**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**




**WASHINGTON,
      D. C. 20549**




**FORM
      10-Q**  ****





x  **** Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
      the
      quarterly period ended **September
      30** ***,***  **2008**





 ̈ Transition report under Section 13 or 15(d) of the Securities Exchange Act
      of
      1934




For
      the
      transition period from ______ to ______





**000-30061**


( *Commission
      file No.)*





**ELEPHANT
      TALK COMMUNICATIONS, INC.**


*(Exact
      name of small business issuer as specified in its charter)*




**CALIFORNIA**
            
            **95-4557538***(State
                or other jurisdiction of*
            
            *(I.R.S.
                employer identification no.)**incorporation
                or organization)*




**Schiphol
      Boulevard 249**


**1118
      BH Schiphol**


**The
      Netherlands**


*(Address
      of principal executive offices)*




**31
      0 20 653 5916**  ******


*(Issuer's
      telephone number, including area code)*




Check
      whether the registrant (1) has 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  ̈ .





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      Accelerated filer  ̈ Accelerated filer  ̈ Non-Accelerated filer  ̈ Smaller reporting company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈ No x




As
      of
      November 7, 2008, there were 50,679,629 shares of the Company’s common stock
      outstanding.









**ELEPHANT
      TALK COMMUNICATIONS, INC.**




TABLE
      OF
      CONTENTS




FORM
      10-Q




September
      30, 2008




PART
                I - FINANCIAL INFORMATION
            
            3Item
                1. Consolidated Financial Statements
            
            3Consolidated
                Balance Sheets as of September 30, 2008 (Unaudited) and December
                31,
                2007
            
            3Unaudited
                Consolidated Statements of Operations for the three and nine months
                periods ended September
                30, 2008 and 2007
            
            4Unaudited
                Consolidated Statements of Cash Flows for the nine months periods
                ended
                September
                30, 2008 and 2007
            
            5Notes
                to the Consolidated Financial Statements (Unaudited)
            
            7Item
                2. Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations
            
            20Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            
            24Item
                4. Controls and Procedures
            
            24PART
                II - OTHER INFORMATION
            
            25Item
                1. Legal Proceedings
            
            25Item
                2. Unregistered Sales of Equity Securities and Use of Proceeds
            
            25Item
                3. Defaults upon Senior Securities
            
            25Item
                4. Submission of Matters to a Vote of Security Holders
            
            25Item
                5. Other Information
            
            25Item
                6. Exhibits
            
            25SIGNATURES
            
            26Exhibit
                31.1
                Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
                15(d)-14(a)
            
            X-1Exhibit
                31.2
                Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
                15(d)-14(a)
            
            X-2Exhibit
                32.1
                Certification
                of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
                Act of 2002
            
            X-3Exhibit
                32.2
                Certification
                of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley
                Act of 2002
            
            X-4









**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Consolidated Financial Statements**





**ELEPHANT
                TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**CONSOLIDATED
                BALANCE SHEET(UNAUDITED)




**September
                  30, 2008**
              
              **December
                  31, 2007****(Unaudited)****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              4,763,810
              
              $
              4,366,312Restricted
                  cash
              
              
              22,817
              
              
              23,266Accounts
                  receivable, net of allowance for doubtful accounts of $299,261
                  and
                  $146,215 at September 30, 2008 and December 31, 2007,
                  respectively
              
              
              4,748,462
              
              
              4,438,224Deposits
              
              
              506,966
              
              
              442,853Prepaid
                  expenses and other current assets
              
              
              119,071
              
              
              372,331Due
                  from related parties
              
              
              335
              
              
              18,514Total
                  Current Assets
              
              
              10,161,461
              
              
              9,661,500**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              3,761,095
              
              
              3,484,224**INTANGIBLE
                  ASSETS, NET**
              
              
              10,709,987
              
              
              11,462,504**TOTAL
                  ASSETS**
              
              $
              24,632,543
              
              $
              24,608,228**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Overdraft
              
              $
              315,808
              
              $
              197,815Accounts
                  payable and customer deposits
              
              
              5,769,331
              
              
              4,857,229Deferred
                  revenue
              
              
              184,084
              
              
              93,661Accrued
                  expenses and other payables
              
              
              2,127,303
              
              
              3,011,267Shares
                  to be issued
              
              
              500
              
              
              18,255,065Convertible
                  promissory note - related party
              
              
              —
              
              
              6,484,063Management
                  Shares to be issued
              
              
              —
              
              
              —Advances
                  from third parties
              
              
              284,615
              
              
              201,191Loans
                  payable
              
              
              878,836
              
              
              875,432Due
                  to related parties
              
              
              —
              
              
              115,241Total
                  Current Liabilities
              
              
              9,560,477
              
              
              34,090,964**MINORITY
                  INTEREST**
              
              
              151,165
              
              
              231,575**STOCKHOLDERS'
                  EQUITY**Common
                  stock, no par value, 250,000,000 shares authorized, 50,433,253
                  issued and
                  outstanding as of September 30, 2008 compared to 9,530,637 shares
                  outstanding as of December 31, 2007
              
              
              52,891,409
              
              
              17,868,448Deferred
                  Compensation
              
              
              (1,160,446
              )
              
              —Accumulated
                  Other Comprehensive income
              
              
              1,320,009
              
              
              1,437,073Accumulated
                  deficit
              
              
              (38,130,071
              )
              
              (29,019,832
              )Total
                  Stockholders' Equity
              
              
              14,920,901
              
              
              (9,714,311
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              24,632,543
              
              $
              24,608,228




3




**ELEPHANT
                TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**CONSOLIDATED
                STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS(UNAUDITED)




**For
                  the three months ended**
                **September
                  30,**
              
              **For
                  the nine months ended**
                **September
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**REVENUES
              
              $
              11,346,417
              
              $
              11,574,708
              
              $
              35,024,987
              
              $
              35,255,160COST
                  OF REVENUES (1)
              
              
              11,695,051
              
              
              11,602,554
              
              
              35,785,562
              
              
              34,942,312GROSS
                  LOSS
              
              
              (348,634
              )
              
              (27,846
              )
              
              (760,575
              )
              
              312,848OPERATING
                  EXPENSESSelling,
                  general and administrative
              
              
              2,153,544
              
              
              560,395
              
              
              5,575,047
              
              
              3,181,314Non
                  cash Compensation to officers, directors and employees
              
              
              199,886
              
              
              143,615
              
              
              589,958
              
              
              4,830,583Depreciation
                  and amortization
              
              
              173,084
              
              
              165,959
              
              
              494,889
              
              
              489,451Total
                  Operating Expenses
              
              
              2,526,514
              
              
              869,969
              
              
              6,659,894
              
              
              8,501,348LOSS
                  FROM OPERATIONS
              
              
              (2,875,148
              )
              
              (897,815
              )
              
              (7,420,469
              )
              
              (8,188,500
              )OTHER
                  INCOME (EXPENSE)Interest
              
              
              318,528
              
              
              (121,268
              )
              
              (414,080
              )
              
              (512,237
              )Other
                  expenses
              
              
              (147,132
              )
              
              —
              
              
              (156,101
              )
              
              —Note
                  Beneficial Conversion Feature
              
              
              (1,200,000
              )
              
              —
              
              
              (1,200,000
              )
              
              —Total
                  Other Income (Expense)
              
              
              (1,028,604
              )
              
              (121,268
              )
              
              (1,770,181
              )
              
              (512,237
              )LOSS
                  BEFORE INCOME TAXES AND MINORITY INTEREST
              
              
              (3,903,752
              )
              
              (1,019,083
              )
              
              (9,190,650
              )
              
              (8,700,737
              )Provision
                  for income taxes
              
              
              —
              
              
              —
              
              
              800
              
              
              —LOSS
                  BEFORE MINORITY INTEREST
              
              
              (3,903,752
              )
              
              (1,019,083
              )
              
              (9,191,450
              )
              
              (8,700,737
              )Minority
                  interest
              
              
              21,160
              
              
              (31,117
              )
              
              80,409
              
              
              (23,154
              )NET
                  LOSS
              
              
              (3,882,592
              )
              
              (1,050,200
              )
              
              (9,111,041
              )
              
              (8,723,891
              )OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation gain (loss)
              
              
              (1,331,411
              )
              
              351,967
              
              
              (117,064
              )
              
              (111,179
              )(1,331,411
              )
              
              351,967
              
              
              (117,064
              )
              
              (111,179
              )COMPREHENSIVE
                  LOSS
              
              $
              (5,214,003
              )
              $
              (698,233
              )
              $
              (9,228,105
              )
              $
              (8,835,070
              )Net
                  loss per common share and equivalents - basic and diluted
              
              $
              (0.12
              )
              $
              (0.07
              )
              $
              (0.39
              )
              $
              (0.93
              )Weighted
                  average shares outstanding during the period - basic and diluted
              
              
              43,381,610
              
              
              9,530,637
              
              
              23,508,587
              
              
              9,530,637




1)
            Includes
                depreciation & amortization directly attributable to revenue: for the
                three months ended September 30, 2008 $ 552,859 and for the nine
                months
                ended September 30, 2008 $1,657,235. For the three months ended September
                30, 2007 $406,554 and for the nine months ended September 30, 2007
                $1,113,296




The
        accompanying notes are an integral part of the unaudited consolidated financial
        statements




4





**ELEPHANT
                TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**CONSOLIDATED
                STATEMENTS OF CASH FLOWS(UNAUDITED)




**For
                  the nine months ended**
                **September
                  30,****2008**
              
              **2007****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (9,111,041
              )
              $
              (8,723,891
              )**Adjustments
                  to reconcile net loss to net cash used in operating activities:**Depreciation
                  and amortization
              
              
              2,152,124
              
              
              1,602,747Amortization
                  of Shares issued for Consultancy
              
              
              45,139
              
              
              —Stock
                  based compensation
              
              
              589,958
              
              
              4,830,583Minority
                  interest
              
              
              (80,409
              )
              
              23,154Note
                  Beneficial Conversion Feature
              
              
              (1,200,000
              )
              
              —**Changes
                  in operating assets and liabilities:**Decrease
                  (increase) in accounts receivable
              
              
              (130,625
              )
              
              253,182(Increase)
                  decrease in prepaid expenses, deposits and other assets
              
              
              159,281
              
              
              (285,722
              )Increase
                  (decrease) in accounts payable, proceeds from related parties and
                  customer
                  deposits
              
              
              705,647
              
              
              157,398Increase
                  (decrease) in deferred revenue
              
              
              
              
              
              —Increase
                  (decrease) in accrued expenses and other payables
              
              
              (403,099
              )
              
              775,900**Net
                  cash used in operating activities**
              
              
              (4,873,025
              )
              
              (1,366,649
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of property and equipment
              
              
              (1,171,652
              )
              
              (1,657,347
              )Restricted
                  cash
              
              
              —
              
              
              (21,408
              )Cash
                  paid for acquisition of subsidiary
              
              
              (1
              )
              
              (241,883
              )Cash
                  received from acquisition of subsidiary
              
              
              —
              
              
              382,439**Net
                  cash used in investing activities**
              
              
              (1,171,653
              )
              
              (1,538,199
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Bank
                  Cash overdraft
              
              
              122,358
              
              
              19,368Issuance
                  of Common Stock
              
              
              7,511,729
              
              
              5,929,539Placement
                  fees
              
              
              (981,682
              )
              
              —Proceeds
                  from bank loans
              
              
              (33,302
              )
              
              —Proceeds
                  from note payable
              
              
              —
              
              
              635,190Proceeds
                  from sale of shares
              
              
              —
              
              
              —Payments
                  to related parties
              
              
              —
              
              
              (262,270
              )**Net
                  cash provided by financing activities**
              
              
              6,619,103
              
              
              6,321,827**EFFECT
                  OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS**
              
              
              (176,927
              )
              
              (111,179
              )**NET
                  INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              397,497
              
              
              3,305,800**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD**
              
              
              4,366,312
              
              
              332,001**CASH
                  AND CASH EQUIVALENTS, END OF THE PERIOD**
              
              $
              4,763,809
              
              $
              3,637,801**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                  paid during the period for interest
              
              $
              —
              
              $
              21,448Cash
                  paid during the period for income taxes
              
              $
              800
              
              $
              800




5




**ELEPHANT
                TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**CONSOLIDATED
                STATEMENTS OF CASH FLOWS (Continued)(UNAUDITED)




**For the nine months periods ended**
              **September
                30,****2008**
            
            **2007****SUPPLEMENTAL
                DISCLOSURES OF NON-CASH INVESTING & FINANCING
                ACTIVITIES:**Shares
                issued to convert the notes payable to related parties and accrued
                interest
            
            $
            7,939,171
            
            $
            —Beneficial
                    Conversion Featureas
                    a result of loss on conversion of the above Note to related
                    party
            
            $
            1,200,000
            
            $
            —




6




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


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**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 the 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 is the business of Elephant Talk Limited.





On
      January 1, 2007, the Company completed its acquisition of Elephant Talk
      Communications 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 Customer Relationship
      Management and Billing application.





Elephant
      Talk Caribbean BV was incorporated in the Netherlands on March 20, 2008 as
      a
      100% subsidiary of Elephant Talk Global Holding B.V. The issued capital amounts
      to € 18,000.00. The purpose of the Company is to act as the Joint Venture
      Partner of UTS N.V. in a specially to be created entity in Curacao, Netherlands
      Antilles.





ET-UTS
      NV
      was incorporated in Curacao, the Netherland Antilles, on April 9, 2008 as a
      subsidiary for 51% of Elephant Talk Caribbean B.V. and for 49% of
      the Joint Venture partner UTS N.V. The total issued capital amounts to US$
      100,000.00. Purpose of the Company is to design, install, maintain and
      exploit WIFI and WIMAX networks in the Caribbean area and Surinam, with the
      objective to provide in each of the Areas a complete range of services over
      such
      networks.





On
      August
      14, 2008 the name of Cardnet Clearing Services BV, a 100% affiliate of Elephant
      Talk Europe Holding BV, was changed to Elephant Talk Mobile Services BV. The
      renamed Company’s main objective to act as the ET entity to contract Mobile
      Virtual Network Operators in the Netherlands.





On
      August
      20, 2008 an agreement for the 100% acquisition of Moba Consulting Services
      BV
      was signed by Elephant Talk Europe Holding BV, with effective date September
      1,
      2008. The acquisition price was € 1.00 plus 50, 000 stock options of ETC, Inc.
      The main objective of this acquisition is to acquire expertise and manpower
      for
      certain aspects of the implementation of Mobile Virtual Network Operators on
      the
      platform of Elephant Talk.





On
      December 28, 2007, our board of directors approved a 1-for-25 reverse stock
      split (the “Reverse Split”) of our outstanding common stock, no par value per
      share (the “Common Stock”). The Reverse Split was duly approved by a majority of
      our stockholders on January 15, 2008.   Pursuant to the Reverse Split,
      every twenty-five (25) shares of our issued and outstanding Common Stock as
      presently classified were, as of the open of business on June 11, 2008,
      reclassified and combined into one (1) whole post-split share of our Common
      Stock. No fractional shares of our Common Stock will be issued in connection
      with the Reverse Split. Any fractional shares were rounded up. There was not
      a
      corresponding reduction in our authorized Common Stock. The Reverse Split was
      effected at the open of business on June 11, 2008 (the “Record Date”), and the
      post-split shares began trading on the OTC Bulletin Board at the opening of
      business on June 11, 2008 (the “Effective Date”). Our new symbol is ETAK. All
      references to share and per-share data for all periods presented have been
      adjusted to give effect to this reverse split.




ETCI
      until recently was engaged in the long distance telephone business in China
      and
      the Special Administrative Region Hong Kong. In 2006 the Company adopted the
      strategy to position itself as an international telecom operator and enabler
      to
      the multi-media industry by facilitating to the distribution of all forms of
      content and sophisticated mobile and fixed telecommunications services to
      various global customers. Through intelligent design and organizational
      structure the Company pursues this strategy by building a worldwide network
      based on both clear and IP bandwidth that is managed centrally by its
      proprietary IN-CRM-Billing platform.




7




In
      January 2007, through the acquisition of various assets in Europe, the Company
      established a foothold in the European Telecommunications Market, particularly
      in the market of Service Numbers like Toll Free and Premium Rate Services and
      to
      a smaller extent Carrier Pre Select Services. Furthermore, through the human
      and
      IT resources thereby acquired, the Company obtained expertise of telecom and
      multi-media systems, telecom regulations and European markets.





The
      Company currently operates a switch-based telecom network with national licenses
      and direct fixed line interconnects with the Incumbents/National Telecom
      Operators in eight (8) European countries, one (1) in the Middle East (Bahrain),
      licenses in Hong Kong and the U.S.A. and partnerships with telecom operators
      in
      Scandinavia, Poland, Germany, Greece and Hong Kong. Codec and media streaming
      servers are currently located in six centers geographically spread around the
      world. Together with the centrally operated and managed IN-CRM-Billing platform,
      the Company thus offers geographical, premium rate, toll free, personal, nomadic
      and VoIP numbers. Services are primarily provided to the business market and
      include traditional telecom services, VOIP, media streaming and distribution
      including the necessary billing and collection. Through its European and Chinese
      development centers, ETCI develops in-house telecom and media related systems
      and software.





In
      the
      third quarter of 2007 the Company finalized testing and commissioned
      additional national interconnects in the United Kingdom (British Telecom) and
      Bahrain (Batelco), further enlarging the Company’s footprint in fixed line
      infrastructure. In the Caribbean and the Middle East, the Company installed
      its
      first Wifi test sites, aimed at creating own broadband mobile access networks
      in
      emerging markets with relatively poor (or relatively expensive)
      infrastructures.




In
      Europe, a step was made towards building a mobile enabled infrastructure on
      top
      of the Company’s fixed line infrastructure by committing capital expenditure and
      implementation resources towards becoming a Mobile Virtual Network Enabler
      (MVNE)





In
      Europe
      in 2008 the Company positioned itself as a Mobile Virtual Network Enabler
      offering to Mobile Network Operators and Mobile Virtual Network Operators a
      wide
      range of Mobile Enabling/Enhancing services through sophisticated, proprietary
      technology supported by multi-country operations with a focus on B-B,
      Outsourcing /partnering strategy. Important milestones in this respect
      are:





1.
            September
                11, 2008.Letter
                of Intent signed by Vodafone Espaňa S.A.U. and Elephant Talk
                Communications, Inc., confirming the award by Vodafone Espaňa to Elephant
                Talk of the project of implementation and operation of a new Mobile
                Virtual Network Enabler platform for the Spanish market. Upon signing
                of
                the intended Hosting Agreement between Parties, Elephant Talk will
                become
                the exclusive MVNE  for Vodafone
                Espaňa.





2.
            September
                17, 2008. Hosting Agreement signed between T-Mobile Netherlands BV
                and
                Elephant Talk Holding AG, a 100% affiliate of Elephant talk Europe
                Holding
                BV. T-Mobile is one of the 3 Mobile Network Operators in the Netherlands.
                Elephant Talk will, as exclusive Mobile Virtual Network Enabler for
                T-Mobile, connect Mobile Virtual Network Operators in the Netherlands
                to
                its platform, making use of the mobile network of
                T-Mobile





The
      Company offers a full range of standard telecom services like




·
              Carrier
                  (pre)Select, Dial-Around, PPCC and VoIP
                  Capabilities


·
              Toll
                  Free, Shared Cost and Premium Rate
                  Services


·
              Content
                  Distribution, Streaming & Codec
                  Services


·
              Billing,
                  Customer Relationship Management
                  Services


·
              Intelligent
                  Network Services




**NOTE
      2** **Financial
      Condition and Going Concern**





The
      Company has an accumulated deficit of $38,130,071 including a net loss of
      $3,882,592 and $9,111,041 for the three and nine months ended September 30,
      2008. The Company has historically relied on a combination of debt and equity
      financings to fund its ongoing cash requirements. In May 2008, the Company
      received Subscription Agreements as a result of a European Funding Round of
      approximately $7.3 million. For the nine months ended September 30, 2008, the
      Company has received a total $7.4 million from various investors. The Company
      believes that its cash balance at September 30, 2008, in combination with cash
      generated from operations, will provide sufficient funds through the beginning
      of the first quarter of 2009.





In
      the
      light of the need to raise additional funds in the immediate short term, the
      Company is focused on capital raising activities, in addition to continuing
      to
      control operating costs and aggressively managing working capital. The Company
      is actively seeking to raise additional debt or equity financing in order to
      fund its cash requirements generated by future operations, capital expenditures
      and potential acquisitions.  Although the Company has previously been able
      to raise capital as needed, there can be no assurance that such capital will
      continue to be available at all, or if available, that the terms of such
      financing would not be dilutive to existing stockholders or otherwise on terms
      favorable to us. Further, the current global financial situation may offer
      additional challenges to raising the capital the Company requires in the
      immediate short term. If the Company is unable to secure additional capital,
      as
      circumstances require, it may not be able to continue its
      operations.




8





These
      financial statements assume that the Company will continue as a going concern.
      If the Company is unable to continue as a going concern, the Company may be
      unable to realize its assets and discharge its liabilities in the normal course
      of business. The financial statements do not include any adjustments relating
      to
      the recoverability and classification of recorded asset amounts or to the
      amounts and classification of liabilities that may be necessary should the
      Company be unable to continue as a going concern.





**NOTE
      3 Significant Accounting Policies**





**Basis
      of Presentation - Interim Financial Information**





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-Q. Accordingly, they do not
      include all of the information and footnotes required by generally accepted
      accounting principles for complete financial statements and related notes as
      included in the Company's 2007 Form 10-K. These consolidated financial
      statements should be read in conjunction with the audited consolidated financial
      statements of the Company for the year ended December 31, 2007 which were filed
      on April 15, 2008 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.





The
      results of operations for the three and nine months ended September 30, 2008
      are
      not necessarily indicative of the results to be expected for the entire year.
      Certain 2007 amounts have been reclassified to conform to current period
      presentation. These reclassifications have no effect on previously reported
      net
      income (loss).





**Principles
      of Consolidation**





The
      accompanying consolidated financial statements for the three and nine months
      ended September 30, 2008 and December 31, 2007 included the accounts of Elephant
      Talk Communications, Inc., its wholly-owned subsidiary Elephant Talk Europe
      Holding B.V., its wholly-owned subsidiary Elephant Talk Communication Holding
      AG, its wholly-owned subsidiary Elephant Talk Communications S.L.U., its
      wholly-owned subsidiary Elephant Talk Mobile Services B.V.( formerly known
      as
      Cardnet Clearing Services B.V), its wholly-owned subsidiary Elephant Talk
      Communication Austria GmbH, its wholly-owned subsidiary Vocalis Austria GmbH,
      its wholly-owned subsidiary Elephant Talk Communications Italy S.R.L., its
      wholly-owned subsidiary ET-Stream GmbH, its wholly-owned subsidiary Elephant
      Talk Communication Carrier Services GmbH, its wholly-owned subsidiary Elephant
      Talk Communication (Europe) GmbH, its wholly-owned subsidiary Elephant Talk
      Communication Schweiz GmbH, its majority owned (51%) subsidiary Elephant Talk
      Communications Premium Rate Services Netherlands B.V., its wholly-owned
      subsidiary Elephant Talk Communications France S.A.S., its majority owned (51%)
      subsidiary Elephant Talk Communications PRS U.K. Limited, its wholly-owned
      subsidiary Elephant Talk Communications Luxembourg SA, its wholly-owned
      subsidiary Elephant Talk Global Holding B.V., its wholly-owned subsidiary
      Elephant Talk Business Services W.L.L., its wholly-owned subsidiary Guangzhou
      Elephant Talk Information Technology Limited., its wholly-owned Elephant Talk
      Caribbean B.V., its majority owned (51%) subsidiary ET-UTS N.V., its
      wholly-owned subsidiary Elephant Talk Limited, its wholly-owned subsidiary
      Full
      Mark Technology Ltd., its wholly-owned subsidiary Jinfuyi Technology Limited,
      its majority owned (51%) subsidiary Elephant Talk Middle East & Africa
      (Holding) W.L.L., its majority owned (51%) subsidiary Elephant Talk Middle
      East
& Africa (Holding) Jordan L.L.C., its majority owned (50.49%) subsidiary
      Elephant Talk Middle East & Africa Bahrain W.L.L and its majority owned
      (50.54%) subsidiary Elephant Talk Middle East & Africa FZ-LLC.





**Foreign
      Currency Translation**





The
      functional currency was Euros for its wholly-owned subsidiary Elephant Talk
      Europe Holding B.V. and subsidiaries, and Euro for its wholly-owned subsidiary
      Elephant Talk Global Holding B.V., and the Hong Kong Dollar for its wholly-owned
      subsidiary Elephant Talk Limited. The financial statements of the Company were
      translated to USD using period-end exchange rates as to assets and liabilities
      and average exchange rates as to revenues and expenses. Capital accounts were
      translated at their historical exchange rates when the capital transaction
      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 (loss). Foreign currency translation gains and losses
      are included in consolidated income (loss). The accumulated other comprehensive
      income as of September 30, 2008 and December 31, 2007 were $1,320,009 and
      $1,437,073, respectively. The foreign currency translation gain (loss) for
      the
      three months ended September 30, 2008 and 2007 were ($1,331,411) and $351,967,
      respectively. The foreign currency translation gain (loss) for the nine months
      ended September 30, 2008 and 2007 were ($117,064) and ($111,179)
      respectively.




9




**Use
      of Estimates**





The
      preparation of the accompanying financial statements conforms with accounting
      principles generally accepted in the United States of America and requires
      management to make certain estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities at the date of the financial statements, and the reported amounts
      of
      revenues and expenses during the reporting period. Actual results could differ
      from those estimates and assumptions.




**Cash
      and Cash Equivalents**





For
      purposes of the cash flow statements, the Company considers all highly liquid
      investments with original maturities of three months or less at the time of
      purchase to be cash equivalents.





**Restricted
      Cash**





Restricted
      cash represents cash deposited as bank guarantee for interconnects.




**Accounts
      Receivables, net**





The
      Company’s customer base consists of a geographically dispersed customer base.
      The Company maintains an allowance for potential credit losses on accounts
      receivable. Management reviews the composition of accounts receivable and
      analyzes historical bad debts, customer concentrations, customer credit
      worthiness, current economic trends and changes in customer payment patterns
      to
      evaluate the adequacy of these allowances. Allowances are recorded primarily
      on
      a specific identification basis. As of September 30, 2008 and December 31,
      2007
      the allowance for doubtful debts was $299,261 and $146,215,
      respectively.





**Revenue
      Recognition, Cost of Revenues and Deferred Revenue**





The
      Company's revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. Revenue is recognized only when the price is fixed or
      determinable, persuasive evidence of arrangement exists, the service is
      performed and collectability of the resulting receivable is reasonably assured.
      The Company derives revenues from activities as a fixed-line telecom provider
      with its own carrier network and its own switching technology. Revenue
      represents amounts earned for telecommunication services provided to customers
      (net of value added tax and inter-company revenue). Cost of revenues includes
      the cost of capacity associated with the revenue recognized within the
      corresponding time period, payments made to content providers and depreciation
      of network infrastructure and equipment





The
      Company recognizes revenue from prepaid calling cards as the services are
      provided. Payments received before all of the relevant criteria for revenue
      recognition are satisfied are recorded as deferred revenue. Cost of revenue
      includes the cost of capacity associated with the revenue recognized within
      the
      corresponding time period.





Deferred
      revenue represents amounts received from the customers against future sales
      of
      services since the Company recognizes revenue upon performing the services.
      Deferred revenue was $184,084 and $93,661 as of September 30, 2008 and December
      31, 2007, respectively.





**Reporting
      Segments**





Statement
      of financial accounting standards No. 131, “Disclosures about segments of an
      enterprise and related information” (SFAS No. 131), which superseded statement
      of financial accounting standards No. 14, Financial reporting for segments
      of a
      business enterprise, establishes standards for the way that public enterprises
      report information about operating segments in annual financial statements
      and
      requires reporting of selected information about operating segments in interim
      financial statements regarding products and services, geographic areas and
      major
      customers. SFAS No. 131 defines operating segments as components of an
      enterprise about which separate financial information is available that is
      evaluated regularly by the chief operating decision maker in deciding how to
      allocate resources and in assessing performances. The Company allocates its
      resources and assesses the performance of its sales activities based upon
      geographic locations of its subsidiaries.





**Stock-based
      Compensation**





Effective
      January 1, 2006, the Company adopted Statement No.123R, “Share-Based Payment”
(SFAS 123R), which requires companies to measure and recognize compensation
      expense for all stock-based payments at fair value. SFAS 123R is being applied
      on the modified prospective basis. Prior to the adoption of SFAS 123R, the
      Company accounted for its stock-based compensation plans under the recognition
      and measurement principles of Accounting Principles Board (APB) Opinion No.25,
      Accounting for Stock Issued to Employees, and related interpretations, and
      accordingly, recognized no compensation expense related to the stock-based
      plans. Under the modified prospective approach, SFAS 123R applies to new awards
      and to awards that were outstanding on January 1, 2006 that are subsequently
      modified, repurchased or cancelled.




10




**Income
      Taxes**





The
      Company accounts for income taxes under SFAS No. 109, “Accounting for
      Income Taxes” (“SFAS 109”). This statement requires the recognition of
      deferred tax assets and liabilities for the future consequences of events that
      have been recognized in the Company’s financial statements or tax returns. The
      measurement of the deferred items is based on enacted tax laws. In the event
      the
      future consequences of differences between financial reporting bases and the
      tax
      bases of the Company’s assets and liabilities result in a deferred tax asset,
      SFAS 109 requires an evaluation of the probability of being able to realize
      the
      future benefits indicated by such asset. A valuation allowance related to a
      deferred tax asset is recorded when it is more likely than not that some portion
      or the entire deferred tax asset will not be realized.




**Comprehensive
      Income/(Loss)**





Comprehensive
      income includes all changes in equity during a period from non-owner sources.
      Other comprehensive income refers to gains and losses that under accounting
      principles generally accepted in the United States are recorded as an element
      of
      stockholders’ equity but are excluded from net income. For the three and nine
      month periods ended September 30, 2008 and September 30, 2007 the Company’s
      comprehensive income/(loss) consisted of its net loss and cumulative foreign
      currency translation adjustments.




**Goodwill
      and Intangible Assets**





Goodwill
      is carried at cost. In accordance with SFAS No. 142, “Goodwill and Other
      Intangible Assets,” goodwill is not amortized but is periodically evaluated for
      impairment. Intangible assets are carried at cost less accumulated amortization.
      Intangible assets are amortized on a straight-line basis over the expected
      useful lives of the assets, between three and ten years. Other intangible assets
      are reviewed for impairment in accordance with SFAS No. 144, “Accounting
      for Impairment or Disposal of Long-Lived Assets,” annually, or whenever events
      or changes in circumstances indicate that the carrying amount of such assets
      may
      not be recoverable. Measurement of any impairment loss for long-lived assets
      and
      identifiable intangible assets that management expects to hold and use is based
      on the amount of the carrying value that exceeds the fair value of the
      asset.





**Recently
      Issued Accounting Pronouncements**  ****





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  This statement clarifies that a
      non-controlling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      non-controlling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  Based on current conditions, the Company does not
      expect the adoption of SFAS 160 to have a significant impact on its results
      of
      operations or financial position.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
      SFAS 141 that the acquisition method of accounting (which SFAS 141 called
      the purchase method) be used for all business combinations and for an acquirer
      to be identified for each business combination. This statement defines the
      acquirer as the entity that obtains control of one or more businesses in the
      business combination and establishes the acquisition date as the date that
      the
      acquirer achieves control. This statement requires an acquirer to recognize
      the
      assets acquired, the liabilities assumed, and any non-controlling interest
      in
      the acquiree at the acquisition date, measured at their fair values as of that
      date, with limited exceptions specified in the statement. This statement applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. The Company does not expect the adoption of SFAS 141 to
      have a significant impact on its results of operations or financial
      position.





In
      March,
      2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities”. The new standard is intended to improve
      financial reporting about derivative instruments and hedging activities by
      requiring enhanced disclosures to enable investors to better understand their
      effects on an entity’s financial position, financial performance, and cash
      flows. It is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008, with early application
      encouraged. The new standard also improves transparency about the location
      and
      amounts of derivative instruments in an entity’s financial statements; how
      derivative instruments and related hedged items are accounted for under
      Statement 133; and how derivative instruments and related hedged items affect
      its financial position, financial performance, and cash flows. FASB Statement
      No. 161 achieves these improvements by requiring disclosure of the fair values
      of derivative instruments and their gains and losses in a tabular format. It
      also provides more information about an entity’s liquidity by requiring
      disclosure of derivative features that are credit risk-related. Finally, it
      requires cross-referencing within footnotes to enable financial statement users
      to locate important. Based on current conditions, the Company does not expect
      the adoption of SFAS 161 to have a significant impact on its results of
      operations or financial position.





In
      May of
      2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting
      Principles”. The pronouncement mandates the GAAP hierarchy reside in the
      accounting literature as opposed to the audit literature. This has the practical
      impact of elevating FASB Statements of Financial Accounting Concepts in the
      GAAP
      hierarchy. This pronouncement will become effective 60 days following SEC
      approval. The Company does not believe this pronouncement will impact its
      financial statements.




11




In
      May of
      2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance
      Contracts-an interpretation of FASB Statement No. 60”. The scope of the
      statement is limited to financial guarantee insurance (and reinsurance)
      contracts. The pronouncement is effective for fiscal years beginning after
      December 31, 2008. The Company does not believe this pronouncement will impact
      its financial statements.




**NOTE
        4  **Acquisitions********




None




**NOTE
        5  **Earnest
        deposit****




Deposits
      to various telecom carriers during the course of its operations amount to
      $506,966 as at September 30, 2008 compared to $442,853 as at December 31, 2007.
      The deposits are refundable at the conclusion of the business relationship
      with
      the carriers.




**NOTE
        6  **Prepaid
        expenses and other current
        assets****




Prepaid
      expenses and other current assets recorded as $119,071 as at September 30,
      2008
      and $372,331 as at December 31, 2007. The amount consists primarily of VAT
      prepaid and receivables from various European authorities.





**NOTE
      7********Property
      & Equipment**





Property
      and equipment as at September 30, 2008 and December 31, 2007 consist
      of:




**September 30, 2008**
              
              **December 31, 2007**Furniture
                  and fixtures
              
              $
              183,431
              
              $
              231,219Computer,
                  communication and network equipment
              
              
              6,961,245
              
              
              6,083,545Automobiles
              
              
              165,339
              
              
              137,726Construction
                  in progress
              
              
              823,810
              
              
              687,962Gross
              
              
              8,133,825
              
              
              7,140,452Less:
                  accumulated depreciation
              
              
              (4,372,730
              )
              
              (3,656,228
              )Net
              
              $
              3,761,095
              
              $
              3,484,224





Total
      depreciation expense for the three months ended September 30, 2008 and 2007
      was
      $228,555 and $176,407 respectively. Of this total depreciation expense $168,082
      and $173,358 being network costs and facility cost of hosting network for the
      three months ended September 30, 2008 and 2007 respectively, were re-classed
      to
      Cost of Sales as it was directly attributable to revenue.





Total
      depreciation expense for the nine months ended September 30, 2008 and 2007
      was
      $698,135 and $448,393 respectively. Of this total depreciation expense $502,412
      and $441,604 being network costs and facility cost of hosting network for the
      three months ended September 30, 2008 and 2007 respectively, were re-classed
      to
      Cost of Sales as it was directly attributable to revenue.




**NOTE
      8** **** **Intangible
      Assets - 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.




**September 30, 2008**
              
              **December 31, 2007**Customer
                  Contracts, Licenses & Interconnect
              
              $
              15,722,815
              
              $
              15,219,998Accumulated
                  amortization Customer Contracts & Licenses
              
              
              (5,012,828
              )
              
              (3,757,496
              )Customer
                  Contracts & Licenses, net
              
              $
              10,709,987
              
              $
              11,462,502




12





Amortization
      expense for the three months ended September 30, 2008 and 2007 totaled $471,247
      and $276,919 respectively. A total of $384,777 and $233,196 in amortization
      expense for the three months ended September 30, 2008 and 2007 respectively
      were
      re-classed to Cost of Sales as it was directly attributable to
      revenue.





Amortization
      expense for the nine months ended September 30, 2008 and 2007 totaled $1,433,795
      and $1,154,354 respectively. The amortization expense of $1,154,823 and
      $1,034,910 for the nine months ended September 30, 2008 and 2007 were re-classed
      to Cost of Sales as it was directly attributable to revenue.




**NOTE
      9**  **Due
      From Related Parties**





The
      Company advanced funds to entities that officers and/or shareholders have an
      ownership interest in. The funds were advanced to these entities prior to 2007.
      The balances of funds advanced as of September 30, 2008 amounted to $335 in
      comparison with $18,514 as of December 31, 2007.





**NOTE
        10  **Overdraft****




The
      Company has executed a credit facility with a bank in Hong Kong under which
      the
      Company has borrowed funds from the bank under an overdraft account. As of
      September 30, 2008 the overdraft balance included accrued interest amounted
      to
      $216,836 compared to $197,815 as of December 31, 2007. The interest rate and
      default payment interest rate were charged at 2% and 6% per annum above the
      Lender’s Hong Kong Dollar Prime Rate quoted by the Lender from time to time.


The
      newly
      acquired company Moba had a negative balance of $98,973 on one of the company’s
      bank accounts.




**NOTE
        11  **Accrued
        Expenses****





As
      at
      September 30, 2008 and December 31, 2007, the accrued expenses comprised of
      the
      following:




**September 30, 2008**
              
              **December 31, 2007**Accrued
                  SG&A expenses
              
              $
              920,147
              
              $
              877,901Accrued
                  cost of sales and network
              
              
              278,102
              
              
              521,398Accrued
                  taxes
              
              
              0
              
              
              43,941Accrued
                  interest payable
              
              
              406,249
              
              
              1,473,811Other
              
              
              522,805
              
              
              94,216Total
                  accrued expenses
              
              $
              2,127,303
              
              $
              3,011,267





Accrued
      SG&A expenses relate to Social Costs re Management Compensation and
      Remuneration CFO.


The
      Accrued Interest Payable is lower compared to 2007 as a result of the conversion
      of the Promissory Notes into Equity.


Other
      Accrued Expenses consists mainly of costs related to payments for services
      provided by certain parties in attracting/organizing the funding for the
      Company.




13




**NOTE
        12  **Payable
        To Third Parties****





As
      at
      September 30, 2008 and December 31, 2007 the Company had $284,615 and $201,191
      respectively as payable to third parties in relation to advances received at
      various times for its working capital requirements. The advances received were
      non-interest bearing, unsecured and due on demand.





**NOTE
      13**  **Loans
      Payable**





Loans
      payable at September 30, 2008 and December 31, 2007 are summarized as
      follows:




**September 30, 2008**
              
              **December 31, 2007**Installment loan payable
                  due December 24, 2006, secured by personal guarantees of two shareholders,
                  a former director, and a third party
              
              $
              319,720
              
              $
              318,481Installment
                  loan payable, bank, monthly principal and interest payments of
                  $2,789
                  including interest at bank's prime rate plus 1.5% per annum, 8.75%
                  at June
                  30, 2008, due December 24, 2011, secured by personal guarantees
                  of three
                  shareholders and a former
              
              
              191,038
              
              
              190,299Installment
                  loan payable, bank, monthly principal and interest payments of
                  $1,719
                  including interest at bank's prime rate plus 1.5% per annum, 8.75%
                  at June
                  30, 2008, due June 28, 2009, secured by personal guarantees of
                  three
                  shareholders and a former dir
              
              
              84,941
              
              
              84,612Term
                  loan payable, bank, monthly payments of interest at bank's prime
                  rate,
                  7.0% at September 30, 2008
              
              
              283,137
              
              
              282,040Total
              
              $
              878,836
              
              $
              875,432




A
      subsidiary of the Company has executed a credit facility with a bank in Hong
      Kong since June 29, 2004 under which the subsidiary has borrowed funds from
      the
      bank under three installment loans and a term loan arrangement. The subsidiary
      of the Company is in default of making loan payments on all the loans and has
      recorded accrued interest amounting to $394,454 as of September 30, 2008. As
      a
      result of the default, the entire loan balance outstanding at September 30,
      2008
      is immediately due and payable to the bank. Furthermore, the subsidiary of
      the
      Company is obligated to pay a default interest rate at the rate of 4.25% per
      annum in addition to the prescribed interest rate of the installment loans
      and
      term loan. However, the Company believes the bank will take no further action
      as
      there are no parent company guarantees or collateral and the loans are
      personally guaranteed by previous management. The Company has recorded $7,160
      and $76,648 in interest expense and default interest expense, respectively,
      on
      loans payable as of September 30, 2008 and $37,697 and $70,221 in interest
      expense and default interest expense, respectively, on loans payable as of
      September 30, 2007.




**NOTE
      14** **Convertible
      Promissory Notes**





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 and an entity controlled by the Chief Executive Officer (see note
      22
      - Related Party Transactions), with funds to be drawn in stages. The Note was
      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) (pre-split) of
      principal amount per share of common stock. The Note did not have any beneficial
      conversion feature attached to it since the conversion rate was equal to the
      market price of the common stock of $0.035 (pre-split), on the closing of
      agreement. The Note was convertible to the extent that the Company had
      sufficient authorized common stock. The Note had a term of thirty (30) months
      during which time interest at the rate of 10% per annum accrued from the date
      advances were drawn by the Company. The Note was secured by shares owned by
      an
      agent of the Company in its subsidiaries. The Note provided for a balloon
      payment of principal and accrued interest at maturity or conversion into common
      stock.





As
      of
      December 31, 2007, the entire principal of $3,500,000 had been received. The
      Company recorded accrued interest of $889,881 and $735,298 as of September
      30,
      2008 and December 31, 2007, respectively. The Company recorded interest of
      $67,083 and $154,583 for the three month and nine month periods ended September
      30, 2008 respectively, as well as recorded interest of $56,909 and $131,436
      for
      the three month and nine month periods ended September 30, 2007,
      respectively.





On
      June
      9, 2008, the Company and RWC entered into a settlement agreement, effective
      May
      13, 2008 (the “Settlement Agreement”), whereby RWC agreed to convert the
      aforementioned Promissory Note held by it in the amount of $3,500,000 and
      accumulated interest of $889,881 into common stock of the Company. As a result,
      total number of shares pre Reverse Split amounts to 125,425,178. Post
      Reverse Split number of shares amounts to 5,017,007 based on a post Reverse
      Split conversion price of $0.875.





On
      May
      26, 2006, the Company executed a second Convertible Promissory Note (the “2 nd Note”)
      in the principal sum of $3,000,000 with RWC. The 2 nd Note had
      a term of thirty (30) months, during which time interest on the principal amount
      would accrue from the date of this 2 nd Note at
      an annual interest rate of 10%. The 2 nd Note
      provided for a balloon payment of principal and interest accrued at maturity.
      The 2 nd Note is
      secured by shares owned or to be owned by (an agent of) the Company in its
      subsidiaries. The 2 nd Note was
      also convertible during the term, in whole or in part, into common shares at
      a
      conversion price of seven cents ($0.07) (pre-split) per share. The 2 nd Note did
      not have any beneficial conversion feature attached to it since the conversion
      rate was equal to the market price of the common stock of $0.07 (pre-split),
      on
      the closing of agreement.




14




The
      Company had received the entire principal of $3,000,000 as of June 9, 2008.
      Accrued interest recorded was $549,289 and $417,321 as of September 30, 2008
      and
      December 31, 2007 respectively. The interest expense for nine months period
      ended September 30, 2008 and 2007 was $131,969 and $175,972,
      respectively.





On
      June
      9, 2008, the Company and RWC entered into the Settlement Agreement whereby
      RWC
      agreed to convert the aforementioned promissory note held by it in the amount
      of
      $3,000,000 and interest of $549,289 into common stock of the Company. RWC also
      agreed to fund the remaining balance under the $3,000,000 note. In order to
      induce RWC to convert the promissory note, the Company agreed to reduce the
      conversion price of the $3,000,000 note to the price at which the Company offers
      its common stock in a subsequent financing with a minimum of $1,000,000 in
      gross
      proceeds. The conversion price was adjusted to reflect the Company’s 1-for-25
      Reverse Split, effective June 11, 2008. As a result, the total number of shares
      (pre Reverse Split 1:25) amounts to 84,506,891.  The number of post Reverse
      Stock Split shares amounts to 3,380,276 (post Reverse Split price of
      $1.05).




In
      connection with the conversion of the second RWC Note the Company originally
      recorded $1,200,000 as deemed dividend as a result of reduction in the
      conversion price from the original conversion price. However,
      in the third quarter the Company determined that in accordance with EITF 96-19
      "Debtors Accounting for a Modification or Exchange of Debt Instruments" the
      $1,200,000 Beneficial Conversion feature should be expensed in the P&L, and
      this adjustment was recorded.





Steven
      van der Velden, our Chief Executive Officer and Director, as well as our
      Directors Johan Dejager and Yves van Sante, are Directors of QAT Investments
      SA
      (“QAT”). Mr. van der Velden owns approximately 31.5% of QAT, which owns
      approximately 51% of the outstanding capital stock of RWC. In addition, Mr.
      Dejager and Mr. van Sante are shareholders of QAT. Additionally Mr. van der
      Velden owns indirectly about 17% in RWC. The Settlement Agreement was negotiated
      by the independent directors of the Company.





**NOTE
      15** **Stockholders’
      Equity**





**(A)
      Common Stock**





On
      December 28, 2007, our board of directors approved a 1-for-25 Reverse Split
      of
      our outstanding common stock, no par value per share (the “Common Stock”). The
      Reverse Split was duly approved by a majority of our stockholders on January
      15,
      2008.   Pursuant to the Reverse Split, every twenty-five (25) shares
      of our issued and outstanding Common Stock as presently classified were, as
      of
      the open of business on June 11, 2008, reclassified and combined into one (1)
      whole post-split share of our Common Stock. No fractional shares of our Common
      Stock was issued in connection with the Reverse Split. Any fractional shares
      were rounded up. There was no corresponding reduction in our authorized Common
      Stock. The Reverse Split was effected at the open of business on June 11, 2008
      (the “Record Date”), and the post-split shares began trading on the OTC Bulletin
      Board at the opening of business on Effective Date, or at such time thereafter
      as trading occurs.





The
      Company is authorized to issue 250,000,000 shares of no par value Common Stock.
      The Company had 50,433,253 Shares of Common Stock issued and outstanding as
      of
      September 30, 2008 compared to 9,530,637 (post reverse split) shares of Common
      Stock issued and outstanding as per December 31, 2007. The shares issued and
      outstanding as per the stock transfer agent’s records are 50,679,153. The
      Company cancelled 245,900 shares prior to 2006. However, these shares were
      not
      returned to the stock transfer agent and never cancelled on records. These
      shares have been blocked for trading by the Stock Transfer Agent. The shares
      issued during the three months ended September 30, 2008 are as
      follows:





**Number of shares Issued
                  and To Be Issued****Pre reverse stock split**
              
              **Post reverse stock split**Shared
                  Outstanding at June 30, 2008 (issued)
              
              
              1,081,893,637
              
              
              43,622,887Shares
                  issued: European Funding Round Q3-2008
              
              
              NA
              
              
              3,898,177Received
                  $4,093,586 in third quarterShares
                  Issued: Consulting services
              
              
              NA
              
              
              30,000Shares
                  issued: Management Compensation Shares
              
              
              NA
              
              
              2,882,189Total
                  number of shares issued as of September 30, 2008
              
              
              
              
              
              **50,433,253**Shares
                  to be issued: Quercus Management Group NV – Placement Fees
              
              
              NA
              
              
              8,447Shares
                  to be issued: Amelia & Associates NV – Placement Fees
              
              
              NA
              
              
              8,221Shares
                  to be issued: European Funding Round Q3-2008
              
              
              NA
              
              
              476Shares
                  to be issued: Rising Water Incentive Payment
              
              
              NA
              
              
              7,996Total
                  number of shares issued and to be issued as of September 30,
                  2008
              
              
              NA
              
              
              **50,458,393**





In
      August
      of 2008, the Company consummated a final closing (the “Closing”) of its private
      placement offering (the “Offering”), an offering that started in May 2008, of
      Units comprised of shares of common stock (the “Shares”) and warrants to
      purchase shares of common stock (the “Warrants”, together with the Shares, the
“Securities”) to accredited European investors (“Investors”). The Securities
      were offered and sold pursuant to an exemption from registration under Section
      4(2) of the Securities Act of 1933, as amended (the “Securities Act”).




15




In
      the
      second quarter of 2008 the Company sold an aggregate of 3,148,929 Shares at
      a
      purchase price of $1.05 per Share and delivered Warrants to purchase an
      aggregate of 3,148,926 shares of the Company’s common stock at a purchase price
      of $1.26 per share and Warrants to purchase an aggregate of 1,574,462 shares
      of
      the Company’s common stock at a purchase price of $1.47 per share. In this
      second quarter the Company realized gross proceeds of $3,306,372 and net
      proceeds of $2,843,505, after the payment of placement fees which totaled
      $462,867.





In
      the
      third quarter of this year the Company sold an aggregate of 3,898,177 Shares
      at
      a purchase price of $1.05 per Share and delivered Warrants to purchase an
      aggregate of 3,898,653 Shares of the Company’s common stock at a purchase price
      of $ 1.26 per share and Warrants to purchase an aggregate of 1,949,327 shares
      of
      the Company’s common stock at a purchase price of $1.47 per share.





The
      Company sold in total 7,047,106 Shares at a purchase price of $1.05 and
      delivered Warrants to purchase an aggregate of 7,047,579 shares of the Company’s
      common stock at a purchase price of $1.26 per share and Warrants to purchase
      an
      aggregate of 3,523,789 shares of the Company’s common stock at a purchase price
      of $1.47 per share.





In
      this
      third quarter the Company realized gross proceeds of $4,093,586 and net proceeds
      of $3,562,356 after the payment of placement fees which totaled $531,230. In
      total this Offering generated gross proceeds of $7,399,958 and net proceeds
      of
      $6,371,963 after deduction of placements fees which totaled
      $1,027,995.





The
      Investors of this Offering are not entitled to any registration rights with
      respect to the Securities.





The
      Warrants entitle the holders to purchase shares of the Company’s common stock
      reserved for issuance there under (the “Warrant Shares”) for a period of five
      years from the date of grant at an exercise price of $1.26 and $1.47
      respectively. The Warrants contain certain anti-dilution rights on terms
      specified in the Warrants. The above warrants were issued as of September 30,
      2008. All the share and dollar amounts detailed above in relation to the
      Offering are presented to reflect the impact of the Company’s 1-for-25 reverse
      stock split which was affected on June 11, 2008.





**(B)
      Preferred Stock**





The
      Company’s Articles of Incorporation (Articles”) authorize the issuance of
      50,000,000 shares of no par value Preferred Stock. No shares of Preferred Stock
      are currently issued and outstanding. Under the Company’s Articles, the Board of
      Directors has the power, without further action by the holders of the Common
      Stock, to designate the relative rights and preferences of the preferred stock,
      and issue the preferred stock in such one or more series as designated by the
      Board of Directors. The designation of rights and preferences could include
      preferences as to liquidation, redemption and conversion rights, voting rights,
      dividends or other preferences, any of which may be dilutive of the interest
      of
      the holders of the Common Stock or the Preferred Stock of any other series.
      The
      issuance of Preferred Stock may have the effect of delaying or preventing a
      change in control of the Company without further shareholder action and may
      adversely affect the rights and powers, including voting rights, of the holders
      of Common Stock. In certain circumstances, the issuance of preferred stock
      could
      depress the market price of the Common Stock.





During
      the three and nine months ended September 30, 2008, the Company did not issue
      any shares of Preferred Stock.




16




**NOTE
      16** **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
      17** **Employee
      Benefit Plan and Non-Qualified Stock Option and Compensation
      Plan**





**The
      2000 Employee Benefit Plan**





Under
      this Plan, out of an available 160,000 shares of common stock and 160,000 of
      stock options, 148,000 shares of common stock have been issued to date.
      Therefore 12,000 shares of common stock and 160,000 stock options remain
      available for grant at September 30, 2008.





**The
      2006 Non-Qualified Stock and Option Compensation Plan**




On
      September 26, 2007 the Board of Directors approved a 2006 Non-Qualified Stock
      Options Compensation plan. Under this plan options were granted with an exercise
      price of $ 0.09, the share closing price of September 26, 2007. The options
      will
      vest on December 31, 2009 or so much earlier as there will be a change of
      control of the Company. The options will be exercisable through December 31,
      2011.




Options
      granted to new employees joining the Company after September 26, 2007 will
      be
      able to participate under the same plan. The Grant date of their option package
      will be the date of the employment agreement and the vesting date will be 36
      months after Grant date. The exercise period is 24 months after the vesting
      date.





At
      June
      30, 2008 there were 317,033 options outstanding under this plan. During the
      three months ended September 30, 2008, 80,400 options were issued each at an
      exercise price of $2.25. In the third quarter 5,825 options were cancelled.
      As a
      result the total number of outstanding options under this plan at September
      30,
      2008 is 391,608.





The
      fair
      market value of the options issued during the three months period ended
      September 30, 2008 of $42,593 was calculated using the Black-Sholes options
      model. The assumptions used for the Black Sholes calculation are: volatility
      of
      80%, term of 5 years and a risk free rate of 3.2%.





**The
      2008 Long-Term Incentive Plan**





The
      2008
      Long Term Incentive Plan was adopted on January 15, 2008, and approved by our
      stockholders on the same date at our annual meeting. This incentive plan
      authorizes awards of up to 5,000,000 shares of common stock, in the form of
      incentive and non-qualified stock options, stock appreciation rights,
      performance units, restricted stock awards and performance bonuses. The amount
      of common stock underlying the awards to be granted remained the same
      after the 25 to one reverse stock-split.





Common
      stock purchase options consisted of the following as of September 30, 2008:




No. of shares
              
              Exercise Price
              
              Aggregate
                Intrinsic Value**Options:**Outstanding
                  as of January 1, 2008
              
              
              284,833
              
              
              2.25
              
              $
              461,000Granted
              
              
              112,600
              
              
              2.25
              
              $
              68,052Cancelled
              
              
              (5,825
              )
              
              
              
              
              ($9,428)Exercised
              
              
              —
              
              
              —
              
              
              —Outstanding
                  as of September 30, 2008
              
              
              391,608
              
              
              2.25
              
              $
              519,624-




17




Following
      is a summary of the status of options outstanding at September 30,
      2008:





**Range of Exercise Price**
            
            **Total**
              **Options**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Remaining Life**
              **(Years)**
            
            **Weighted**
              **Average**
              **Exercise Price**
            
            **Options**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise Price**$2.25
            
            391,608
            
            3.63
                years
            
            $2.25
            
            82,683
            
            $2.25




**NOTE
      18** **Commitments**





As
      of
      September 30, 2008 commitments of the Company relating to leases, co-location,
      interconnect and office rents,




December
                  31, 2008
              
              $
              1,632,454December
                  31, 2009
              
              
              1,804,442December
                  31, 2010
              
              
              1,732,065December
                  31, 2011
              
              
              1,627,801December
                  31, 2012
              
              
              1,578,780**Total**
              
              $
              8,375,542




**Note
      19**  **Minority
      interest in subsidiary** ****





The
      Company had minority interest in several of its subsidiaries. The balance of
      the
      minority interest as of September 30, 2008 and December 31, 2007 was as
      follows:




**Minority Interest Balance at
                  Subsidiary**
              
              **Minority Interest %**
              
              **September 30, 2008**
              
              **December 31, 2007**ETC
                  PRS UK
              
              
              49
              %
              $
              10,807
              
              $
              10,807ETC
                  PRS Netherlands
              
              
              49
              %
              
              144,344
              
              
              144,344ET
                  ME&A Holding WLL
              
              
              49
              %
              
              (40,666
              )
              
              39,254ET
                  Bahrain WLL
              
              
              1
              %
              
              1,465
              
              
              1,955ET
                  ME&A FZ LLC
              
              
              49.46
              %
              
              35,214
              
              
              35,214Total
              
              
              
              
              $
              151,165
              
              $
              231,574




**NOTE
      20** **** **Litigation**




**a)
      Rescission of the Purchase Agreement of May 24, 2004 of New Times Navigation
      Limited.**





As
      reported in the 10 KSB filing of April 1, 2005, regarding the fiscal year 2004,
      the Company and other parties to the Purchase Agreement mutually agreed to
      terminate such agreement. The Company returned the received shares of New Times
      Navigation Limited to the concerned shareholders and received back 90,100 common
      shares out of the 204,000 issued by the Company for the purchase. In addition
      the Company issued 37 unsecured convertible promissory notes for a total amount
      of US$3,600,000. At the request of the Company 21 were returned with a total
      value of US$2,040,000.




The
      Company is presently a Plaintiff seeking relief from the High Court of the
      Hong
      Kong Special Administrative Region against the holders of the not returned
      shares to return a total of 113,900 common shares (valued at $381,565) and
      to
      have them returning the remaining 16 unsecured convertible promissory notes
      representing a total amount of US$1,560,000.




18




**(b)
      Russelle Choi Litigation**





On
      or
      about September 12, 2008, an action was commenced against the Company by
      Russelle Choi ("Choi") in California Superior Court, Orange County, in a
      matter entitled *Choi
      v. Elephant Talk Communications, Inc., Case No. 30-2008-00111874.* The
      complaint alleges that pursuant to agreements between Choi and the Company,
      the
      Company is obligated to pay Choi the total sum of $90,000. The Company
      has submitted an Answer to the Complaint, denying all the material allegations
      thereof, and has also asserted numerous affirmative defenses. ****




**NOTE
      21** **Segment
      Information**





The
      Company allocates its resources and assesses the performance of its sales
      activities based upon geographic locations of its subsidiaries.




**Nine
      months ended September 30, 2008**




**EUROPE****Netherlands**
              
              **Spain**
              
              **Switzerland**
              
              **Others**
              
              **Total**
              
              **Far
                  East**
                  **HK/PRC**
              
              **Middle**
                  **East**
              
              **The
                      Americas**
              
              **TOTAL**Revenues
                  from unaffiliated customers:
              $
              25,799,839
              
              $
              2,233,145
              
              $
              6,537,867
              
              $
              402,679
              
              $
              34,973,530
              
              $
              6,314
              
              $
              45,143
              
              $
              —
              
              $
              35,024,987Operating
                  income (loss)
              $
              (2,598,113
              )
              $
              257,093
              
              $
              (1,421,135
              )
              $
              (647,027
              )
              $
              (4,409,182
              )
              $
              (696,731
              )
              $
              (176,127
              )
              $
              (2,138,429
              )
              $
              (7,420,469
              )Net
                  income (loss):
              $
              (2,650,892
              )
              $
              256,442
              
              $
              (1,451,434
              )
              $
              (656,083
              )
              $
              (4,501,967
              )
              $
              (1,252,530
              )
              $
              (177,075
              )
              $
              (3,179,470
              )
              $
              (9,111,041
              )Identifiable
                  assets
              $
              3,992,129
              
              $
              1,717,271
              
              $
              10,682,581
              
              $
              1,283,174
              
              $
              17,675,155
              
              $
              275,539
              
              $
              605,000
              
              $
              6,076,849
              
              $
              24,632,543Depreciation
                  and amortization
              $
              (154,871
              )
              $
              (179,180
              )
              $
              (1,438,547
              )
              $
              (20,429
              )
              $
              (1,793,026
              )
              $
              (35,158
              )
              $
              (1,337
              )
              $
              (322,602
              )
              $
              (2,152,124
              )Capital
                  expenditure
              $
              48,172
              
              $
              1,291
              
              $
              1,684,217
              
              $
              —
              
              $
              1,733,680
              
              $
              9,525
              
              $
              —
              
              $
              —
              
              $
              1,743,205




**Nine
      months ended September 30, 2007**




**EUROPE****Netherlands**
              
              **Spain**
              
              **Switzerland**
              
              **Others**
              
              **Total**
              
              **Far East**
                **HK/PRC**
              
              **Middle**
                **East**
              
              **USA**
              
              **TOTAL**Revenue
                  from unaffiliated customers
              $
              16,372,294
              
              $
              1,496,186
              
              $
              5,505,735
              
              $
              217,875
              
              $
              23,592,090
              
              $
              88,363
              
              $
              —
              
              $
              —
              
              $
              23,680,453Operating
                  income (loss)
              $
              115,032
              
              $
              264,284
              
              $
              (1,694,772
              )
              $
              (231,290
              )
              $
              (1,546,746
              )
              $
              (436,586
              )
              $
              (8,850
              )
              $
              (5,310,315
              )
              $
              (7,302,497
              )Net
                  Income (Loss)
              $
              121,686
              
              $
              264,284
              
              $
              (1,694,772
              )
              $
              (231,290
              )
              $
              (1,540,092
              )
              $
              (499,897
              )
              $
              (8,850
              )
              $
              (5,595,882
              )
              $
              (7,644,721
              )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
              
              $
              487,134
              
              $
              178,039
              
              $
              714,551
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              714,551





**Note
        22  Concentrations**
 
 Customers
        in excess of 10% of total revenues were as follows:
 
 For
        the
        three and nine months ended September 30, 2008, the Company had a customer
        in
        the Netherlands, which accounted for revenue of $6,490,000 and $19,832,553,
        respectively. For the same periods in 2007, this same Dutch customer accounted
        for $6,327,439 and $19,691,596, respectively. For the three and nine months
        ended September 30, 2008, the Company had a customer in Belgium, which accounted
        for revenue of $1,197,267 and $3,987,348, respectively. For the same period
        in
        2007, this Belgian customer accounted for revenue of $1,423,562 and $4,330,629,
        respectively.





**Note
      23  Related Party Transactions**





In
      connection with the Company’s Offering, which took place during the three months
      ended September 30, 2008 (see Note 15 - Stockholders Equity - (A) Common Stock),
      the Company paid a placement fee to a European placement agent and a US FINRA
      broker dealer. In relation to the $7,399,958 which was raised during the period
      ended September 30, 2008, the Company paid a total of $1,027,995 in Placements
      fees of which $ 469,764 to Quercus Management Group N.V. (“QMG”) which is a 100%
      owned subsidiary of QAT, and Amelia & Associates SA, earned $ 458,231.





Steven
      van der Velden, our Chief Executive Officer and Director, as well as our
      Directors Johan Dejager and Yves van Sante, are Directors of QAT. Mr. van der
      Velden owns approximately 32% of QAT. In addition both Mr. Dejager and Mr.
      van
      Sante are minority shareholders of QAT. Mr van Sante, a director of the Company,
      is a principal of Amelia & Associates SA.





In
      connection with the conversion of $6,500,000 of Promissory Notes, the Company
      agreed to pay RWC $445,100 as a part of a final Settlement Agreement regarding
      the conversion of these two Promissory Notes (see note 14, Conversion of
      Promissory Notes). Through direct and indirect holdings, Steven van de Velden,
      our Chief Executive Officer and Chairman, owns a controlling interest in RWC.
      In
      addition, Martin Zuurbier, our Chief Operating Officer, and QAT are shareholders
      of RWC.




19




**Note
      24  Subsequent events**





None





**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**




*Forward-Looking
      Statements*




*Any
      forward looking statements made herein are based on current expectations of
      the
      Company, involve a number of risks and uncertainties and should not be
      considered as guarantees of future performance. The factors that could cause
      actual results to differ materially include: interruptions or cancellation
      of
      existing contracts, inability to integrate acquisitions, impact of competitive
      products and pricing, product demand and market acceptance risks, the presence
      of competitors with greater financial resources than the Company, product
      development and commercialization risks, changes in governmental regulations,
      and changing economic conditions in developing countries and an inability to
      arrange additional debt or equity financing. More information about factors
      that
      potentially could affect the Company's financial results is included in the
      Company's filings with the Securities and Exchange Commission, including its
      Annual Report on Form 10-K for the year ended December 31,
      2007.*




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our financial statements and
      notes
      thereto and the other financial information included elsewhere in this
      document.





**Overview**





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 adopted the strategy to position itself as an international telecom
      operator and enabler to the multi-media industry by facilitating to the
      distribution of all forms of content and telecommunications services to various
      global customers. Through intelligent design and organizational structure the
      Company pursues this strategy by building a worldwide network based on both
      clear and IP bandwidth that is managed centrally by its proprietary
      IN-CRM-Billing platform.





In
      January 2007, through the acquisition of various assets in Europe, the Company
      established a foothold in the European Telecommunications Market, particularly
      in the market of Service Numbers like Toll Free and Premium Rate Services and
      to
      a smaller extent Carrier (Pre) Select Services. Furthermore, through the human
      and IT resources thereby acquired, the company obtained expertise of telecom
      and
      multi-media systems, telecom regulations and European markets.





The
      Company currently operates a switch-based telecom network with national licenses
      and direct fixed line interconnects with the Incumbents/National Telecom
      Operators in eight (8) European countries, one (1) in the Middle East (Bahrain),
      licenses in Hong Kong and the U.S.A. and partnerships with telecom operators
      in
      Scandinavia, Poland, Germany, Greece and Hong Kong. Codec and media streaming
      servers are currently located in six centers geographically spread around the
      world. Together with the centrally operated and managed IN-CRM-Billing platform,
      the Company thus offers geographical, premium rate, toll free, personal, nomadic
      and VoIP numbers. Services are primarily provided to the business market and
      include traditional telecom services, VOIP, media streaming and distribution
      including the necessary billing and collection. Through its European and Chinese
      development centers, ETCI develops in-house telecom and media related systems
      and software.





In
      the
      third quarter of 2007 the Company finalized testing and commissioned
      additional national interconnects in the United Kingdom (British Telecom) and
      Bahrain (Batelco), further enlarging the Company’s footprint in fixed line
      infrastructure. In the Caribbean and the Middle East, the Company installed
      its
      first Wifi test sites, aimed at creating own broadband mobile access networks
      in
      emerging markets with relatively poor (or relatively expensive)
      infrastructures.




In
      Europe, a step was made towards building a mobile enabled infrastructure on
      top
      of the Company’s fixed line infrastructure by committing capital expenditure and
      implementation resources towards becoming a Mobile Virtual Network Enabler
      (MVNE)





In
      Europe
      in 2008 the Company positioned itself as a Mobile Virtual Network Enabler to
      Mobile Network Operators and Mobile Virtual Network Operators offering a wide
      range of Mobile Enabling/Enhancing services through sophisticated, proprietary
      technology supported by multi-country operations with a focus on B-B,
      Outsourcing /partnering strategy. Important milestones in this respect
      are:





1.
            September
                11, 2008.Letter
                of Intent signed by Vodafone Espaňa S.A.U. and Elephant Talk
                Communications, Inc., confirming the award by Vodafone Espaňa to Elephant
                Talk of the project of implementation and operation of a new Mobile
                Virtual Network Enabler platform for the Spanish market. Upon signing
                of
                the intended Hosting Agreement between Parties, Elephant Talk will
                become
                the exclusive MVNE for Vodafone
                Espaňa.




20




2.
            September
                17, 2008. Hosting Agreement signed between T-Mobile Netherlands BV
                and
                Elephant Talk Holding AG, a 100% affiliate of Elephant talk Europe
                Holding
                BV. T-Mobile is one of the 3 Mobile Network Operators in the Netherlands.
                Elephant Talk will, as exclusive Mobile Virtual Network Enabler for
                T-Mobile, connect Mobile Virtual Network Operators in the Netherlands
                to
                its platform, making use of the mobile network of
                T-Mobile





The
      Company offers a full range of standard telecom services like




·
            Carrier
                (pre)Select, Dial-Around, PPCC and VoIP
                Capabilities




·
            Toll
                Free, Shared Cost and Premium Rate
                Services




·
            Content
                Distribution, Streaming & Codec
                Services




·
            Billing,
                Customer Relationship Management
                Services




·
            Intelligent
                Network Services




**Results
      of Operations**





Our
      results of operations for the three and nine months ended September 30, 2008,
      consisted of the operations of Elephant Talk Communications, Inc., its
      wholly-owned subsidiary Elephant Talk Limited and its subsidiaries, its
      wholly-owned subsidiary Elephant Talk Europe Holding BV and its subsidiaries,
      and its wholly-owned subsidiary Elephant Talk Global Holding BV and its
      subsidiaries.





On
      January 18, 2008, our shareholder’s approved a 1-for-25 reverse stock split,
      which became effective on June 11, 2008. All references to share and per-share
      data for all periods presented have been adjusted to give effect to this reverse
      split





***Economic
      Crisis*** *:*




We
      believe that mobile telecommunications and the business-to-business markets
      that
      we serve will remain relatively stable in the face of the continued
      deteriorating economic climate (see also Liquidity and Capital Resources).





**Three
      and Nine Month Periods Ended September 30, 2008 compared to the Three and Nine
      Month Periods Ended September 30, 2007**





***Revenue***




Revenue
      for the three months ended September 30, 2008 was $11,346,417 compared to
      $11,547,708 for the same period in 2007. Revenue for the nine months ended
      September 30, 2008 was $35,024,987 compared to $35,255,160 for the nine months
      ended September 30, 2007. Our revenue base is primarily comprised of Premium
      Rate Calling Services (PRS) and Carrier Select Services (CPS). Revenue for
      the
      three month period decreased when compared to prior year, primarily as a result
      of a decrease in our PRS business attributable to fluctuations in customer
      demand. Revenue for the nine months period was flat reflecting overall
      telecommunications industry trends with respect to fixed line telecommunication
      services. In addition to focusing our sales and marketing activities on the
      PRS
      business, we are focusing on the expansion of our mobile access capabilities
      in
      addition to our existing fixed line network access by entering into MVNE
      (“Mobile Virtual Network Enabler”) contracts with various Mobile Network
      Operators (“MVNO’s”).





***Cost
      of revenue***




Cost
      of
      revenue for the three months ended September 30, 2008 was $11,695,051 compared
      to $11,602,554 in the 2007 period. For the nine months ended September 30,
      2008,
      cost of revenue was $35,785,562 compared to $34,942,312 for the same period
      in
      2007. Gross margin, as a percentage of revenue, was negative 3.1% for the three
      month period ended September 30, 2008 and for the nine month ended September
      30,
      2008 period negative 2.2%. In the same periods in 2007, gross margin was
      negative 0.2% and positive 0.9% respectively. Our cost of revenue includes
      depreciation of assets and amortization of intangibles that are directly
      attributable to the ability to generate revenue; including, network costs,
      facility cost of hosting network and equipment and costs in providing resale
      arrangements with long distance service providers, cost of leasing transmission
      facilities, international gateway switches for voice, data transmission
      services. The depreciation and amortization expense does not directly correspond
      to the actual capacity utilization of our network infrastructure. Therefore,
      given that usage of our network infrastructure is currently at less than full
      capacity, as the utilization increases in the future, we expect our margin
      to
      increase as the incremental revenue run through the network will not have the
      same depreciation and amortization burden as our existing revenue
      base.





***Selling,
      general and administrative***




Selling,
      general and administrative expenses for the three months ended September 30,
      2008 was $2,153,544 compared to $2,167,369 in 2007. For the nine month ended
      September 30, 2008, SG&A expense was $5,575,047 compared to $3,181,314 in
      the same period in 2007. The increase in SG&A is primarily a result of
      headcount increases and associated costs related to the expansion of our mobile
      network capabilities.




21




***Non-cash
      compensation***




Non-cash
      compensation for the three month and nine months ended September 30, 2008 was
      $199,886 and $143,615 respectively, compared to $589,958 and $4,830,583, for
      the
      corresponding 2007 periods. Non-cash compensation is comprised of the expense
      related to shares of restricted common stock that are issued to management
      in
      connection with a compensation plan originated in the first quarter of 2007.
      The
      2007 amounts include the expense associated with the initial sign on bonus
      provided to the management team.




***Depreciation
      and amortization***




Depreciation
      and amortization for the three months and nine months ended September 30, 2008
      was $173,084 and $494,889 respectively, compared to $165,959 and $489,451 for
      the comparable periods in 2007. Depreciation and amortization expense was higher
      in both periods primarily due to higher levels of fixed assets in the 2008
      period compared to the comparable period in 2007.




***Other
      Income and Expenses:***




Interest
      for the three months ended September 30, 2008 was $318,528 compared to
      ($121,268) in 2007. Interest was ($414,080) and ($512,237) for the nine months
      ended September 30, 2008 and 2007 respectively. For the nine month period,
      interest expense decreased due to lower average promissory note balances in
      the
      2008 periods, related to the repayment of the Promissory Notes which occurred
      in
      June 2008. The three month period ended September 30, 2008 was adjusted for
      $
      352,797 relating to intercompany interest charges.





***Minority
      Interest***




Our
      majority owned subsidiaries Elephant Talk Communications PRS U.K. Limited,
      Elephant Talk Communications Premium Rate Services Netherlands B.V., Elephant
      Talk Middle East & Africa (Holding) W.L.L., Elephant Talk Middle East &
Africa (Holding) Jordan L.L.C., Elephant Talk Middle East & Africa Bahrain
      W.L.L., Elephant Talk Middle East & Africa FZ-LLC incurred a loss of $30,232
      and $59,249 attributed to minority shareholders’ interest in the three and nine
      months ended September 30, 2008. During the same period in 2007, the Company’s
      incurred losses of $5,664 and $7,963 attributed to minority shareholders’
interest.




***Comprehensive
      Income (Loss)***




We
      record
      foreign currency translation gains and losses as comprehensive income or loss.
      Comprehensive Income for the three and nine months was a loss of $1,331,411
      and
      a loss of $117,064 respectively, compared to a loss of $351,967 and $111,179
      for
      the three and nine months ended September 30, 2007. The decrease per the third
      quarter 2008 compared to the same period of 2007 is primarily attributable
      to
      the translation effect resulting from the substantial decrease in the value
      of
      Euro compared to the USD which has occurred throughout third quarter of
      2008.




**Liquidity
      and Capital Resources**




We
      have
      an accumulated deficit of $38,130,071 including a net loss of $3,882,592 and
      $9,111,041 for the three and nine months ended September 30, 2008. We have
      historically relied on a combination of debt and equity financings to fund
      our
      ongoing cash requirements. In May 2008, we received Subscription Agreements
      as a
      result of a European Funding Round of approximately $7.3 million. For the nine
      month ended September 30, 2008 we received a total $7.4 million from various
      investors. We believe that our cash balance at September 30, 2008, in
      combination with cash generated from operations, will provide sufficient funds
      through the beginning of the first quarter of 2009.





In
      the
      light of the need to raise additional funds in the immediate short term, we
      are
      focused on capital raising activities, in addition to continuing to control
      operating costs and aggressively managing working capital. We are actively
      seeking to raise additional debt or equity financing in order to fund our cash
      requirements generated by future operations, capital expenditures and potential
      acquisitions.  Although we have previously been able to raise capital as
      needed, there can be no assurance that such capital will continue to be
      available at all, or if available, that the terms of such financing would not
      be
      dilutive to existing stockholders or otherwise on terms favorable to us.
      Further, the current global financial situation may offer additional challenges
      to raising the capital we require in the immediate short term. If we are unable
      to secure additional capital, as circumstances require, we may not be able
      to
      continue our operations.





These
      financial statements assume that we will continue as a going concern. If we
      are
      unable to continue as a going concern, we may be unable to realize our assets
      and discharge our liabilities in the normal course of business. The financial
      statements do not include any adjustments relating to the recoverability and
      classification of recorded asset amounts or to the amounts and classification
      of
      liabilities that may be necessary should we be unable to continue as a going
      concern.




***Operating
      activities***




Net
      cash
      used in operating activities for the nine months ended September 30, 2008 was
      $4,873,025. The increase is primarily due to the increase in accounts receivable
      of $130,625, increase in accounts payables and customer deposits of $705,647
      and
      a decrease in accrued expenses and other payables of $403,099.




***Investment
      activities***




Net
      cash
      used in investment activities for the nine months ended September 30, 2008
      was
      $1,171,653.




22




***Financing
      activities***




Net
      cash
      received by financing activities for the nine months ended September 30, 2008
      was $6,619,103.





As
      a result of the above activities, the Company recorded a cash and cash
      equivalent balance of $4,763,809 as of September 30, 2008, a net increase in
      cash and cash equivalent of $397,497 for the nine months ended September 30,
      2008.





**Application
      of Critical Accounting Policies and Estimates**





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.





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
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  This statement clarifies that a
      non-controlling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      non-controlling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  Based on current conditions, the Company does not
      expect the adoption of SFAS 160 to have a significant impact on its results
      of
      operations or financial position.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
      SFAS 141 that the acquisition method of accounting (which SFAS 141 called
      the purchase method) be used for all business combinations and for an acquirer
      to be identified for each business combination. This statement defines the
      acquirer as the entity that obtains control of one or more businesses in the
      business combination and establishes the acquisition date as the date that
      the
      acquirer achieves control. This statement requires an acquirer to recognize
      the
      assets acquired, the liabilities assumed, and any non-controlling interest
      in
      the acquiree at the acquisition date, measured at their fair values as of that
      date, with limited exceptions specified in the statement. This statement applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. The Company does not expect the adoption of SFAS 141 to
      have a significant impact on its results of operations or financial
      position.





In
      March,
      2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities”. The new standard is intended to improve
      financial reporting about derivative instruments and hedging activities by
      requiring enhanced disclosures to enable investors to better understand their
      effects on an entity’s financial position, financial performance, and cash
      flows. It is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008, with early application
      encouraged. The new standard also improves transparency about the location
      and
      amounts of derivative instruments in an entity’s financial statements; how
      derivative instruments and related hedged items are accounted for under
      Statement 133; and how derivative instruments and related hedged items affect
      its financial position, financial performance, and cash flows. FASB Statement
      No. 161 achieves these improvements by requiring disclosure of the fair values
      of derivative instruments and their gains and losses in a tabular format. It
      also provides more information about an entity’s liquidity by requiring
      disclosure of derivative features that are credit risk-related. Finally, it
      requires cross-referencing within footnotes to enable financial statement users
      to locate important. Based on current conditions, the Company does not expect
      the adoption of SFAS 161 to have a significant impact on its results of
      operations or financial position.




23





**Item
      1a. Risk Factors**


In
        addition to the other information set forth in this Quarterly Report on Form
        10-Q, you should carefully consider the Risk Factors
        included in Part I, “Item 1A. — “Risk Factors”
        of our Annual Report on Form 10-K for the year ended December 31, 2007, and
        the
        additional Risk Factors
        set forth below. These Risk Factors
        could materially impact our business, financial condition and/or operating
        results. Additional risks and uncertainties not currently known to us or
        that we
        currently deem to be immaterial also may materially adversely impact our
        business, financial condition and/or operating results.
  **Recent
        economic events and, in particular, the “credit crisis” may have an adverse
        effect in the markets in which we operate.**
  Much
        of
        our business is consumer driven, and to the extent there is a decline in
        consumer spending, we could experience a reduction in the demand for our
        services and a decrease in our revenues, net income and an increase in bad
        debts
        arising from non-payment of our trade receivables. Although we
        have not seen a slow-down in our business, it is too early to predict
        what effect the current “credit crisis” may have on the Company
        and we will need to carefully monitor our operating costs as the
        effects of the current economic issues become known.
  **We
        are dependent on a significant customer and the loss or credit failure of
        this
        customer could have an adverse effect on our business, results of operations
        and
        financial condition.**
 
 For
        the
        three and nine months ended September 30, 2008, the Company had a customer
        in
        the Netherlands, which accounted for revenue of $6,490,000 and $19,832,553,
        respectively. For the same periods in 2007, this same Dutch customer accounted
        for $6,327,439 and $19,691,596, respectively. For the three and nine months
        ended September 30, 2008, the Company had a customer in Belgium, which accounted
        for revenue of $1,197,267 and $3,987,348, respectively. For the same period
        in
        2007, this Belgian customer accounted for revenue of $1,423,562 and $4,330,629,
        respectively. If this significant customer discontinues its relationship
        with us
        for any reason, or reduces or postpones current or expected revenues, it
        could
        have an adverse impact on our business, results of operations and financial
        condition.


**Item
      3. Quantitative and Qualitative Disclosure About Market
      Risks**





Not
      applicable. ****





**Item
      4T. Controls and Procedures**





*Evaluation
      of Disclosure Controls and Procedures*





As
      of the
      end of the period covered by this Quarterly Report, the Company’s management,
      with the participation of the Company’s Chief Executive Officer and Chief
      Financial Officer (“the Certifying Officers”), conducted evaluations of the
      Company’s disclosure controls and procedures. As defined under Sections 13a -
      15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”), the term “disclosure controls and procedures” means controls
      and other procedures of an issuer that are designed to ensure that information
      required to be disclosed by the issuer in the reports that it files or submits
      under the Exchange Act is recorded, processed, summarized and reported, within
      the time periods specified in the Commission’s rules and forms. Disclosure
      controls and procedures include without limitation, controls and procedures
      designed to ensure that information required to be disclosed by an issuer in
      the
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the issuer’s management, included the Certifying Officers, to
      allow timely decisions regarding required disclosures. As of the end of the
      period covered by this Quarterly Report, the Company’s management, with the
      participation of the Company’s Chief Executive Officer and Chief Financial
      Officer (“the Certifying Officers”), conducted evaluations of the Company’s
      disclosure controls and procedures. As defined under Sections 13a-15(e) and
      15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), the term “disclosure controls and procedures” means controls and other
      procedures of an issuer that are designed to ensure that information required
      to
      be disclosed by the issuer in the reports that it files or submits under the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the Commission’s rules and forms. Disclosure controls and
      procedures include without limitation, controls and procedures designed to
      ensure that information required to be disclosed by an issuer in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the issuer’s management, included the Certifying Officers, to allow timely
      decisions regarding required disclosures.





Based
      on
      this evaluation, the Certifying Officers have concluded that the Company’s
      disclosure controls and procedures were not effective to ensure that material
      information is recorded, processed, summarized and reported by management of
      the
      Company on a timely basis in order to comply with the Company’s disclosure
      obligations under the Exchange Act and the rules and regulations promulgated
      thereunder.





The
      Company’s management made an initial assessment as of December 31, 2007 as
      defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, and determined
      that a material weakness within its internal control over financial reporting
      exists.




Based
      on
      this evaluation, our management feels our controls and procedures are not
      effective as of the end of the period covered by this report. Our management
      was
      unable to evaluate our controls and procedures based upon the framework in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO) due to the fact that the Company
      does not have the personnel resources nor technological infrastructure in place
      to perform this evaluation. Management has identified this lack of personnel
      and
      technological resources as a material weakness in the Company’s internal control
      over financial reporting. While management believes the financial reports
      included in this Quarterly Report fairly represent the financial condition
      of the Company, due to the Company’s inability to evaluate its internal controls
      over financial reporting based on the framework developed by COSO, there is
      no
      guarantee that the financial reports accurately represent our financial
      condition.





*Changes
      in Internal Control Over Financial Reporting*





The
      Company has begun to take appropriate steps to remediate the material weakness
      described above. The Company is currently executing a Sarbanes-Oxley (“SOX”)
      program strengthening internal controls over financial reporting. The Program
      consists of five phases. During the first half of this year the first two phases
      were completed: an overview of SOX requirements for ETCI, a SOX scoping plan
      and
      a Plan of Approach. The program is currently in its Risk & Control
      Assessment phase (third phase) identifying key risks and key controls.
      Remediation efforts have started this quarter and the Company expects to
      complete them in the first half of 2009.




24


The
        effectiveness of internal controls following remediation efforts will not
        be
        known until those controls have been adequately tested. Substantive testing
        of
        the key controls will start as soon as possible. The Company plans to complete
        them in the first half of 2009.


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





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





On
      or
      about September 12, 2008, an action was commenced against the Company by
      Russelle Choi ("Choi") in California Superior Court, Orange County, in a
      matter entitled *Choi
      v. Elephant Talk Communications, Inc., Case No. 30-2008-00111874.* The
      complaint alleges that pursuant to agreements between Choi and the Company,
      the
      Company is obligated to pay Choi the total sum of $90,000. The Company
      has submitted an Answer to the Complaint, denying all the material allegations
      thereof, and has also asserted numerous affirmative defenses.





There
      have been no material updates to the legal proceedings described in our previous
      periodic reports.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





In
      August
      of 2008, the Company consummated a final closing (the “Closing”) of its private
      placement offering (the “Offering”), an offering that started in May 2008, of
      Units comprised of shares of common stock (the “Shares”) and warrants to
      purchase shares of common stock (the “Warrants”, together with the Shares, the
“Securities”) to accredited European investors (“Investors”). The Securities
      were offered and sold pursuant to an exemption from registration under Section
      4(2) of the Securities Act of 1933, as amended (the “Securities Act”).





In
      the
      second quarter of 2008 the Company sold an aggregate of 3,148,929 Shares at
      a
      purchase price of $1.05 per Share and delivered Warrants to purchase an
      aggregate of 3,148,926 shares of the Company’s common stock at a purchase price
      of $1.26 per share and Warrants to purchase an aggregate of 1,574,462 shares
      of
      the Company’s common stock at a purchase price of $1.47 per share. In this
      second quarter the Company realized gross proceeds of $3,306,372 and net
      proceeds of $2,843,505, after the payment of placement fees which totaled
      $462,867.





In
      the
      third quarter of this year the Company sold an aggregate of 3,898,177 Shares
      at
      a purchase price of $1.05 per Share and delivered Warrants to purchase an
      aggregate of 3,898,653 Shares of the Company’s common stock at a purchase price
      of $ 1.26 per share and Warrants to purchase an aggregate of 1,949,327 shares
      of
      the Company’s common stock at a purchase price of $1.47 per share.





The
      Company sold in total 7,047,106 Shares at a purchase price of $1.05 and
      delivered Warrants to purchase an aggregate of 7,047,579 shares of the Company’s
      common stock at a purchase price of $1.26 per share and Warrants to purchase
      an
      aggregate of 3,523,789 shares of the Company’s common stock at a purchase price
      of $1.47 per share.





In
      this
      third quarter the Company realized gross proceeds of $4,093,586 and net proceeds
      of $3,562,356 after the payment of placement fees which totaled $531,230. In
      total this Offering generated gross proceeds of $7,399,958 and net proceeds
      of
      $6,371,963 after deduction of placements fees which totaled $1,027,995. The
      Company intends to use the proceeds for potential acquisitions, working capital
      and capital expenditures.





**Item
      3. Defaults upon Senior Securities.**





None.





**Item
      4. Submission of Matters to a Vote of Security Holders**





None.





**Item
      5. Other Information**





None.





**Item
      6. Exhibits**




(a)
Exhibits




31.1
            
            Certification
                of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) on page
                X-1.31.2
            
            Certification
                of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) on page
                X-2.32.1
            
            Certification
                pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 on page X-3.32.2
            
            Certification
                pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 on page
                X-4.




25





**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




ELEPHANT
                TALK COMMUNICATIONS, INC.November
                14, 2008
            By:
            /s/ Steven
              van der VeldenSteven
              van der VeldenPresident
                and Chief Executive Officer
                (Principal
                  Executive Officer)


November
                14, 2008
            By:
            /s/ Willem
              AckermansWillem
              AckermansChief
                Financial Officer
                (Principal
                  Financial and Accounting
                  Officer)




26




**Index
      to Exhibits**




Number
            
            Exhibit
            
            Page31.1
            
            Certification
                of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
            
            X-131.2
            
            Certification
                of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
            
            X-232.1
            
            Certification
                pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906   of
                the Sarbanes-Oxley Act of 2002
            
            X-332.2
            
            Certification
                pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906   of
                the Sarbanes-Oxley Act of 2002
            
            X-4




27