**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 June 30, 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
      August 14, 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**


















**ELEPHANT
      TALK COMMUNICATIONS, INC. AND
      SUBSIDIARIES**





**TABLE
      OF CONTENTS**





Report
      on
      Form 10-QSB


For
      the
      quarter ended


June
      30,
      2007





**Page****PART
                1 FINANCIAL INFORMATION**Item
                1.  Financial StatementsConsolidated
                Balance Sheet at June 30, 2007 (Unaudited)
            3Consolidated
                Statements of
                Operations for the Three Months and Six Months ended June 30, 2007
                and
                2006 (Unaudited)
            4Consolidated
                Statements of Cash Flows for the Six Months ended June 30, 2007 and
                2006
                (Unaudited)
            5Notes
                to the Consolidated Financial Statements (Unaudited)
            6
–
                14Item
                2.  Management's Discussion and Analysis of Financial Condition and
                Results of Operations
            15Item
                3.  Controls and Procedures
            19**PART
                II OTHER INFORMATION**Item
                1.  Legal Proceedings
            20Item
                2.  Changes in Securities
            20Item
                3.  Defaults upon Senior Securities
            20Item
                4.  Submission of Matters to Vote of Security
                Holders
            20Item
                5.  Other Information
            20Item
                6.  Exhibits and Reports on Form 8-K
            20Signatures
            21








-
            2
            -





**PART
      1 FINANCIAL INFORMATION**





Item
      1.    Financial Statements





**ELEPHANT
      TALK COMMUNICATIONS, INC. AND
      SUBSIDIARIES**


CONSOLIDATED
      BALANCE SHEET (UNAUDITED)


JUNE
      30,
      2007





**ASSETS****CURRENT
                ASSETS**Cash and cash equivalents
            
            $
            802,880Restricted
                cash
            
            
            20,213Accounts receivable, net
            
            
            5,503,238Deposits
            
            
            253,648Prepaid expenses
            
            
            859,677Total
                Current Assets
            
            
            7,439,656**PROPERTY
                AND EQUIPMENT - NET**
            
            
            2,436,430**OTHER
                ASSETS**Due from related parties
            
            
            318,110Intangible assets, net
            
            
            11,276,786Total
                Other Assets
            
            
            11,594,896**TOTAL
                ASSETS**
            
            $
            21,470,982**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****CURRENT
                LIABILITIES**Overdraft
            
            $
            183,854Accounts payable
            
            
            6,079,140Deferred revenue
            
            
            105,691Accrued expenses
            
            
            1,076,527Accrued interest
            
            
            993,803Shares to be issued
            
            
            11,358,364Payable to third parties
            
            
            794,443Customer Deposits
            
            
            20,213Loans payable - bank
            
            
            881,067Due to related parties
            
            
            136,676Total
                Current Liabilities
            
            
            21,629,778**LONG-TERM
                LIABILITIES**Convertible promissory notes
            
            
            6,160,411**TOTAL
                LIABILITIES**
            
            
            27,790,189**MINORITY
                INTEREST**
            
            
            250,921**COMMITMENT
                AND CONTINGENCIES**
            
            
            --**STOCKHOLDERS'
                DEFICIENCY**Preferred stock Class B, no par value, 50,000,000 shares authorized,
                none
                issued and outstanding
            
            
            --Common stock, no par value, 250,000,000 shares authorized, 238,265,927
                issued and outstanding
            
            
            17,814,984Accumulated comprehensive loss
            
            
            (452,971
            )Accumulated deficit
            
            
            (23,932,141
            )Total
                Stockholders' deficiency
            
            
            (6,570,128
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY**
            
            $
            21,470,982





**The
      accompanying notes are an integral part of these consolidated unaudited
      financial statements.**




-
            3
            -





**ELEPHANT
      TALK COMMUNICATIONS, INC. AND
      SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


(UNAUDITED)




**For
                  the three months ended**
                **June
                  30,**
              
              
              **For
                  the six months ended**
                **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**REVENUES,
                  net
              
              $
              12,509,839
              
              
              $
              46,613
              
              
              $
              23,680,454
              
              
              $
              98,842COST
                  OF REVENUE
              
              
              11,906,707
              
              
              
              44,526
              
              
              
              22,633,017
              
              
              
              89,155GROSS
                  PROFIT
              
              
              603,132
              
              
              
              2,087
              
              
              
              1,047,437
              
              
              
              9,687OPERATING
                  EXPENSESStock
                  compensation to officers
              
              
              4,686,968
              
              
              
              --
              
              
              
              4,686,968
              
              
              
              --Selling, general and administrative
              
              
              1,479,806
              
              
              
              573,387
              
              
              
              2,632,732
              
              
              
              1,097,455Depreciation and amortization
              
              
              516,859
              
              
              
              9,415
              
              
              
              1,030,234
              
              
              
              31,399Total
                  Operating Expenses
              
              
              6,683,633
              
              
              
              582,802
              
              
              
              8,349,934
              
              
              
              1,128,854LOSS
                  FROM OPERATIONS
              
              
              (6,080,501
              )
              
              
              (580,715
              )
              
              
              (7,302,497
              )
              
              
              (1,119,167
              )OTHER
                  INCOME (EXPENSE)Interest income
              
              
              26,294
              
              
              
              132
              
              
              
              28,496
              
              
              
              153Interest expense
              
              
              (193,338
              )
              
              
              (108,271
              )
              
              
              (369,982
              )
              
              
              (208,531
              )Loss on currency fluctuations
              
              
              (9,129
              )
              
              
              --
              
              
              
              (7,901
              )
              
              
              --Total
                  Other Expense
              
              
              (176,173
              )
              
              
              (108,139
              )
              
              
              (349,387
              )
              
              
              (208,378
              )LOSS
                  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY
                  INTEREST
              
              
              (6,256,674
              )
              
              
              (688,854
              )
              
              
              (7,651,884
              )
              
              
              (1,327,545
              )Income taxes
              
              
              --
              
              
              
              --
              
              
              
              (800
              )
              
              
              (800
              )LOSS
                  FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
              
              
              (6,256,674
              )
              
              
              (688,854
              )
              
              
              (7,652,684
              )
              
              
              (1,328,345
              )MINORITY
                  INTEREST
              
              
              5,664
              
              
              
              9,092
              
              
              
              7,963
              
              
              
              12,372LOSS
                  FROM CONTINUING OPERATIONS
              
              
              (6,251,010
              )
              
              
              (679,762
              )
              
              
              (7,644,721
              )
              
              
              (1,315,973
              )DISCONTINUED
                  OPERATIONSIncome from operations of abandoned entity
              
              
              --
              
              
              
              153,907
              
              
              
              --
              
              
              
              302,972NET
                  LOSS
              
              $
              (6,251,010
              )
              
              $
              (525,855
              )
              
              $
              (7,644,721
              )
              
              $
              (1,013,001
              )OTHER
                  COMPREHENSIVE INCOME (LOSS)Foreign currency translation gain
              
              
              (228,803
              )
              
              
              --
              
              
              
              (463,146
              )
              
              
              --COMPREHENSIVE
                  LOSS
              
              $
              (6,479,813
              )
              
              $
              (525,855
              )
              
              $
              (8,107,867
              )
              
              $
              (1,013,001
              )Net
                  loss per common share and equivalents - basic and dilutedLoss from continuing operations
              
              $
              (0.03
              )
              
              $
              (0.00
              )
              
              $
              (0.04
              )
              
              $
              (0.01
              )Loss from discontinued operations
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              0.00$
              (0.03
              )
              
              $
              (0.00
              )
              
              $
              (0.04
              )
              
              $
              (0.01
              )Weighted
                  average shares outstanding during the period - basic and
                  diluted
              
              
              212,265,928
              
              
              
              164,250,089
              
              
              
              212,265,928
              
              
              
              163,795,531


Weighted
      average shares for dilutive shares has not been calculated as the effect of
      the
      dilutive shares is anti-dilutive.





**The
      accompanying notes are an integral part of these unaudited financial
      statements.**




-
            4
            -





**ELEPHANT
      TALK COMMUNICATIONS, INC. AND
      SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(UNAUDITED)





**For
                the six months ended June 30,****2007**
            
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net loss
            
            $
            (7,644,721
            )
            
            $
            (1,013,001
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activities:Depreciation and amortization
            
            
            1,030,234
            
            
            
            51,069Stock issued for acquisition
            
            
            --
            
            
            
            500,000Shares to be issued for acquisition
            
            
            --
            
            
            
            500,000Provision for uncollectible amounts
            
            
            101,719
            
            
            
            --Issuance of stock to officers for compensation and
                services
            
            
            4,686,968
            
            
            
            --Issuance of stock for consulting services
            
            
            --
            
            
            
            147,125Goodwill recorded on acquisition
            
            
            --
            
            
            
            (1,404,613
            )Minority interests
            
            
            110,469
            
            
            
            1,177,662Changes
                in operating assets and liabilities:(Increase) in accounts receivable
            
            
            (1,061,509
            )
            
            
            (22,957
            )(Increase) in prepaid expenses, deposits and other assets
            
            
            (28,418
            )
            
            
            (51,493
            )Increase in accounts payable and customer deposits
            
            
            4,183,407
            
            
            
            28,472Increase in deferred revenue
            
            
            --
            
            
            
            16,781Increase (decrease) in accrued expenses and other payable
            
            
            (2,474,135
            )
            
            
            301,289Net
                cash provided by (used in) operating activities from continued
                operations
            
            
            (1,095,986
            )
            
            
            230,334Net
                cash provided by operating activities from discontinued
                operations
            
            
            --
            
            
            
            9,461**Net
                cash provided by (used in) operating activities**
            
            
            (1,095,986
            )
            
            
            239,795**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchase of property and equipment
            
            
            (714,551
            )
            
            
            (72,476
            )Restricted cash
            
            
            (20,213
            )
            
            
            --Purchase of telecom licenses
            
            
            --
            
            
            
            (124,668
            )Earnest deposits on acquisitions, net
            
            
            --
            
            
            
            355,813Cash paid for acquisition of subsidiary
            
            
            (241,883
            )
            
            
            --Cash received from acquisition of subsidiary
            
            
            382,439
            
            
            
            --Net
                cash provided by (used in) investing activities from continuing
                operations
            
            
            (594,207
            )
            
            
            158,669Net
                cash used in investing activities from discontinued
                operations
            
            
            --
            
            
            
            (1,103,965
            )**Net
                cash used in investing activities**
            
            
            (594,207
            )
            
            
            (945,296
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Cash
                overdraft
            
            
            12,420
            
            
            
            10,769Advances received from investor
            
            
            --
            
            
            
            926,330Proceeds from bank loans
            
            
            --
            
            
            
            23,634Proceeds from note payable
            
            
            635,190
            
            
            
            929,700Proceeds from sale of shares
            
            
            1,889,000
            
            
            
            --Proceeds from third parties
            
            
            6,646
            
            
            
            --Proceeds from (Payments to) related parties
            
            
            (19,147
            )
            
            
            348,226Net
                cash provided by financing activities from continuing
                operations
            
            
            2,524,109
            
            
            
            2,238,659Net
                cash used in financing activities from discontinued
                operations
            
            
            --
            
            
            
            (959,560
            )**Net
                cash provided by financing activities**
            
            
            2,524,109
            
            
            
            1,279,099**EFFECT
                OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS**
            
            
            (363,036
            )
            
            
            30,373**NET
                INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            470,880
            
            
            
            603,971**CASH
                AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD**
            
            
            332,001
            
            
            
            198,816**CASH
                AND CASH EQUIVALENTS, END OF THE PERIOD**
            
            $
            802,880
            
            
            $
            802,787**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:**Cash paid during the period for interest
            
            $
            62,573
            
            
            $
            11,514Cash paid during the period for incomes taxes
            
            $
            800
            
            
            $
            800





**The
      accompanying notes are an integral part of these consolidated unaudited
      financial statements.**




-
            5
            -





**ELEPHANT
      TALK COMMUNICATIONS, INC. AND
      SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED  FINANCIAL STATEMENTS


JUNE
      30,
      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 and six ended June 30, 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).





**NOTE
      3   Principles of Consolidation**





The
      accompanying consolidated financial statements for the three months and six
      months ended June 30, 2007 includes the accounts of Elephant Talk
      Communications, Inc., its wholly-owned subsidiary Elephant Talk Limited and
      its
      subsidiaries, Elephant Talk Global Holding BV, and its wholly-owned subsidiary
      Elephant Talk Europe Holding BV and its subsidiaries. The consolidated financial
      statements for the three months and six months ended June 30, 2006 includes
      the
      accounts of Elephant Talk Communications, Inc., its wholly-owned subsidiary
      Elephant Talk Limited and its subsidiaries. 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 Hong Kong Dollar for the subsidiary Elephant Talk
      Limited and Euros for the Elephant Talk Europe Holding BV and Elephant Talk
      Global Holding BV entities. The June 30, 2007 financial statements of the
      Company were translated to United States dollars using June 30, 2007 closing
      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.





-
          6
          -




**ELEPHANT
          TALK COMMUNICATIONS, INC. AND
          SUBSIDIARIES**
 NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)




**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.





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. The management is currently evaluating the effect of this
      pronouncement on financial statements.





**NOTE
      7    Property & Equipment**





Property
      and equipment at June 30, 2007 consists of:





Leasehold
                improvements
            
            $
            6,396Communication
                and computer equipment
            
            
            2,193,153Automobiles
            
            
            70,594Furniture
                and fixtures
            
            
            91,694Software
                and network systems
            
            
            2,590,832Construction
                in progress
            
            
            262,3685,215,037Less
                accumulated depreciation
            
            
            (2,778,607
            )$
            2,436,430





Depreciation
      expense for the three months and six months ended June 30, 2007 was $207,315
      and
      $417,750 compared to $29,086 and $51,070 for the same periods in
      2006.





-
          7
          -


**ELEPHANT
          TALK COMMUNICATIONS, INC. AND
          SUBSIDIARIES**
 NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)




**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, CRM Billing System and
      software. 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 ET Europe’s fixed-line switch-based telecom network,
      including the acquired interconnections and licenses with the National
      Incumbents and Regulators in Spain, Netherlands, Italy, Switzerland, Austria,
      France and Belgium.





Customer
      contracts, licenses and interconnects, at June 30, 2007 consisted of the
      following:





Customer
                contracts, licenses & interconnects
            
            $
            10,814,644CRM
                Billing System and software
            
            
            1,069,257Amortizable
                intangibles
            
            
            11,883,901Less
                accumulated amortization
            
            
            (607,116
            )$
            11,276,785




Amortization
      expense for the three months and six months ended June 30, 2007 was $309,544
      and
      $612,484 compared to $0 for the same periods of 2006.





Amortization
      expense for the above intangible assets over the next five fiscal years is
      estimated to be $1,224,970 for each year.





**NOTE
      9    Acquisition of Elephant Talk Communication Europe
      Holding AG**





On
      January 1, 2007, the Company, through its wholly-owned subsidiary Elephant
      Talk
      Europe Holding BV, 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
      and using its own fixed-line national interconnects and partner interconnects
      in
      numerous European countries. 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.




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 the fair value of assets acquired and
      liabilities assumed. 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.





-
          8
          -




**ELEPHANT
          TALK COMMUNICATIONS, INC. AND
          SUBSIDIARIES**
 NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)




The
      value
      of the shares issued by the Company in connection with this acquisition exceeded
      the fair market value of the net assets acquired. Thus, “negative goodwill”
generated was allocated to reduce the cost of the non-current assets
      acquired.





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
      June 30, 2007.





On
      January 1, 2007, the Company’s subsidiary Elephant Talk Europe Holding BV,
      entered into a Share Purchase Agreement with 3U Telecom AG, and acquired all
      of
      the issued and outstanding shares of 3U Telecom SARL France, for a consideration
      of 180,000 Euros (approx. $241,935). The Agreement entitled the Company to
      a
      100% share of the economic benefits of the operations of 3U Telecom SARL. On
      June 1, 2007, all the terms and conditions of the Agreement were completed,
      and
      the Company acquired total assets $419,365 and assumed liabilities of $177,430
      upon completion of this acquisition.




UNAUDITED
      PRO FORMA CONSOLIDATED FINANCIAL INFORMATION DISCLOSURE FOR THE THREE MONTHS
      AND
      SIX MONTHS ENDED JUNE 30, 2007 AND 2006




The
      following un-audited pro forma consolidated financial information for the three
      months and six months ended June 30, 2007 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.





**Three
                months ended June 30,**
            
            
            **Six
                months ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            $
            12,613,382
            
            
            $
            8,417,049
            *
            
            
            23,961,296
            
            
            
            12,339,846
            *Operating
                loss
            
            
            (6,054,950
            )
            
            
            (378,412
            )*
            
            
            (7,215,481
            )
            
            
            (1,041,117
            )*Net
                loss
            
            
            (6,225,459
            )
            
            
            (323,553
            )*
            
            
            (7,557,705
            )
            
            
            (934,951
            )*Loss
                per share - basic and fully diluted
            
            $
            (0.03
            )
            
            $
            (0.002
            )
            
            $
            (0.04
            )
            
            $
            (0.006
            )





*
      Numbers
      of 3 U Telecom SARL were insignificant, and, therefore, not included in the
      three months and six months ended June 30, 2006.




**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 June 30, 2007 are:





Due
                from ET Network Services, Ltd.
            
            $
            288,631Due
                from entities related to shareholders
            
            
            29,479$
            318,110





The
      amounts due from related parties are non-interest bearing, due on demand and
      unsecured.





**NOTE
      11    Loans Payable**





Loans
      payable at June 30, 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 June
                30, 2007, due December 24, 2006, secured by personal guarantees of
                two
                shareholders, a director, and a third party
            
            $
            325,320Installment
                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 June
                30, 2007, due December 24, 2011, secured by personal guarantees of
                three
                shareholders and a director
            
            
            189,887Installment
                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 June
                30, 2007, due June 28, 2009, secured by personal guarantees of three
                shareholders and a director
            
            
            84,429Term
                loan payable, bank, monthly payments of interest at bank's prime
                rate, 8%
                at June 30, 2007
            
            
            281,431$
            881,067





-
          9
          -


**ELEPHANT
          TALK COMMUNICATIONS, INC. AND
          SUBSIDIARIES**
 NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)





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 arrangement. The Company is in default
        of
        making loan payments on all the loans and as a result, the entire loan balance
        outstanding at June 30, 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 $12,752 and $29,964 in interest
        expense and default interest expense for the three months and six months,
        respectively on loans payable as of June 30, 2007 and $30,045 in interest
        expense and default interest expense on loans payable as of June 30,
        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 June 30, 2007
      are:





Due
                to entities related to certain officers, directors and
                shareholders
            
            $
            131,964Due
                to an entity held by an agent
            
            
            4,712$
            136,676





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 a Convertible Promissory Note (the
      “Note”) in the principal amount of $3.5 million to Rising Water Capital (“RWC”),
      an investor, 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 the common stock
      of
      $0.035, on the closing of agreement. The Note is convertible to the extent
      that
      the Company has sufficient authorized common stock. In that regard, there are
      currently 5,586,580 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 subsidiaries. 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
      June 30, 2007 in exchange for the common shares of the Company. The Company
      has
      drawn the entire principal of $3.5MM and recorded accrued interest of $552,945
      in the accompanying financial statements at June 30, 2007.  The
      Company recorded an interest of $56,909 and $131,436 for the three month and
      six
      month periods ended June 30, 2007. The Company recorded an interest of $69,475
      for the three month and six month periods ended June 30, 2006.




On
      May
      26, 2006, the Company executed a second Convertible Promissory Note (the
“2nd Note”) in the principal sum of $3,000,000 with Rising Water
      Capital. The 2nd Note has a term of thirty (30) months, during which
      time interest on the Principal Amount will accrue from the date of this
      2nd Note at an annual interest rate of 10%. The 2nd Note
      will be paid in full at the end of the thirty month term with a balloon payment
      of principal and interest accrued. The 2nd 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 2nd
      Note shall not be convertible during the term when the Company has insufficient
      authorized common shares to issue to the 2nd Note holder when a
      demand for conversion is made. The 2nd Note is secured by shares
      owned by the Company in the entities Elephant Talk Network Consulting Limited,
      ET ME&A FZ-LLC and ETC Holding AG. The Company has received the principal
      balance of $2,660,411 as of June 30, 2007, and has recorded accrued interest
      of
      $243,812 in the accompanying financial statements as of June 30,
      2007.  The Company recorded an interest of $87,500 and $175,972 for
      the three month and six month periods ended June 30, 2007. The Company recorded
      an interest of $87,418 and $166,894 for the three month and six month periods
      ended June 30, 2006.




**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 June 30, 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.





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          10
          -




**ELEPHANT
          TALK COMMUNICATIONS, INC. AND
          SUBSIDIARIES**
 NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)




**Shares
      to be issued**





Pursuant
      to a Stock Purchase Agreement, on June 30, 2005, the Company sold to an
      accredited investor Rising Water Capital 195,947,395 restricted common shares
      for a total cash consideration of $7,837,896. As of June 30, 2007, the Company
      has issued to RWC 100,000,000 of its restricted common shares valued at
      $4,000,000. The common shares were valued at $0.04 cents per share pursuant
      to
      the terms of the agreement. The remaining 95,947,395 common shares to RWC valued
      at $3,837,896 have not been issued to RWC as of June 30, 2007. The Company
      has
      recorded such shares to be issued as a liability in the accompanying financial
      statements as of June 30, 2007.





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 shares were valued at 50% discount over the
      last five days average market price on the date of execution of the agreement.
      The Company has received a cash consideration of $2,833,500 against such shares
      sold and recorded such shares to be issued as a liability in the accompanying
      financial statements as of June 30, 2007. Subsequent to June 30, 2007, the
      Company has received the remaining balance of $1,272,000 from the accredited
      investors. The Company has not issued any common shares to the investors as
      of
      June 30, 2007.





The
      Company approved on June 28, 2007 to issue, 55,140,800 shares of common stock
      valued at $4,686,986 to its officers and directors as compensation for services
      for the six months ended June 30, 2007 and for
      signing   employment agreements for a term of three years. The
      shares were valued at the closing market price of eight and one-half cents
      ($0.085) on June 28, 2007. The Company has recorded such shares to be issued
      as
      a liability in the accompanying financial statements as of June 30,
      2007.





**(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 six months ended June 30, 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 June 30, 2007.





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          11
          -




**ELEPHANT
      TALK COMMUNICATIONS, INC. AND
      SUBSIDIARIES** NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)




**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 June 30, 2007.





**NOTE
      17     INCOME TAXES**





Income
      tax expense (benefit) for the six months periods is summarized as
      follows:





June
                30,2007
            
            
            2006Current:Federal
            
            $
            (2,024,425
            )
            
            $
            (344,420
            )State
            
            
            (335,850
            )
            
            
            (60,780
            )Deferred taxes
            
            
            2,359,475
            
            
            
            406,000Income
                tax expense (benefit)
            
            $
            800
            
            
            $
            800





The
      following is a reconciliation of the provision for income taxes at the United
      States federal statutory rate to the foreign income tax rate at June 30,
      2007:





**2007**Tax
                expense (credit) at statutory rate-federal
            
            
            (34
            %)State
                tax expense net of federal tax
            
            
            (6
            %)Foreign
                income tax rate difference
            
            
            13.5
            %Change
                in valuation allowance
            
            
            26.5
            %Tax
                expense at actual rate
            
            
            --





The
      tax
      effects of temporary differences that gave rise to significant portions of
      deferred tax assets and liabilities at June 30, 2007 are as
      follows:





Deferred
                tax assets:Net operating loss carry forward
            
            $
            9,572,856Total gross deferred tax assets
            
            
            9,572,856Less valuation allowance
            
            
            (9,572,856
            )Net
                deferred tax assets
            
            $
            --





At
      June
      30, 2007, the Company had accumulated deficit carry forwards of approximately
      $3,081,002. Pursuant to Dutch income tax laws, losses may be carried forward
      indefinitely. However, loss carry-back is permitted for three years. Utilization
      of the net operating losses may be prohibited after a change of 30% or more
      of
      the ultimate control in a company.





The
      net
      change in the valuation allowance during the six months period ended June 30,
      2007 was $2,788,016.





-
          12
          -




**ELEPHANT
          TALK COMMUNICATIONS, INC. AND
          SUBSIDIARIES**
 NOTES
          TO
          CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)




**NOTE
      18   Commitments**





The
      Company leases its corporate offices space under a month-to-month operating
      lease. Monthly rental expense under its leases is $4,575 per month. The
      Company’s majority owned subsidiaries leases its office space from third
      parties. 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 $4,743. The lease term expires on April 30, 2008.





The
      Company has commitments to pay annual regulatory fees and fees for various
      national interconnects, telecom lines and co-locations rents. Rent expense
      under
      operating leases was $52,111 and $101,324 for the three months and six months
      ended June 30, 2007 compared to $23,486 and $46,974 for the same periods in
      2006.





Commitments
      of the Company relating to leases, co-location and office rents, regulatory
      and
      interconnection fees as of June 30, 2007 for the twelve months periods ended
      June 30, are as follows:





June
                30, 2008
            
            $
            737,579June
                30, 2009
            
            
            206,868June
                30, 2010
            
            
            121,631June
                30, 2011
            
            
            94,852**Total**
            
            $
            1,160,930





**NOTE
      19   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).




ETGD
      has
      retained a legal counsel licensed to practice Civil law in the People’s Republic
      of China, who has advised that Beijing Zhongrun’s litigation claims are not
      supported by valid facts nor have sufficient legal evidence. Accordingly, the
      claims of Beijing Zhongrun are considered without merit and will be defended
      vigorously.





The
      parties have presented their cases to the Beijing Higher Civil Court on May
      14th and
      15th, 2007.
      It
      is not known yet when the Court will give its judgment.






-
            13
            -
 **ELEPHANT
          TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**
 NOTES
            TO
            CONSOLIDATED  FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)






**NOTE
      20    Segment Information**





**Six
                months ended June 30, 2007****EUROPE****Netherlands**
            
            
            **Spain**
            
            
            **Switzerland**
            
            
            **Others**
            
            
            **Total**
            
            
            **Far
                East**
              **HK/PRC**
            
            
            **Middle
                East**
            
            
            **USA**
            
            
            **TOTAL**Revenues
            
            $
            16,372,294
            
            
            $
            1,496,186
            
            
            $
            5,505,735
            
            
            $
            217,875
            
            
            $
            23,592,090
            
            
            $
            88,363
            
            
            $
            -
            
            
            $
            --
            
            
            $
            23,680,454Operating
                income (loss)
            
            $
            115,032
            
            
            $
            264,284
            
            
            $
            (1,694,772
            )
            
            $
            (231,290
            )
            
            $
            (1,546,745
            )
            
            $
            (436,586
            )
            
            $
            (8,850
            )
            
            $
            (5,310,315
            )
            
            $
            (7,302,497
            )Identifiable
                assets
            
            $
            4,103,138
            
            
            $
            2,031,903
            
            
            $
            13,130,766
            
            
            $
            1,026,078
            
            
            $
            20,291,885
            
            
            $
            611,780
            
            
            $
            419,201
            
            
            $
            148,116
            
            
            $
            21,470,982Depreciation
                and amortization
            
            $
            87,852
            
            
            $
            56,742
            
            
            $
            861,878
            
            
            $
            3,515
            
            
            $
            1,009,987
            
            
            $
            20,046
            
            
            $
            --
            
            
            $
            201
            
            
            $
            1,030,234Capital
                expenditure
            
            $
            31,968
            
            
            $
            17,410
            
            
            $
            4,916,329
            
            
            $
            178,039
            
            
            $
            5,143,746
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            5,143,746





**NOTE
      21   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
      $23,932,141 including a net loss of $7,644,721 for the six months ended June
      30,
      2007 and default on its bank loans. 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 June 30, 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) strategically acquire profitable companies
      that bring synergies to the Companies products and services.





**NOTE
      22   Subsequent Events**





On
      July
      6, 2007 and August 9, 2007, the Company received the remaining cash
      consideration of $327,500 and $944,500 from an officer and directors for
      purchase of common shares pursuant to a Stock Purchase Agreement executed on
      December 28, 2006 for sale of 109,480,000 restricted common shares for a total
      consideration of $4,105,500. The Company has received the total consideration
      of
      $4,105,500 as of August 9, 2007. The Company has not issued any common shares
      to
      the investors as of August 17, 2007.





-
            14
            -







**ITEM
      2.** **Mana****gement
      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, premium
      rate, toll free, 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.





**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 through its wholly-owned subsidiary Elephant Talk Europe
      Holding BV, 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 June 30, 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
      June 30, 2007. The Company owns 50.54% share of this joint venture company.
      ET
      Dubai has not yet begun the operations and plans to operate various telecom
      related business in the Middle East and Africa in the near future.





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 June 30, 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 June 30, 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 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.





-
          15
          -






On
      July
      28, 2006*,* ET Europe Holding BV 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 $19,760 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 June 30, 2007. ET UK was formed to expand ET Europe’s operations in United
      Kingdom.





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 June
      30,
      2007. ET Jordan has applied for the telecommunication licenses and has not
      begun
      its operations.





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 June 30, 2007.
      None of the principal amount of the Note has been converted into shares of
      common stock as of June 30, 2007





On**May
      26, 2006*,*the Company executed a second Convertible Promissory Note
      (the “2nd
      Note”) in the principal sum of $3,000,000 with Rising Water Capital. The 2nd 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
      2nd Note shall
      not be convertible during the term when the Company has insufficient authorized
      common shares to issue to the 2nd Note holder
      when a
      demand for conversion is made. The Company has received the principal balance
      of
      $2,660,411 against the 2nd Note as
      of June
      30, 2007. Assuming that the 2nd Note is
      converted
      into common stock as of June 30, 2007, the Company would be obligated to issue
      38,005,871 shares of common stock to Rising Water Capital. None of the principal
      amount of the Note has been converted into shares of common stock as of June
      30,
      2007.





On
      December 28, 2006, the Company signed five subscription agreements with
      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 June 30, 2007, the Company received a funding of $2,833,500
      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. Based upon the funding received
      as of June 30, 2007, the Company is obligated to issue 75,560,000 shares of
      common stock to the accredited investors as of June 30, 2007.





On
      January 17, 2007, Elephant Talk Europe Holding B.V., entered into a Share
      Purchase Agreement with 3U Telecom, to acquire all of the issued and outstanding
      shares of 3U Telecom SARL, a private company with limited liability registered
      in France. The total purchase price for all outstanding shares amounted to
      Euro
      1,453,709. 3U Telecom SARL, owned a claim in the amount of Euro 1,273,709
      arising from a loan agreement against its former parent company. 3U Telecom
      transferred this claim to the purchasing company Elephant Talk Europe Holding
      B.V. The Purchaser has set-off the transferred claim against the purchase price.
      As a result, the remaining purchase price amounted to Euro 180,000. On June
      1,
      2007, the acquisition of 3U Telecom SARL has been completed. Currently, 3U
      Telecom SARL is being transformed to ETC France SAS.





On
      May
      24, 2007 the Company formed and incorporated an entity under the name Elephant
      Talk Global Holding BV (“ET Global Holding”), a private limited liability
      company registered in Schiphol, The Netherlands, with an authorized capital
      of
      $125,000 (90,000 Euros). The Company owns 100% equity in ET Global Holding.
      The
      purpose of forming ET Global Holding is to structure the organization of the
      Company so that ET Global Holding will hold the regional holding
      companies.





Results
      of Operations: Our results of operations for the three months and six months
      ended June 30, 2007 consisted of operations of Elephant Talk Communications,
      Inc., its wholly-owned subsidiary Elephant Talk Limited and its subsidiaries,
      its wholly-owned subsidiary Elephant Talk Global Holding BV, and its
      wholly-owned subsidiary Elephant Talk Europe Holding BV and its subsidiaries.
      The results of operations of the Company for the three months and six months
      ended June 30, 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 losses of $6,251,010 and $7,644,721 for the three
      months and six months periods ended June 30, 2007 compared to net losses of
      $525,855 and $1,031,001 for the same periods in 2006.





Revenues
      and Cost of Revenues: The Company reported revenues of $12,509,839 and
      $23,680,454 for the three months and six months ended June 30, 2007 compared
      to
      $46,613 and $98,842 for the same periods in 2006. Revenues for the three months
      and six months ended June 30, 2007 consisted of $8,568,041 and $16,380,925
      primarily from the premium rate services provided by the Company’s subsidiary
      Elephant Talk Communication Holding AG 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 and six months ended June 30, 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 retail customers in China, Japan and Hong Kong.





Cost
      of
      revenues was $11,906,707 and $22,633,017 for the three months and six months
      periods ended June 30, 2007 compared to $44,526 and $89,155 for the same period
      in 2006. Cost of revenues for the three months and six months periods ended
      June
      30, 2007 consisted of $8,527,792 and $16,348,836 for the cost of services
      provided to premium rate services customers of our subscriber base, compared
      to
      the cost of revenues of $44,526 and $89,155 for the three months and six months
      periods ended June 30, 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.





-
          16
          -






Gross
      margins for the three months and six months ended June 30, 2007 was $603,132
      (4.8%) and $1,047,437 (4.4%) of revenues as compared to $2,087 (4.5%) and $9,687
      (9.8%) of revenues for the same periods in 2006. Gross margins for the three
      months ended June 30, 2007 consisted of $574,911 and $33,269 from the Company’s
      subsidiary Elephant Talk Europe Holding BV and Elephant Talk Limited, compared
      to a gross margin of $2,087 for the three months ended March 31, 2006 resulted
      from Elephant Talk Limited subsidiary. Gross margins for the six months ended
      June 30, 2007 consisted of $1,016,622 and $30,815 from the Company’s subsidiary
      Elephant Talk Europe Holding BV and Elephant Talk Limited, compared to a gross
      margin of $9,687 for the six months ended June 30, 2006 resulted from Elephant
      Talk Limited subsidiary. The gross margins for the three months and six months
      ended June 30, 2007 remained relatively flat 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.





Operating
      Expenses: Selling, general and administrative expenses (S,G&A) were
      $1,479,788 and $2,632,714 for the three months and six months ended June 30,
      2007 compared to $573,387 and $1,097,455 for the same periods in 2006. S,G&A
      expenses for the three months period ended June 30, 2007 primarily consisted
      of
      expenses of $890,856 and $223,014 from the Company’s subsidiaries Elephant Talk
      Europe Holding BV and Elephant Talk Limited. S,G&A expenses for the six
      months period ended June 30, 2007 primarily consisted of expenses of $1,566,317
      and $450,356 from the Company’s subsidiaries Elephant Talk Holding BV and
      Elephant Talk Limited. S,G&A expenses increased during the three months and
      six months periods ended June 30, 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 other legal and administrative
      expenses of the newly acquired businesses.. During the three months and six
      months ended June 30, 2007, the Company recorded an expense of $4,686,986 in
      stock compensation to officers and directors as sign up bonus for executing
      employment agreements for a three year term. Depreciation and amortization
      expense for the three months and six months periods ended June 30, 2007
      increased to $516,859 and 1,030,234 as compared to $$9,415 and $31,399 for
      the
      same periods in 2006 primarily due to the acquisition of assets by the
      subsidiaries of the Company in 2007.





Other
      Income and Expenses: Interest income was $26,294 and $28,496 for the three
      months and six months periods ended June 30, 2007 compared to $132 and $153
      for
      the same periods in 2006. Interest expense was $193,309 and $369,982 for the
      three months and six months ended June 30, 2007 compared to $108,271 and
      $208,531 for the same periods 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 $2,182 for the three months
      ended June 30, 2007 compared to a loss of $4,215 for the same period in 2006.
      Elephant Talk Middle East and Africa (Holding) WLL, a majority owned subsidiary
      (51%) incurred a net loss of $9,364 for the three months period ended June
      30,
      2007 compared to$14,142 for the same period in 2006. The Company recorded net
      losses of $5,664 and $7,963 for the three months and six months periods ended
      June 30, 2007 and net losses of $9,092 and $12,372 for the comparable periods
      of
      2006, attributable to its minority shareholders’ interest in the accompanying
      financial statements.




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 “with the
      expected revenue increases in 2007, no additional funding will be required
      to
      continue to operate the Company.”





As
      shown
      in the accompanying financial statements, the Company incurred a net loss of
      $7,644,721 for the six months period ended June 30, 2007 as compared to a net
      loss of $1,013,001 for the same period in 2006. Additionally, the Company’s
      current liabilities exceeded its current assets by $14,190,123 at June 30,
      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.





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 six months period
      ended June 30, 2007 amounted to $1,095,986 primarily due to increase in accounts
      receivable of $1,061,509, increase in prepaid expenses, deposits and other
      current assets of $28,418, increase in accounts payable of $4,183,407, and
      decrease in accrued expenses and other payable of $2,474,135. Additionally,
      the
      Company’s current liabilities exceeded its current assets by
      $14,190,123****at June 30, 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 the Company’s ability to continue as a going
      concern.





Investing
      Activities. Net cash used in investing activities during the six months period
      ended June 30, 2007 was $594,207 primarily due to the purchase of property
      and
      equipment of $714,551 and net cash inflow of $140,556 due to the acquisition
      of
      Benoit Telecom.





Financing
      Activities. Net cash provided by financing activities during the six months
      period ended June 30, 2007 was $2,524,109. The Company received $1,889,000
      in
      funding against the sale of shares to accredited investors. The Company received
      $6,646 from third parties and paid $19,147 to related parties.





The
      Company recorded a net reduction of cash of $363,036 as a result of effect
      of
      exchange rates during the six months ended June 30, 2007.




As
      a
      result of the above activities, the Company experienced a net increase in cash
      of $470,880 for the six months period ended June 30, 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.





-
          17
          -






**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. Costs
      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.





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.





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.





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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.** **Co****ntrols
      and
      Procedures**





The
      Company maintains and continues to improve and implement new 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 and
      continues to improve 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.





**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.








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**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).




ETGD
      has
      retained a legal counsel licensed to practice Civil law in the People’s Republic
      of China, who has advised that Beijing Zhongrun’s lawsuits are not supported by
      valid facts nor have sufficient legal evidence. Accordingly, the claims of
      Beijing Zhongrun are considered without merit and will be defended vigorously.
      The parties have presented their cases to the Beijing Higher Civil Court on
      May
      14th and
      15th, 2007.
      It
      is not known yet when the Court will give its judgment.





**ITE****M
      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.** **Exhib****its
      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 Document**31.1
            
            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**
 
 None.




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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:
                August 17, 2007
            
            By:
                /s/ Steven van der VeldenSteven
                van der VeldenPresident
                & Chief Executive Officer













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