable to its minority shareholders’ interest in the accompanying
        financial statements as of March 31, 2007 and 2006, respectively.
  Liquidity
        and Capital Resources: The Company's principal capital requirements during
        the
        year 2007 are to fund the internal operations and acquire profitable
        growth-oriented telecommunications and related businesses in Asia and Europe.
        The Company plans to raise necessary funds by selling its own common shares
        to
        selected investors and bringing in business partners whose contributions
        include
        the necessary cash. In view of low borrowing interest rates, the Company
        continues to actively pursuing additional credit facilities with accredited
        investors and financial institutions in Europe, Middle East and USA as a
        means
        to obtain new funding. The Company’s management estimates that it currently does
        not have the funds to operate for the next twelve months without raising
        additional capital.
 
 As
        shown
        in the accompanying financial statements, the Company incurred a net loss
        of
        $1,396,167 for the three months period ended March 31, 2007 as compared to
        a net
        loss of $631,266 for the same period in 2006. Additionally, the Company’s
        current liabilities exceeded its current assets by $8,061,001 at March 31,
        2007.
        These factors and the Company’s inability to meet its debt obligations from
        current operations, and the need to raise additional funds to accomplish
        its
        objectives, create a substantial doubt about Elephant Talk's ability to continue
        as a going concern. Furthermore, the Company’s independent auditors have issued
        a going concern opinion on the Company’s audited financial statements for the
        fiscal year ended December 31, 2006 as the Company did not have sufficient
        funds
        available to operate for the next twelve months.
 
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  The
        Company’s forecast of the period of time through which its financial resources
        will be adequate to support its operations is a forward-looking statement
        that
        involves risks and uncertainties, and actual results could vary as a result
        of a
        number of factors.
 
 Operating
          Activities: Net cash used in operating activities during the three months
          period
          ended March 31, 2007 amounted to $1,929,366 primarily due to increase in
          accounts receivable of $165134, increase in prepaid expenses, deposits
          and other
          current assets of $472,964, increase in accounts payable o of $2,315,154,
          decrease in accrued expenses and other payable of $2,721,495, and decrease
          in
          deferred revenue of $3,481. Additionally, the Company’s current liabilities
          exceeded its current assets by $8,061,001 **** at
          March
          31, 2007. These factors and the Company’s inability to meet its debt obligations
          from current operations, and the need to raise additional funds to accomplish
          its objectives, create a substantial doubt
 
 Investing
          Activities. Net cash provided by investing activities during the three
          months
          period ended March 31, 2007 was $6,153,429 primarily due to net cash inflow
          of
          $5,832,231 due to acquisition of Benoit Telecom, and cash received for
          acquisition of $406,118 The Company used proceeds to acquire equipment
          for
          $84,920 during the three months ended March 31, 2007.
 
 Financing
          Activities. Net cash used in financing activities during the three months
          period
          ended March 31, 2007 was $3,724,623. The Company received $944,500 in funding
          against the sale of shares to an accredited investor. The Company paid
          $2,567,291 on notes payable and $2,107,893 to related parties.
 As
        a
        result of the above activities, the Company experienced a net increase in
        cash
        of $410,062 for the three months period ended March 31, 2007. The ability
        of the
        Company to continue as a going concern is still dependent on its success
        in
        obtaining additional financing from the institutional investors, acquiring
        profitable operations or by selling its common shares to accredited investors
        and fulfilling its plan of restructuring as outlined above.
 
 **Application
        of Critical Accounting Policies and Estimates**
 
 **Application
        of Critical Accounting Policies**
 
 Revenue
        Recognition, Cost of Revenue and Deferred Revenue:
 The
        Company's revenue recognition policies are in compliance with Staff accounting
        bulletin (SAB) 104. The Company derives revenues from activities as a fixed-line
        provider with its own carrier network and its own switching technology and
        from
        transport, internet and VPN solutions. The Company also derives revenues
        from
        sale of minutes of calling time via sale of its prepaid calling cards. Cost
        of
        revenues of the services supplied to attain the sales comprise the total
        acquisition and production costs and cost of sales for the products and services
        sold during the reporting period. Cost of revenues includes the cost of capacity
        associated with the revenue recognized within the corresponding time period.
        Revenue is deferred upon activation of the calling cards and is recognized
        as
        the prepaid calling card balances are reduced based upon minute usage,
        imposition of administrative fees, or no further obligations exist with respect
        to a calling card. Deferred revenues represent amounts received from its
        customers for the unused minutes of the prepaid calling cards sold to its
        customers since the Company recognizes revenues only on the usage of the
        minutes.
 
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  Stock-based
        Compensation:
 The
        Company follows the prescribed accounting and reporting standards for all
        stock-based compensation plans, including employee stock options, restricted
        stock, employee stock purchase plans and stock appreciation rights in accordance
        with SFAS No. 148 “Accounting for Stock-Based Compensation”. SFAS No. 148
        provides alternative methods of transition for a voluntary change to the
        fair
        value based method of accounting for stock-based employee compensation. In
        addition, this Statement requires prominent disclosures in both annual and
        interim financial statements about the method of accounting for stock-based
        employee compensation and the effect of the method used, on reported
        results.
 
 Issuance
        of Shares for Services:
 The
        Company accounts for the issuance of equity instruments to acquire goods
        and
        services based on the fair value of the goods and services or the fair value
        of
        the equity instrument at the time of issuance, whichever is more reliably
        measurable.
 
 **Impact
        of Accounting Pronouncements**
 
 In
        September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. This Statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
 
 In
        September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
        Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
        88, 106, and 132(R)’. This Statement improves financial reporting by requiring
        an employer to recognize the over funded or under funded status of a defined
        benefit postretirement plan (other than a multiemployer plan) as an asset
        or
        liability in its statement of financial position and to recognize changes
        in
        that funded status in the year in which the changes occur through comprehensive
        income of a business entity or changes in unrestricted net assets of a
        not-for-profit organization. This Statement also improves financial reporting
        by
        requiring an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. An
        employer with publicly traded equity securities is required to initially
        recognize the funded status of a defined benefit postretirement plan and
        to
        provide the required disclosures as of the end of the fiscal year ending
        after
        December 15, 2006. An employer without publicly traded equity securities
        is
        required to recognize the funded status of a defined benefit postretirement
        plan
        and to provide the required disclosures as of the end of the fiscal year
        ending
        after June 15, 2007. However, an employer without publicly traded equity
        securities is required to disclose the following information in the notes
        to
        financial statements for a fiscal year ending after December 15, 2006, but
        before June 16, 2007, unless it has applied the recognition provisions of
        this
        Statement in preparing those financial statements:
 
 a)
              A
                  brief description of the provisions of this Statement
 b)
              The
                  date that adoption is required
 c)
              The
                  date the employer plans to adopt the recognition provisions of
                  this
                  Statement, if earlier.
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  The
        requirement to measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end statement of financial position is effective for
        fiscal years ending after December 15, 2008. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
 
 In
        February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
        for
        Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
        years beginning after November 15, 2007. Early adoption is permitted subject
        to
        specific requirements outlined in the new Statement. Therefore, calendar-year
        companies may be able to adopt FAS 159 for their first quarter 2007 financial
        statements.
 
 The
        new
        Statement allows entities to choose, at specified election dates, to measure
        eligible financial assets and liabilities at fair value that are not otherwise
        required to be measured at fair value. If a company elects the fair value
        option
        for an eligible item, changes in that item's fair value in subsequent reporting
        periods must be recognized in current earnings. FAS 159 also establishes
        presentation and disclosure requirements designed to draw comparison between
        entities that elect different measurement attributes for similar assets and
        liabilities.
 
 **ITEM
        3.** **Controls
        and Procedures**
 
 The
        Company maintains controls and procedures designed to ensure that it is able
        to
        collect the information it is required to disclose in the reports it files
        with
        the SEC, and process, summarize, and disclose this information within the
        time
        periods specified in the rules of the SEC. The Company’s Chief Executive Officer
        and Chief Financial Officer (“Certifying Officers”) are responsible for
        establishing and maintaining these procedures and, as required by the rules
        of
        the SEC, evaluate their effectiveness.
 
 **Disclosure
        Controls and Procedures and Internal Controls**
 
 The
        Company maintains disclosure controls and procedures designed with the objective
        of ensuring that information required to be disclosed in our reports filed
        with
        the Commission under the Exchange Act, such as this Annual report, is recorded,
        processed, summarized and reported within the time period specified in the
        Commission’s rules and forms. Disclosure controls are also designed with the
        objective of ensuring that material information relating to the Company is
        made
        known to the Certifying Officers by others, particularly during the period
        in
        which the applicable report is being prepared. The Company maintains a system
        of
        internal controls designed to provide reasonable assurance that a) transactions
        are executed in accordance with management’s general or specific authorization;
        b) transactions are recorded as necessary, to permit preparation of financial
        statements in conformity with generally accepted accounting principles, and
        to
        maintain accountability for assets; c) access to assets is permitted only
        in
        accordance with management’s general or specific authorization; and d) the
        recorded accountability for assets is compared with the existing assets at
        reasonable intervals and appropriate action is taken with respect to any
        differences.
 
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  **Scope
        of Evaluation in Disclosure Controls**
 
 The
        Certifying Officers’ evaluation of our disclosure controls and internal controls
        are done periodically so that the conclusions concerning the effectiveness
        of
        our controls can be reported in our quarterly reports on Form 10-QSB and
        Annual
        reports on Form 10-KSB. The overall goals of these various evaluation activities
        are to monitor our disclosure controls and our internal controls, and to
        make
        modifications, if and as necessary. Our independent external auditors also
        review internal controls in connection with their audit and review activities.
 
 The
        Securities and Exchange Commission rules embodied in the Sarbanes-Oxley Act
        of
        2002, in particular, Section 404, require that a company’s internal controls
        over financial reporting be based upon a recognized internal control framework.
        The Certifying Officers have evaluated the effectiveness of our disclosure
        controls and procedures and internal controls over financial reporting (as
        such
        terms are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
        Act of 1934, as amended) as of the end of the period covered by the filing
        of
        the Report, and concluded that, as of the end of such period, our disclosure
        controls and procedures were adequate and effective.
 
 There
        have not been any changes in our disclosure controls and procedures and internal
        control over financial reporting (as such term is defined in Rules 13a-15(f)
        and
        15d-15(f) under the Exchange Act) during our first fiscal quarter that have
        materially affected, or are reasonably likely to materially affect, our internal
        control over financial reporting.
 
 **PART
        II**
 
 **ITEM
        1.**  **Legal
        Proceedings**
 
 On
        September 25, 2006, Beijing Zhongrun Chuantou Technology Co., Ltd., a company
        organized and existing under the laws of the People’s Republic of China
        (“Beijing Zhongrun”) and a minority shareholder of Beijing Chinawind
        Telecommunication Information Technology Company Limited, a company organized
        and existing under the laws of the People’s Republic of China (“Beijing
        Chinawind”), filed two lawsuits in the Beijing Civil Courts against Guangdong
        Elephant Talk Network Consulting Limited (“ETGD”), a company organized and
        existing under the laws of the People’s Republic of China and an agent of the
        Company. The lawsuit alleges that a) ETGD failed to pay the remaining
        consideration of $787,748 under an Equity Transfer Agreement, dated January
        4,
        2006 (the “Agreement”) between ETGD and Beijing Zhongrun, which provided for the
        acquisition by ETGD from Beijing Zhongrun of 60% of the registered capital
        of
        Beijing Chinawind; and b) ETGD induced the minority shareholders of Beijing
        Chinawind to accept, pursuant to the Agreement, consideration of $1,000,000
        through the issuance of 10,000,000 common shares of the Company valued at
        $0.10
        per common share. The lawsuit further alleges that Chinese law prohibits
        citizens of the People’s Republic of China from accepting shares of companies
        listed on the United States Over-The-Counter Bulletin Board Quotation Service,
        which is regulated by the National Association of Securities Dealers, Inc.,
        as
        compensation in an acquisition transaction.
 
 Beijing
        Zhongrun has demanded that ETGD exchange the issued stock for $1,000,000,
        pay
        the outstanding payment under the Agreement and compensate Beijing Zhongrun
        for
        breach of contract in the sum of RMB524,664 (approximately $64,773). In the
        alternative, Beijing Zhongrun has asked the Court to void the Agreement and
        award compensation to Beijing Zhongrun for its economic loss in the amount
        of
        RMB6,591,000 (approximately $813,704).
  The
        Company has retained a legal counsel licensed to practice Civil law in the
        People’s Republic of China, who has advised the Company that Beijing Zhongrun’s
        lawsuits are not supported by valid facts nor have sufficient legal evidence.
        Accordingly, the Company considers that the claims of Beijing Zhongrun are
        without merit and the Company plans to vigorously defend these
        lawsuits.
 
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  **ITEM
        2.**  **Changes
        in Securities**
 
 None.
 
 **ITEM
        3.**  **Defaults
        Upon Senior Securities**
 
 None.
  **ITEM
        4.**  **Submission
        of Matters to Vote of Securities Holders**
 
 None.
 
 **ITEM
        5.**  **Other
        Information**
 
 None.
 
 **ITEM
        6.** **Exhibits
        and Reports on Form 8-K**
 
 The
        following list describes the exhibits filed as part of this Quarterly Report
        on
        Form 10-QSB and reports on Form 8-K within the last fiscal quarter.
 
 a)
                  Exhibit No.
              
              Description
                  of Document31.1
              
              Certification
                  of Chief Executive Officer Pursuant to the Securities Exchange
                  Act of
                  1934, Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302
                  of the
                  Sarbanes-Oxley Act of 200231.2
              
              Certification
                  of Chief Financial Officer Pursuant to the Securities Exchange
                  Act of
                  1934, Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302
                  of the
                  Sarbanes-Oxley Act of 200299.1
              
              Certification
                  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002
 
 b)  Reports
        on Form 8-K
 
 Termination
        of a Material Definitive Agreement, Unregistered Sale of Equity Securities,
        Resignation of Principal Officers and Directors, and appointment of Principal
        Officers and Directors, Other events, Completion of acquisition - Filed on
        January 25, 2007, Incorporated by reference. Film No. 07550678.
 
 Change
        in
        Certifying Accountants - Filed on January 29, 2007, Incorporated by reference.
        Film No. 7559741.
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  **SIGNATURE**
 
 
 In
        accordance with the requirements of the Exchange Act, the registrant has
        caused
        this report signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 
 **Elephant
                  Talk Communications, Inc.**Date:
                  May 18, 2007
              
              By:
                  /s/
                  Steven van der VeldenSteven
                  van der VeldenPresident
                  & Chief Executive Officer
  
 
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