**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**








**FORM
      10-QSB**








x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
      ACT OF 1934





For
      the
      quarterly period ended: March 31, 2006





o QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES AND EXCHANGE
      ACT OF 1934





For
      the
      transition period:





Commission
      File Number: 000-30061








**ELEPHANT
      TALK COMMUNICATIONS, INC.**


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





California


(State
      or
      other jurisdiction of incorporation or organization)





95-4557538


(IRS
      Employer Identification No.)





438
      East Katella Avenue, Suite 217, Orange, California 92867


(Address
      of principal executive offices)





(714)
      288-1570


(Issuer's
      telephone number)





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





As
      of May
      18, 2006, Elephant Talk Communications, Inc. had 185,250,088 shares of Common
      Stock Outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No x





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          of Contents*





**ELEPHANT
      TALK COMMUNICATIONS, INC.**


**AND
      SUBSIDIARIES**





Report
      on
      Form 10-QSB


For
      the
      quarter ended


March
      31,
      2006





TABLE
      OF
      CONTENTS








**PART
                I FINANCIAL INFORMATION**Item
                1.Financial
                StatementsConsolidated
                Balance Sheet at March 31, 2006
                (Unaudited)Consolidated
                Statements of Operations for the Three Months
                ended
              March
                31, 2006 and 2005 (Unaudited)Consolidated
                Statements of Cash Flows for the Three Months
                ended
              March
                31, 2006 and 2005 (Unaudited)Notes
                to the Consolidated Financial Statements
                (Unaudited)Item
                2.Management's
                Discussion and Analysis of Financial Condition
                and Results of OperationsItem
                3.Controls
                and Procedures**PART
                II OTHER INFORMATION**Item
                1.Legal
                ProceedingsItem
                2.Changes
                in SecuritiesItem
                3.Defaults
                upon Senior SecuritiesItem
                4.Submission
                of Matters to Vote of Security HoldersItem
                5.Other
                InformationItem
                6.Exhibits
                and Reports on Form 8-KSignatures











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          of Contents*


**PART
      I FINANCIAL INFORMATION**





Item
      1.  Financial
      Statements





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


**CONSOLIDATED
      BALANCE SHEET (UNAUDITED)**


**MARCH
      31, 2006**





**ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            893,898Accounts
                receivable, net
            
            
            1,283,289Advances
                to third parties
            
            
            1,745,119Prepaid
                expenses and other current assets
            
            
            129,179Total
                Current Assets
            
            
            4,051,485**PROPERTY
                AND EQUIPMENT - NET**
            
            
            324,942**OTHER
                ASSETS**Due
                from related parties
            
            
            797,552Goodwill
            
            
            3,117,123Earnest
                deposits for acquisitions
            
            
            6,268,642Total
                Other Assets
            
            
            10,183,317**TOTAL
                ASSETS**
            
            $
            14,559,744**LIABILITIES
                AND STOCKHOLDERS' EQUITY****CURRENT
                LIABILITIES**Overdraft
            
            $
            154,540Accounts
                payable and customer deposits
            
            
            831,989Deferred
                revenue
            
            
            130,107Accrued
                expenses and other payable
            
            
            1,242,501Loans
                payable
            
            
            995,702Investor
                deposit for share purchase
            
            
            3,837,896Due
                to related parties
            
            
            640,692Total
                Current Liabilities
            
            
            7,833,427**LONG-TERM
                LIABILITIES**Convertible
                promissory note
            
            
            3,426,330**TOTAL
                LIABILITIES**
            
            
            11,259,757**MINORITY
                INTEREST**
            
            
            950,016**COMMITMENT
                AND CONTINGENCIES**
            
            
            --**STOCKHOLDERS'
                EQUITY**Preferred
                stock Class B, no par value, 5,000,000 shares authorized,
              none
                issued and outstanding--Common
                stock, no par value, 250,000,000 shares authorized,
              185,250,088
                issued and outstanding
            
            
            14,940,711Common
                stock to be issued for acquisition
            
            
            750,000Common
                stock subscriptions
            
            
            (8,991
            )Common
                stock, no par value, 20,000,000 shares issued as earnest deposit
                for
                acquisition
            
            
            (720,000
            )Accumulated
                comprehensive loss
            
            
            7,832Accumulated
                deficit
            
            
            (12,619,581
            )Total
                Stockholders' Equity
            
            
            2,349,971**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            14,559,744





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





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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**


**(UNAUDITED)**





**For
                the three months ended March 31,****2006**
            
            
            **2005**REVENUES
            
            $
            2,173,260
            
            $
            300,158COST
                OF REVENUE
            
            
            497,650
            
            
            92,611GROSS
                PROFIT
            
            
            1,675,610
            
            
            207,547OPERATING
                EXPENSESSelling,
                general and administrative
            
            
            1,928,287
            
            
            385,066Depreciation
                and amortization
            
            
            21,983
            
            
            18,443Total
                Operating Expenses
            
            
            1,950,272
            
            
            403,509LOSS
                FROM OPERATIONS
            
            
            (274,662
            )
            
            (195,962
            )OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            21
            
            
            487Interest
                expense
            
            
            (100,260
            )
            
            (8,339
            )Loss
                on currency fluctuations
            
            
            (115
            )
            
            --Miscellaneous
                income
            
            
            121
            
            
            --Total
                Other Expense, net
            
            
            (100,233
            )
            
            (7,852
            )LOSS
                BEFORE INCOME TAXES
            
            
            (374,894
            )
            
            (203,814
            )Income
                taxes
            
            
            800
            
            
            800LOSS
                FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
            
            
            (375,694
            )
            
            (204,614
            )Loss
                in subsidiary attributable to minority interest
            
            
            (111,452
            )
            
            (67,639
            )NET
                LOSS
            
            
            (487,146
            )
            
            (272,253
            )OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation gain
            
            
            --
            
            
            644--
            
            
            
            
            
            644COMPREHENSIVE
                LOSS
            
            $
            (487,146
            )
            $
            (271,609
            )Net
                loss per common share and equivalents - basic and diluted
            
            $
            (0.003
            )
            $
            (0.004
            )Weighted
                average shares outstanding during the period -
              basic
                and diluted
            
            
            166,669,256
            
            
            67,319,573





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





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          of Contents*


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED**





**For
                the three months ended March 31,****2006**
            
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (487,146
            )
            $
            (272,253
            )Adjustments
                to reconcile net loss to net cash provided by (used in)operating
                activities:Depreciation
                and amortization
            
            
            21,983
            
            
            18,443Stock
                issued for acquisition
            
            
            250,000
            
            
            --Provision
                for uncollectible amounts
            
            
            --
            
            
            5,682Issuance
                of stock for compensation and services
            
            
            27,125
            
            
            220,000Issuance
                of stock for consulting services
            
            
            120,000
            
            
            20,000Gain
                on disposal of subsidiary
            
            
            --
            
            
            (19,424
            )Minority
                interest
            
            
            111,452
            
            
            67,638Loss
                in equity of unconsolidated affiliate
            
            
            --
            
            
            19,424Changes
                in operating assets and liabilities:Increase
                in accounts receivable
            
            
            (204,494
            )
            
            (180,315
            )(Increase)
                decrease in prepaid expenses, deposits and other assets
            
            
            (70,180
            )
            
            28,845Increase
                (decrease) in accounts payable and customer deposits
            
            
            355,123
            
            
            (61,295
            )Increase
                in deferred revenue
            
            
            22,685
            
            
            3,103Increase
                in accrued expenses and other payable
            
            
            110,404
            
            
            22,131Net
                cash provided by (used in) operating activities
            
            
            256,952
            
            
            (128,021
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchase
                of property and equipment
            
            
            (35,855
            )
            
            (9,817
            )Net
                cash flows from acquisition
            
            
            (1,074,214
            )
            
            --Earnest
                deposit on acquisitions, net
            
            
            867,037
            
            
            (3,830,969
            )Proceeds
                from acquisition of True Precise
            
            
            --
            
            
            127,711Net
                cash used in investing activities
            
            
            (243,032
            )
            
            (3,713,075
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Cash
                overdraft
            
            
            5,214
            
            
            3,012Advances
                received for acquisitions
            
            
            --
            
            
            4,000,000Proceeds
                from bank loans
            
            
            29,986
            
            
            --Proceeds
                from (payments of) note payable
            
            
            825,486
            
            
            (27,608
            )Proceeds
                from sale of shares
            
            
            --
            
            
            --Proceeds
                from related parties
            
            
            37,701
            
            
            5,175Payments
                to related parties
            
            
            (230,263
            )
            
            --Net
                cash provided by financing activities
            
            
            668,124
            
            
            3,980,579**EFFECT
                OF EXCHANGE RATES ON CASH**
            
            
            13,038
            
            
            644**NET
                INCREASE IN CASH**
            
            
            695,082
            
            
            140,127**CASH,
                BEGINNING OF THE PERIOD**
            
            
            198,816
            
            
            67,631**CASH,
                END OF THE PERIOD**
            
            $
            893,898
            
            $
            207,758**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                paid during the period for interest
            
            $
            5,976
            
            $
            8,339Cash
                paid during the period for income taxes
            
            $
            800
            
            $
            800





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





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          of Contents*




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2006**


**(UNAUDITED)**





**NOTE
      1:**   **Organization
      and Nature of Operations**





Elephant
      Talk Communications, Inc. (herein referred to as “Elephant Talk”, “ETCI” or
“Company”, formerly known as Staruni Corporation), incorporated on February 5,
      1962 under the laws of the state of California as Altius Corporation, was
      involved in manufacturing of freeway signs. In March 1997, Altius acquired
      Starnet Universe Internet, Inc., a web developer and Internet Service Provider
      (ISP) and changed its name to Staruni Corporation. On January 4, 2002, Staruni
      Corporation merged with Elephant Talk Limited, a company incorporated in Hong
      Kong, and filed a Certificate of Amendment of Articles of Incorporation to
      amend
      the corporate name to Elephant Talk Communications, Inc. This name change was
      done in conjunction with the merger and to emphasize that the Company’s new
      focus will be the business of Elephant Talk Limited.





On
      January 4, 2002, the Company exchanged 90% of its common stock for 100% of
      the
      common stock of Elephant Talk Limited by issuing 31,164,210 shares of common
      stock to the shareholders of Elephant Talk Limited. Elephant Talk Limited is
      a
      limited liability company incorporated in Hong Kong (ETHK) engaged in long
      distance telephone business. Per the agreement, the Company sold its Internet
      Service Provider (ISP) business to a related party, Vision Aerospace, Inc.
      (Vision) for 1,000,000 shares of Vision valued at $10,835. Vision is owned
      by
      the former CEO and President of the Company. The value of the shares was
      recorded at the book value of the assets exchanged to acquire the shares of
      Vision. Pursuant to the terms of the share exchange agreement, control of the
      combined companies passed to the former shareholders of Elephant Talk Limited.
      This type of share exchange has been treated as a capital transaction
      accompanied by recapitalization of Elephant Talk Limited in substance, rather
      than a business combination, and is deemed a “reverse merger” for accounting
      purposes, since the former owners of Elephant Talk Limited controlled majority
      of the total common shares outstanding immediately following the merger.
      Recapitalization accounting resulted in consolidated financial statements being
      issued under the name of Elephant Talk Communications, Inc., but were considered
      a continuation of Elephant Talk Limited. No pro forma financial statements
      are
      being presented as ETCI has no assets other than the shares of the related
      third
      party discussed above.





On
      January 5, 2005, the Company completed the purchase of 60% of the equity
      ownership interest in True Precise Technology Limited (“True Price”), a limited
      liability company registered in British Virgin Islands, from Keen Solution
      Group
      Limited in a stock swap arrangement. As consideration for the acquisition,
      the
      Company issued 23,137,500 restricted common shares to Keen Solution valued
      at
      $1,436,875 for its 60% equity interest. Upon completion of the transaction,
      True
      Precise became a majority owned subsidiary of the Company.





On
      August
      8, 2005, Keen Solution sent notification informing the Company that it has
      unilaterally decided to terminate the Share Exchange Agreement. The Company
      placed a stop transfer restriction on all of the 23,137,500 common shares it
      issued to Keen Solution. The
      Company has treated True Precise’s transaction as discontinued operation and has
      recorded 23,137,500 common shares as cancelled shares as of March 31, 2006.
      Of
      those shares, 20,137,500 have been returned to the Company’s treasury, and the
      Company continues to pursue the return of the remainder. The Company has
      evaluated its legal options in connection with the termination of the Share
      Exchange Agreement and came to the conclusion that a mutual rescission of the
      agreement was in the Company’s best interest. The Company still continues to
      pursue the return of 3,000,000 common shares from Keen Solution.





On
      November 6, 2005, the Company through its subsidiary Elephant Talk Limited,
      incorporated a joint venture Free Zone Limited Liability company in the Dubai
      Technology, Electronic Commerce and Media Free Zone, Dubai, United Arab Emirates
      (UAE) under the name Elephant Talk Middle East & Africa FZ-LLC (“ET
      ME&A”). The Company’s subsidiary Elephant Talk Limited has contributed
      $50,907 towards its equity share capital as of March 31, 2006. The Company
      owns
      50.54% share of this newly formed joint venture company. ET ME&A is
      committed to spend the necessary funds to keep its share of equity investment
      and is currently seeking regulatory approvals for obtaining trade and business
      licenses from the UAE government to conduct its business. ET ME&A and has
      not yet begun operations and plans to operate various telecom related businesses
      in the Middle East and Africa.





On
      July
      11, 2005, the Company’s wholly owned subsidiary Elephant Talk Limited formed
      Full Mark Limited, a limited liability company organized under the laws of
      British Virgin Islands, to facilitate acquisitions for the Company in China.
      On
      December 13, 2005, Full Mark Limited, a wholly owned subsidiary of Elephant
      Talk
      Limited, formed a wholly owned subsidiary Jinfuyi Technology (Beijing) Co.
      Ltd.
      (“Jinfuyi”), a limited liability company organized and existing under the laws
      of the Peoples’ Republic of China, with a registered capital of $200,000. On
      January 2, 2006, Jinfuyi and Beijing Chinawind Telecommunication Information
      Technology Co. Limited, a limited liability company organized under the laws
      of
      the Peoples’ Republic of China (“Beijing Chinawind”), entered into an Exclusive
      Technical Consulting and Services Agreement (the ”Service Agreement”), pursuant
      to which Jinfuyi has the exclusive right to provide technical and consulting
      services in exchange for services fees that will be approximately $4,875,000
      per
      year, subject to the right of Jinfuyi to adjust the service fee depending on
      the
      quantity of the services that it actually provides.





On
      January 4, 2006, Guangdong Elephant Talk Network Consulting Limited, a limited
      liability company organized and existing under the laws of the Peoples’ Republic
      of China (“Guangdong Elephant Talk”) and an agent of the Company, and Beijing
      Zhongrun Chuangtou Technology Co., Ltd., a limited liability company organized
      and existing under the laws of the Peoples’ Republic of China (the “Vendor”),
      entered into an Equity Transfer Agreement (the ”Agreement”), pursuant to which
      Guangdong Elephant Talk agreed to acquire sixty percent (60%) of the registered
      capital of Beijing Chinawind. Pursuant to the Agreement, the purchase price
      for
      60% of Beijing Chinawind amounted to $4,800,000, subject to adjustments based
      on
      Beijing Chinawind’s audited net income for fiscal 2005 and 2006. The purchase
      consideration is payable (x) in cash of $2,800,000 in five installments, the
      last of which is to be paid on January 31, 2007, and (y) by the issuance by
      the
      Company to the Vendor of 20,000,000 shares of restricted common stock valued
      at
      $0.10 per share, in four equal installments, the last of which is to be issued
      on January 31, 2007. The Vendor has the right to exercise an option within
      30
      days after July 31, 2007 to return the 20,000,000 shares of restricted common
      stock either in exchange for a 25% equity interest in Beijing Chinawind or
      for
      settlement in cash within 90 days. The company has paid $1,420,000 in cash
      and
      issued 5,000,000 restricted common shares valued at $250,000 towards its
      investment in Beijing Chinawind joint venture as of May 18, 2006.





**NOTE
      2:**  **Basis
      of Presentation**





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-QSB. Accordingly, they do
      not
      include all of the information and footnotes required by generally accepted
      accounting principles for complete financial statements and related notes
      included in the Company's 2004 Form 10-KSB.





The
      audited consolidated financial statements of the Company for the year ended
      December 31, 2005 were filed on May 19, 2006 with the Securities and Exchange
      Commission and are hereby referenced. In the opinion of management, the
      accompanying unaudited consolidated financial statements contain all adjustments
      (which include only normal recurring adjustments) considered necessary for
      fair
      presentation has been included.





The
      results of operations for the three months ended March 31, 2006, are not
      necessarily indicative of the results to be expected for the entire year.
      Certain 2005 amounts have been reclassified to conform to current period
      presentation. These reclassifications have no effect on previously reported
      net
      income (loss).





**NOTE
      3:**  **Principles
      of Consolidation**





The
      accompanying consolidated financial statements for the three months ended March
      31, 2006 included the accounts of Elephant Talk Communications, Inc., its wholly
      owned subsidiary Elephant Talk Limited, its agent and controlled subsidiary
      Guangdong Elephant Talk Network Consulting Limited, its wholly owned subsidiary
      True Precise Technology Limited, its wholly owned subsidiary Full Mark Limited,
      and its majority owned (50.54%) subsidiary Elephant Talk Middle East &
Africa FZ-LLC. The consolidated financial statements for the three months ended
      March 31, 2005 included the accounts of Elephant Talk Communications, Inc.,
      its
      100% wholly owned subsidiary Elephant Talk Limited and its 60% owned subsidiary
      True Precise Technology Limited. Minority interest principally represents
      minority shareholders’ proportionate share of equity in our consolidated
      subsidiary Elephant Talk Middle East and Africa FZ-LLC and joint venture company
      Beijing Chinawind. All significant inter-company accounts and transactions
      have
      been eliminated in consolidation.





**NOTE
      4:**  **Use
      of Estimates**





In
      preparing financial statements in conformity with generally accepted accounting
      principles, management is required to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and the disclosure of contingent
      assets and liabilities at the date of the financial statements and revenues
      and
      expenses during the reported period. Actual results could differ from those
      estimates.





**NOTE
      5:**  **Supplemental
      Disclosure of Cash Flows**





The
      Company prepares its statements of cash flows using the indirect method as
      defined under the Financial Accounting Standard No. 95. The cash flow statements
      do not include the following non-cash investing and financing
      activities:





During
      the three months ended March 31, 2006, the Company issued 2,400,000 restricted
      common shares valued at $120,000 as compensation to a consultant as finder’s fee
      for an acquisition target. The shares were valued at the closing market price
      of
      the share price on the date of execution of the agreement. The Company issued
      250,000 restricted common shares valued at $22,500 to an employee as
      compensation for services. The shares were valued at the closing market price
      on
      the date of issuance. The Company issued 92,500 restricted common shares valued
      at $4,625 as compensation to officers for services rendered in December 2005.
      The shares were valued at the closing market price on the first day of December
      2005 for the month for which services were performed.





**NOTE
      6:**  **Recently
      Issued Accounting Pronouncements**





In
      February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”. SFAS No. 155, permits fair value re-measurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation, clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the Company’s first fiscal year that begins
      after September 15, 2006. The Company has not evaluated the impact of this
      pronouncement its financial statements.





In
      March
      2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this
      Statement amends FASB Statement No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. This Statement:





1.
            Requires
                an entity to recognize a servicing asset or servicing liability each
                time
                it undertakes an obligation to service a financial asset by entering
                into
                a servicing contract.


2.
            Requires
                all separately recognized servicing assets and servicing liabilities
                to be
                initially measured at fair value, if
                practicable.


3.
            Permits
                an entity to choose ‘Amortization method’ or Fair value measurement
                method’ for each class of separately recognized servicing assets and
                servicing liabilities:


4.
            At
                its initial adoption, permits a one-time reclassification of
                available-for-sale securities to trading securities by entities with
                recognized servicing rights, without calling into question the treatment
                of other available-for-sale securities under Statement 115, provided
                that
                the available-for-sale securities are identified in some manner as
                offsetting the entity’s exposure to changes in fair value of servicing
                assets or servicing liabilities that a servicer elects to subsequently
                measure at fair value.


5.
            Requires
                separate presentation of servicing assets and servicing liabilities
                subsequently measured at fair value in the statement of financial
                position
                and additional disclosures for all separately recognized servicing
                assets
                and servicing liabilities.





This
      Statement is effective as of the beginning of the Company’s first fiscal year
      that begins after September 15, 2006. Management believes that this statement
      will not have a significant impact on the consolidated financial
      statements.





In
      May
      2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections. This
      Statement replaces APB Opinion No, 20, Accounting Changes, and FASB Statement
      No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes
      the requirements for the accounting for and reporting of a change in accounting
      principle. This Statement applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. SFAS 154 also requires that a change in depreciation, amortization
      or depletion method for long-lived, non-financial assets be accounted for as
      a
      change in accounting estimate effected by a change in accounting principle.
      This
      Statement is effective in fiscal years beginning after December 15, 2005. The
      Company has not yet determined the effect of implementing this
      standard.





In
      December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
      an
      Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
      companies to recognize in the statement of operations the grant- date fair
      value
      of stock options and other equity-based compensation issued to employees. FAS
      No. 123R is effective beginning in the Company's second quarter of fiscal 2006.
      The Company is in process of evaluating the impact of this pronouncement on
      its
      financial position.





In
      December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
      Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29 to
      eliminate the exception for non-monetary exchanges of similar productive assets
      and replaces it with a general exception for exchanges of non-monetary assets
      that do not have commercial substance. The Company believes that the adoption
      of
      this standard will have no material impact on its financial
      statements.





In
      March
      2004, the Emerging Issues Task Force ("EITF") reached a consensus on Issue
      No.
      03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to
      Certain Investments.” The EITF reached a consensus about the criteria that
      should be used to determine when an investment is considered impaired, whether
      that impairment is other-than-temporary, and the measurement of an impairment
      loss and how that criteria should be applied to investments accounted for under
      SFAS No. 115 "Accounting in certain investments in debt and equity securities”.
      EITF 03-01 also included accounting considerations subsequent to the recognition
      of other-than-temporary impairment and requires certain disclosures about
      unrealized losses that have not been recognized as other-than-temporary
      impairments. Additionally, EITF 03-01 includes new disclosure requirements
      for
      investments that are deemed to be temporarily impaired. In September 2004,
      the
      Financial Accounting Standards Board (FASB) delayed the accounting provisions
      of
      EITF 03-01; however the disclosure requirements remain effective for annual
      reports ending after June 15, 2004. The Company will evaluate the impact of
      EITF
      03-01 once final guidance is issued.





**NOTE
      7:**  **Advance
      to Third Parties**





The
      Company has advanced $1,703,426 to two European telecom entities for their
      working capital requirements. The Company has completed its due diligence and
      expects to execute the acquisition documents no later than May 31, 2006. The
      Company has advanced $41,693 to a third party for development of products and
      services in which the Company has an interest. All advances made by the Company
      as of March 31, 2006, are deemed fully recoverable.





**NOTE
      8:**  **Earnest
      Deposits for Acquisitions**





On
      January 17, 2005, the Company entered into a Memorandum of Understanding with
      a
      European investor to acquire all of the issued and outstanding shares of Benoit
      Telecom Holding AG, a European telecom company. The Company has advanced earnest
      deposit of $6,043,080 with an escrow trust company as of March 31, 2006. The
      Company has executed a promise to repay and a security agreement with the escrow
      trust company to repay the full earnest deposit to the Company if the
      acquisition is not consummated for any reason. The Company has completed its
      due
      diligence of its proposed acquisition and fully expects to close the transaction
      and execute a definitive agreement by May 31, 2006.





The
      Company has advanced fully refundable earnest deposit of $225,562 and issued
      20,000,000 common shares valued at $720,000 in connection with its proposed
      acquisition of Phonetone Telecom Ltd. from Calfin Trust as of March 31, 2006.
      The Company has completed its due diligence of Phonetone Telecom Ltd. and
      expects to execute a definitive agreement in the near future.





The
      Company has recorded $6,988,642 as earnest deposits for acquisitions in the
      accompanying financial statements as of March 31, 2006.





**NOTE
      9:**   **Investment
      in Beijing Chinawind Telecommunication Information Technology Company**  **Limited
      (“Beijing Chinawind”)**





On
      January 4, 2006, the Company, through its agent and controlled subsidiary
      Guangdong Elephant Talk Network Consulting Limited, entered into an agreement
      to
      acquire sixty percent (60%) of the registered capital of Beijing Chinawind.
      Pursuant to the Agreement, the purchase price for 60% of Beijing Chinawind
      was
      agreed to be $4,800,000, subject to adjustments based on Beijing Chinawind’s
      audited net income for fiscal years 2005 and 2006, and is payable (a) in cash
      of
      $2,800,000 in five installments, the last of which is to be paid on January
      31,
      2007, and (b) by issuance of 20,000,000 restricted common shares valued at
      $0.10
      per share to the owners of Beijing Chinawind in four equal installments, the
      last of which is to be issued on January 31, 2007. The owners of Beijing
      Chinawind has the right to exercise an option within 30 days after July 31,
      2007
      to return the 20,000,000 restricted common shares either in exchange for a
      25%
      equity interest in Beijing Chinawind or for settlement in cash within 90 days.
      On January 2, 2006, the Company issued 5,000,000 restricted common shares valued
      at $250,000 and has made additional cash payments of $1,420,000 to the owners
      of
      Beijing Chinawind towards it 60% ownership equity in Beijing Chinawind as of
      May
      18, 2006. The shares were valued at the closing market price of shares on the
      day of execution of the agreement.





**Investment
                in Beijing Chinawind Telecommunication Information Technology Co.
                Limited**Consideration
                payable for Beijing Chinawind on acquisition date January 4,
                2006:Cash
                payable
            
            $
            1,600,000Common
                shares to be issued - 20,000,000 shares
            
            
            1,000,000$
            2,600,000Fair
                value of net assets received on acquisition date January 4,
                2006:Cash
            
            $
            95,786Accounts
                receivable, net of allowances
            
            
            1,071,595Other
                receivables and prepayments
            
            
            36,256Due
                from directors
            
            
            323,657Due
                from a related company
            
            
            3,849Property
                and equipment, net
            
            
            218,471Other
                assets
            
            
            1,712,510Accounts
                payable
            
            
            (437,943
            )Other
                payables and accrued expenses
            
            
            (926,781
            )Value
                added tax payable
            
            
            (47,289
            )Notes
                payable
            
            
            (30,544
            )Due
                to stockholders
            
            
            (27,253
            )1,992,314Minority
                interest - 40%
            
            
            (796,926
            )$
            1,195,388Goodwill
            
            
            1,404,612Total
                consideration paid
            
            $
            2,600,000





The
      Company recorded goodwill on consolidation of its acquired entities in the
      total
      amount of $3,117,123 as of March 31, 2006. Management is of the opinion that
      there is no impairment of goodwill as of March 31, 2006.





**NOTE
      10:**  **Related
      Party Transactions**





The
      Company has advanced funds amounting to $466,193 to certain affiliates of which
      $330,934 relates to the amount that the Company’s officers and/or shareholders
      have an ownership interest in prior to 2002. The related entity is making
      monthly payments and therefore, such funds advanced as of March 31, 2006 are
      deemed fully collectible and no provision for uncollectible debt is provided
      at
      March 31, 2006. The Company has further advanced funds to the shareholders
      of
      Chinawind in the amount of $331,359 as of March 31, 2006. The total amount
      due
      from related parties amounted to $797,552 as of March 31, 2006.





The
      Company’s affiliate had signed a promissory note of $408,975 which was fully
      guaranteed by the Company. The note requires a monthly installment of $12,535
      with the remaining balance due on December 24, 2006. The affiliate is making
      monthly payments in accordance with the payment terms, and expects to pay the
      balance due in full on due date. In case of default of payments on the
      promissory note, the Company will be obligated to pay the unpaid balance of
      the
      note in full. Since the affiliate is making payments on time, the Company did
      not deem it necessary to provide for an allowance for the unpaid balance of
      $330,934 on the promissory note in the accompanying financial statements at
      March 31, 2006. The Company is obligated to pay the shareholders of Chinawind
      for the amount $430,000 due to them in accordance with the terms of payment
      of
      acquisition costs. Furthermore the Company is obligated to pay $210,692 to
      the
      officers and directors for their past due compensation as of March 31, 2006.
      The
      total amount due to related parties amounted to $640,692 as of March 31,
      2006.





**NOTE
      11:**  **Stockholders’
      Equity**





Issuance
      of common stock: During the three months ended March 31, 2006, the Company
      issued 92,500 restricted common shares valued at $4,625 as partial compensation
      to two directors for salaries earned in December 2005. The common shares were
      valued at the closing market price of the common shares on the first day of
      the
      month for which the compensation was earned. The Company entered into an
      agreement with an employee and issued 250,000 restricted common shares valued
      at
      $22,500 for compensation earned. The common shares were valued at the closing
      market price of the shares on the date of issuance. The Company issued 2,400,000
      common shares valued at $120,000 to a consultant for providing consulting,
      business advisory and finder’s fee for a target acquisition. The common shares
      were valued at the closing market price of the shares of the date of execution
      of the agreement. The Company issued as a partial consideration 5,000,000
      restricted common shares valued at $250,000 to the owners of Beijing Chinawind
      in connection with its acquisition of 60% equity interest in Beijing Chinawind.
      The shares were valued at the closing market price of the shares on the date
      of
      execution of the agreement.





The
      Company’s majority owned subsidiary Elephant Talk Middle East & Africa
      FZ-LLC (“ET ME&A”) authorized capital of $100,817 was not received in full
      from the joint venture partners when ET ME&A was incorporated on November 6,
      2005. ET ME&A has since received $91,826 in capital contributions and $8,991
      of stock subscriptions remain to be received from two of the three joint venture
      partners as of March 31, 2006.





**NOTE
      12:**  **Basic
      and Diluted Net Loss Per Share**





Basic
      and
      diluted net loss per share for the three months ended March 31, 2006 and 2005
      was determined by dividing net loss for the periods by the weighted average
      number of basic and diluted shares of common stock outstanding. 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
      13:**  **Employee
      Benefit Plan**





The
      Company adopted an employee benefit plan “The 2000 Employee Benefit Plan” (the
“Plan”) on May 30, 2000. Under the Plan, the Company may issue shares or grant
      options to acquire the Company’s common stock, no par value, from time to time
      to employees of the Company or its subsidiaries. In addition, at the discretion
      of the Board of Directors, shares may be granted under this Plan to other
      individuals, including consultants or advisors, who contribute to the success
      of
      the Company or its subsidiaries, provided that bona fide services shall be
      rendered by consultants and advisors and such services must not be in
      conjunction with the offer or sale of securities in a capital raising
      transaction. No stock may be issued or options granted under the Plan to
      consultants, advisors or other persons who directly or indirectly promote or
      maintain a market for the Company’s securities. The Plan is intended to aid the
      Company in maintaining and developing a management team, attracting qualified
      officers and employees capable of assuring the future success of the Company,
      and rewarding those individuals who have contributed to the success of the
      Company. The Plan is administrated under the direction of the Board of
      Directors. A total of 4,000,000 (four million) common shares and 4,000,000
      (four
      million) stock options to acquire common shares may be subject to, or issued
      pursuant to, benefits granted under the Plan. At any time any stock option
      is
      granted under the terms of this Plan, the Company will reserve for issuance
      the
      number of shares of Stock subject to such option until it is exercised or
      expired. The Plan Administrator shall determine from time to time the terms,
      conditions and price of the options granted. Options shall not be construed
      to
      be stock and cannot be exercised after the expiration of its term. Under the
      Plan, 300,000 shares of common stock and 4,000,000 stock options remain
      available for grant at March 31, 2006.





NOTE
      14:  Contingent
      Consideration





In
      January 2006, the Company acquired a 60% interest in Beijing Chinawind for
      an
      agreed total consideration of $4.8 million of which $2.8 million was payable
      in
      cash and the issuance of 20 million shares of the Company’s common stock. In
      accordance with the Equity Transfer Agreement (“ET Agreement”) signed between
      the vendor and the Company, the agreed valuation for the 20 million shares
      was
      $0.10 per common stock for $2.0 million. The Company recorded the 20 million
      shares at $0.05 per common stock for $1.0 million based on the closing price
      of
      the Company’s stock at the date of the ET Agreement of January 4,
      2006.





As
      of
      March 31, 2006, the Company is contingently liable for $1.2 million to the
      vendor, of which $600,000 is due on or before July 31, 2006 to be adjusted
      proportionately if Beijing Chinawind does not achieve a profit of $1,000,000
      (Rmb 8.0 million) in 2005 and $1,125,000 (Rmb 9.0 million) for the first half
      of
      2006. An additional $600,000 cash consideration is due on or before January
      31,
      2007 to be adjusted proportionately if Beijing Chinawind does not achieve a
      profit of $2,250,000 (Rmb 18.0 million) for 2006.





If
      any of
      the conditions are not met, the vendor has 30 days from July 31, 2007 to give
      notice to the Company to buy back 25% equity interest in Beijing Chinawind
      from
      the Company in return for the 20 million shares issued as part of the ET
      Agreement.





**NOTE
      15:**  **Going
      Concern**





The
      accompanying financial statements have been prepared in conformity with
      generally accepted accounting principle, which contemplate continuation of
      the
      Company as a going concern. The Company has an accumulated deficit of
      $12,619,581 including a net loss of $487,146 for the three months ended March
      31, 2006. This raises a substantial doubt about the Company’s ability to
      continue as a going concern. In view of the matters described below,
      recoverability of a major portion of the recorded asset amounts shown in the
      accompanying balance sheet is dependent upon continued operations of the
      Company, which in turn is dependent upon the Company’s ability to raise
      additional capital, obtain financing and to succeed in its future
      operations.





The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts or amounts and
      classification of liabilities that might be necessary should the Company be
      unable to continue as a going concern.





Management
      has taken the following steps to revise its operating and financial
      requirements, which it believes are sufficient to provide the Company with
      the
      ability to continue as a going concern. Management has devoted considerable
      efforts during the period ended March 31, 2006 towards (i) obtaining additional
      equity financing (ii) controlling of salaries and general and administrative
      expenses (iii) management of accounts payable (iv) settlement of debt by
      issuance of common shares and (v) acquire profitable companies that bring
      synergies to the Companies products and services.





**NOTE
      16:**  **Subsequent
      Events**





On
      April
      5, 2006, the Company received $73,670 of the remaining balance of $3.5 million
      convertible promissory note and an advance of $926,330 against a new $3.0
      million convertible promissory note to be executed by Rising Water Capital
      no
      later than May 31, 2006.





**Item
      2**  **Management’sDiscussion
      and Analysis or Plan of
      Operation**





Elephant
      Talk Communications, Inc. (ETCI) is a facility based international long distance
      carrier offering highly reliable and competitively priced services on the
      wholesale market. The Company provides services to first-tier local and
      international telecommunications carriers, enabling those carriers and other
      service providers to offer voice and fax services to their end-customers. The
      operations include international long distance on both sides of the Pacific,
      serving over 20 foreign countries through an advanced and flexible network.
      The
      Company has been expanding its foothold in Asia with more profitable routes
      and
      the development of value-added services, such as PC-to-Phone service, voice
      over
      Internet protocol (VoIP), Broadband Internet and Short messaging service (SMS).
      The Company is actively pursuing new sales channels for the higher-margin
      prepaid calling card market, expanding from the U.S. to several countries in
      South East Asia.





Pursuant
      to an agreement and plan of reorganization, effective August 27, 2001, and
      through the subsequent acquisition that completed on January 4, 2002, Staruni
      Corporation, a California corporation acquired Elephant Talk Limited, a limited
      company incorporated in Hong Kong. This type of share exchange has been treated
      as a capital transaction accompanied by recapitalization of Elephant Talk
      Limited in substance, rather than a business combination, and is deemed a
“reverse acquisition” for accounting purposes since the former owners of
      Elephant Talk Limited controlled majority of the total common shares outstanding
      immediately following the acquisition. The acquisition caused no change in
      any
      of the shares of the Company’s common stock outstanding on the acquisition date,
      and no other securities were converted as a result of the
      acquisition.





On
      January 5, 2005, the Company completed its purchase of 60% equity ownership
      interest in True Precise Technology Limited (“True Precise”), from Keen Solution
      Group Limited (“Keen Solution”) in a Share Exchange Agreement. As consideration
      for the acquisition, on July 26, 2004, the Company had issued 4,000,000
      restricted common shares to Keen Solution valued at $480,000 as the earnest
      deposit. On May 10, 2005, the Company issued the additional 19,137,500
      restricted Common Shares valued at $956,875 as the remaining balance of the
      consideration to complete its obligation. Upon completion of the acquisition
      on
      January 5, 2005, True Precise became a majority owned subsidiary of the Company.





On
      August
      8, 2005, Keen Solutions sent notification informing the Company that it had
      unilaterally decided to terminate the Share Exchange Agreement. The True Precise
      acquisition has been cancelled, and the Company has taken protective measures
      to
      ensure that the 23,137,500 common shares are restricted and nontradeable. Of
      those shares, 20,137,500 have been returned to the Company’s treasury. The
      Company has evaluated its legal options in connection with the termination
      of
      the Share Exchange Agreement and came to the conclusion that a mutual rescission
      of the agreement was in the Company’s best interest. The Company still continues
      to pursue the return of 3,000,000 common shares from Keen Solution.





On
      January 17, 2005, the Company entered into a Memorandum of Understanding to
      acquire all of the issued and outstanding shares of Benoit Telecom Holding
      A.G.,
      a European telecom company from an accredited investor and owner based in
      Europe, and has delivered earnest deposits of $6,043,080 with an escrow trust
      company. The Company has completed its due diligence investigation of Benoit
      and
      expects to close the transaction and execute a definitive agreement by May
      31,
      2006. The European telecom is a telecommunications service provider that
      provides various premium rate services such as 0900 service and VoIP services
      to
      corporations and content providers within the European Union. The Company
      believes that it can extract considerable synergies with this acquisition by
      integrating its VOIP platforms and extend its reach from China to Europe and
      vice-versa.





Pursuant
      to the terms of an agency agreement in connection with its acquisition of
      Phonetone Telecom Ltd. from Calfin Trust, the Company agreed to issue 40,000,000
      restricted common shares, pay a cash consideration of $600,000, and share 15%
      of
      the yearly total profit margin generated by the Company or any of its affiliated
      companies from the Phonetone’s premium rate numbers in the years 2006, 2007 and
      2008. As of May 18, 2006, the Company has advanced $225,562 and 20,000,000
      shares of common stock valued at $720,000 to Calfin Trust as an earnest deposit
      towards the Phonetone proposed acquisition. The Company has performed its due
      diligence on the telecom service provider and plans to sign a definitive
      acquisition agreement in the near future.





On
      April
      20, 2005, the Company formed a joint venture Free Zone Limited Liability company
      to be incorporated in the Dubai Technology, Electronic Commerce and Media Free
      Zone, Dubai, United Arab Emirates (UAE) under the name Elephant Talk Middle
      East
& Africa FZ-LLC (“ET ME&A”). The Company through its wholly owned
      subsidiary Elephant Talk Limited incorporated the joint venture company on
      November 6, 2005 and contributed $50,907 towards its equity share capital as
      of
      December 31, 2005. The Company owns 50.54% share of this newly formed joint
      venture company. ET ME&A is committed to expend the necessary funds to keep
      its share of equity investment and is currently seeking regulatory approvals
      for
      obtaining trade and business licenses from the UAE government to conduct its
      business. ET ME&A has not yet begun the operations and plans to operate
      various telecom related business in the Middle East and Africa.





On
      July
      11, 2005, the Company’s wholly owned subsidiary Elephant Talk Limited formed
      Full Mark Limited (“Full Mark”), a limited liability company organized under the
      laws of British Virgin Islands, to facilitate acquisitions of profitable
      business in China. On December 13, 2005, Full Mark formed a wholly owned
      subsidiary Jinfuyi Technology (Beijing) Co. Ltd. (“Jinfuyi”), a limited
      liability company organized and existing under the laws of the Peoples’ Republic
      of China, with a registered capital of $200,000. On January 2, 2006, Jinfuyi
      and
      Beijing Chinawind entered into an Exclusive Technical Consulting and Services
      Agreement (the ”Service Agreement”), pursuant to which Jinfuyi has the exclusive
      right to provide technical and consulting services in exchange for services
      fees
      of approximately $4,875,000 per year, subject to the right of Jinfuyi to adjust
      the service fee depending on the quantity of the services that it actually
      provides.





On
      January 4, 2006, Guangdong Elephant Talk Network Consulting Limited, a limited
      liability company organized and existing under the laws of the Peoples’ Republic
      of China (“Guangdong Elephant Talk”) and an agent of the Company, and Beijing
      Zhongrun Chuangtou Technology Co., Ltd., a limited liability company organized
      and existing under the laws of the Peoples’ Republic of China (the “Vendor”),
      entered into an Equity Transfer Agreement (the ”Agreement”), pursuant to which
      Guangdong Elephant Talk agreed to acquire sixty percent (60%) of the registered
      capital of Beijing Chinawind.





Pursuant
      to the Agreement, the purchase price for 60% of Beijing Chinawind was agreed
      to
      be $4,800,000, subject to adjustments based on Beijing Chinawind’s audited net
      income for fiscal 2005 and 2006, and is payable (x) in cash of $2,800,000 in
      five installments the last of which is to be paid on January 31, 2007, and
      (y)
      by the issuance by the Company to the Vendor of 20,000,000 shares of restricted
      common stock valued at US$0.10 per share, in four equal installments the last
      of
      which is to be issued on January 31, 2007. Finally, the Vendor has the right
      to
      exercise an option within 30 days after July 31, 2007 to return the 20,000,000
      shares of restricted common stock either in exchange for a 25% equity interest
      in Beijing Chinawind or for settlement in cash within 90 days.





Results
      of Operations: Our results of operations for the three months ended March 31,
      2006 consisted of operations of Elephant Talk Communications, Inc., our wholly
      owned subsidiary Elephant Talk Limited, our wholly owned subsidiary Guangdong
      Elephant Talk Network Consulting Limited, our wholly owned subsidiary True
      Precise Technology Limited, our wholly owned subsidiary Full Mark Limited,
      and
      our majority owned subsidiary Elephant Talk Middle East & Africa FZ-LLC. The
      results of operations of the Company for the three months ended March 31, 2005
      consisted of our operations of Elephant Talk Communications, Inc., our wholly
      owned subsidiary Elephant Talk Limited and our 60% owned subsidiary True Precise
      from January 5, 2005 (date of acquisition). The Company reported net loss of
      $487,146 for the three months ended March 31, 2006 compared to a net loss of
      272,253 for the same period in 2005.





Revenues
      and Cost of revenues: The Company reported revenues of $2,173,260 during the
      three months ended March 31, 2006 compared to $300,158 for the same period
      in
      2005. Revenues consisted of mobile value-added services offered by the Company’s
      subsidiary Guangdong Elephant Talk Network Consulting Limited to a large
      subscriber base of customers via mediums such as mobile terminals or the
      internet. The services offered included short messaging services, multimedia
      messaging services, wireless application protocol, interactive voice response
      and ring-back tone services as well as web portal. Furthermore, the Company’s
      sale of telecommunications products business such as voice and data transmission
      like IDD, pre-paid calling cards, eTalk and facsimile services provided to
      a
      wide range of customers including major telecommunication companies to retail
      customers primarily in China, Japan and Hong Kong. During the three months
      period ended March 31, 2005, the Company recorded $300,158 in revenues by
      selling telecommunications products and provided technical consulting and
      business advisory services relating to data communication and information
      systems.





Cost
      of
      revenues was $497,650 for the three months ended March 31, 2006 compared to
      $92,610 for the same period in 2005. Cost of revenues included primarily the
      mobile operator charges in providing mobile value added services to our
      subscriber base, and costs incurred for resale arrangements with long distance
      service providers, cost of leasing transmission facilities, international
      gateway switches for voice, data transmission and facsimile services and
      discounts offered on eTalk cards sold. Gross margins for the three months ended
      March 31, 2006 was $1,675,610 or 77% of revenues as compared to $207,547 or
      69%
      of revenues for the same period in 2005. The increase in gross margin for the
      three months ended March 31, 2006 compared to the same periods in 2005 was
      due
      to the change in the revenue mix for the mobile value added services provided
      to
      the customers in the telecom markets.





Selling,
      general and administrative expenses (S,G&A): S,G&A expenses were
      $1,941,214 for the three months ended March 31, 2006 compared to $385,066 for
      the same period in 2005. S,G&A expenses increased during the three months
      ended March 31, 2006 compared to the same periods in 2005, primarily due to
      the
      increase in marketing and promotion expenses of the new mobile value added
      business services provided to our subscriber base, increased payroll and other
      legal and administrative expenses of the newly acquired business. Depreciation
      expense totaled $9,056 for the three months ended March 31, 2006 compared to
      $18,443 for the same period in 2005 as majority of the assets were fully
      depreciated in 2005.





Other
      Income and Expenses: Interest income was $21 and $487 for the three months
      ended
      March 31, 2006 and 2005, respectively. Interest expense for the three months
      ended March 31, 2006 was $100,260 compared to $8,339 for the same period in
      2005. Interest expense increased due to the Company borrowing additional loan
      from an investor, bank and related parties.





Minority
      interest: The Company’s majority owned subsidiaries Elephant Talk Middle East
& Africa FZ-LLC and Guangdong Elephant Talk Network Consulting Limited
      incurred a loss of $6,631 and a profit of $243,985 from operations during the
      three months period ended March 31, 2006. The Company recorded a loss of
      $111,452 attributable to minority shareholders’ interest in the accompanying
      financial statements as of March 31, 2006. The Company recorded a loss of
      $67,639 attributable to minority shareholders’ interest for the three months
      ended March 31, 2005.





Liquidity
      and Capital Resources: The Company's principal capital requirements during
      the
      year 2006 are to fund the internal operations and complete the pending
      acquisitions of growth-oriented telecommunications and related businesses in
      Asia and Europe. The Company plans to raise necessary funds by selling its
      own
      common shares to selected investors and bringing in business partners whose
      contributions include the necessary cash. In view of low borrowing interest
      rates, the Company continues to actively pursuing additional credit facilities
      with investors and financial institutions in Hong Kong, Europe, Middle East
      and
      USA as a means to obtain new funding. The Company’s management estimates that it
      currently does not have the funds to operate for the next twelve months without
      raising additional capital.





As
      shown
      in the accompanying financial statements, the Company incurred a net loss of
      $487,146 for the three months ended March 31, 2006 as compared to a net loss
      of
      $272,253 for the same period in 2005. Additionally, the Company’s current
      liabilities exceeded its current assets by $3,781,942 at March 31, 2006. These
      factors and the Company’s inability to meet its debt obligations from current
      operations, and the need to raise additional funds to accomplish its objectives,
      create a substantial doubt about Elephant Talk's ability to continue as a going
      concern. Furthermore, the Company’s independent auditors have issued a going
      concern opinion on the Company’s audited financial statements for the fiscal
      year ended December 31, 2005 as the Company did not have sufficient funds
      available to operate for the next twelve months.





The
      Company’s forecast of the period of time through which its financial resources
      will be adequate to support its operations is a forward-looking statement that
      involves risks and uncertainties, and actual results could vary as a result
      of a
      number of factors.





Operating
      activities: Net cash provided by operating activities during the three month
      period ended March 31, 2006 amounted to $256,952 primarily due to increase
      in
      accounts receivable of $204,494, increase in prepaid expenses, deposits and
      other current assets of $70,180, increase in accounts payable and customer
      deposits of $355,123, increase in accrued expenses and other payable of
      $110,404, and  increase
      in deferred revenue of $22,685. Additionally, the Company’s current liabilities
      exceeded its current assets by $3,781,942 **** at
      March
      31, 2006. These factors and the Company’s inability to meet its debt obligations
      from current operations, and the need to raise additional funds to accomplish
      its objectives, create a substantial doubt about the Company’s ability to
      continue as a going concern.





Investing
      activities: Net cash used in investing activities during the three months ended
      March 31, 2006 was $243,032 primarily due to net cash out flow of $1,074,214
      due
      to acquisition of Beijing Chinawind, earnest deposits of $867,037 to acquire
      telecom companies in Europe. The Company used proceeds to acquire equipment
      for
      $35,855 during the three months ended March 31, 2006.





Financing
      activities: Net cash provided by financing activities during the three months
      ended March 31, 2006 was $668,124. The Company received $825,486 in funding
      against the convertible note payable from an investor and $29,986 of proceeds
      against bank loans. The Company made payments of $192,562 towards payments
      to
      related parties.





As
      a
      result of the above activities, the Company experienced a net increase in cash
      of $695,082 for the three months ended March 31, 2006. The ability of the
      Company to continue as a going concern is still dependent on its success in
      obtaining additional financing from the institutional investors, acquiring
      profitable operations or by selling its common shares and fulfilling its plan
      of
      restructuring as outlined above.





**Application
      of Critical Accounting Policies and Estimates**





Our
      discussion and analysis of financial condition and results of operations are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of assets and liabilities and the
      disclosure of contingent assets and liabilities at the date of the consolidated
      financial statements, and the reported amounts of revenue and expenses during
      the period reported. By their nature, these estimates and judgments are subject
      to an inherent degree of uncertainty. We based our estimates and judgments
      on
      historical experience, market trends, and other factors that we believed to
      be
      reasonable under the circumstances. The results of these estimates form the
      basis for judgments about the carrying value of assets and liabilities that
      are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions. We have discussed the
      development, selection, and disclosure of these estimates with the Audit
      Committee of our Board of Directors. We believe there have been no material
      changes to our critical accounting policies and estimates during the three
      months ended March 31, 2005 compared to those discussed in our Annual Report
      on
      Form 10-KSB for the year ended December 31, 2004.





We
      believe the following critical accounting policies reflect our more significant
      judgments and estimates used in the preparation of our financial statements.





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 the sale of minutes of
      calling time via sale of its prepaid calling cards. Cost of revenue includes
      the
      cost of capacity associated with the revenue recognized within the corresponding
      time period. Revenue is deferred upon activation of the calling cards and is
      recognized as the prepaid calling card balances are reduced based upon minute
      usage, imposition of administrative fees, or no further obligations exist with
      respect to a calling card. Deferred revenues represent amounts received from
      its
      customers for the unused minutes of the prepaid calling cards sold to its
      customers since the Company recognizes revenues only on the usage of the
      minutes.





Stock-based
      Compensation:


The
      Company follows the prescribed accounting and reporting standards for all
      stock-based compensation plans, including employee stock options, restricted
      stock, employee stock purchase plans and stock appreciation rights in accordance
      with SFAS No. 148 “Accounting for Stock-Based Compensation”. SFAS No. 148
      provides alternative methods of transition for a voluntary change to the fair
      value based method of accounting for stock-based employee compensation. In
      addition, this Statement requires prominent disclosures in both annual and
      interim financial statements about the method of accounting for stock-based
      employee compensation and the effect of the method used, on reported
      results.





Issuance
      of Shares for Services:


The
      Company accounts for the issuance of equity instruments to acquire goods and
      services based on the fair value of the goods and services or the fair value
      of
      the equity instrument at the time of issuance, whichever is more reliably
      measurable.





Impact
      of
      accounting pronouncements:


In
      January 2003, the Financial Accounting Standards Board ("FASB") issued
      Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities
      (VIE)," (revised December 2003 by FIN No. 46R), which addresses how a business
      enterprise should evaluate whether it has a controlling financial interest
      in an
      entity through means other than voting rights and accordingly should consolidate
      the entity. For variable interests in VIEs created before January 1, 2004,
      the
      Interpretation will be applied beginning on January 1, 2005. For any VIEs
      that must be consolidated under FIN No. 46R that were created before
      January 1, 2004, the assets, liabilities and non-controlling interests of
      the VIE initially would be measured at their carrying amounts with any
      difference between the net amount added to the balance sheet and any previously
      recognized interest being recognized as the cumulative effect of an accounting
      change. If determining the carrying amounts is not practicable, fair value
      at
      the date FIN No. 46R first applies may be used to measure the assets,
      liabilities and non-controlling interest of the VIE. The
      guidelines of this statement are not applicable to the Company.





In
      December 2004, the FASB issued SFAS No. 123R “Share-Based Payment”
(“SFAS 123R”), a revision to SFAS No. 123 “Accounting for Stock-Based
      Compensation” (“SFAS 123”), and superseding APB Opinion No. 25 “Accounting for
      Stock Issued to Employees” and its related implementation guidance. SFAS 123R
      establishes standards for the accounting for transactions in which an entity
      exchanges its equity instruments for goods or services, including obtaining
      employee services in share-based payment transactions. SFAS 123R applies to
      all
      awards granted after the required effective date and to awards modified,
      repurchased, or cancelled after that date. Adoption of the provisions of SFAS
      123R is effective as of the beginning of the first interim or annual reporting
      period that begins after June 15, 2005. The guidelines of this statement are
      not
      applicable to the Company.





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs -- an amendment
      of
      ARB No. 43, Chapter 4"(“SFAS 151”) This statement clarifies the criteria of
      "abnormal amounts" of freight, handling costs, and spoilage that are required
      to
      be expensed as current period charges rather than deferred in inventory. In
      addition, this statement requires that allocation of fixed production overheads
      to the costs of conversion be based on the normal capacity of the production
      facilities. SFAS 151 is effective for the Company July 1, 2005. The Company
      does
      not expect the adoption of this statement will have any material impact on
      its
      results or financial position.





In
      December 2004, the FASB issued SFAS no. 153, *Exchanges
      of Nonmonetary Assets an amendment of APB Opinion No. 29.* This
      statement addresses the measurement of exchanges of nonmonetary assets. It
      eliminates the exception from fair value measurement for nonmonetary exchanges
      of similar productive assets in paragraph 21(b) of APB Opinion No. 29, *Accounting
      for Nonmonetary Transactions,* and
      replaces it with an exception for exchanges that do not have commercial
      substance. This statement specifies that a nonmonetary exchange has commercial
      substance if the future cash flows of the entity are expected to change
      significantly as a result of the exchange. The Company does not expect the
      adoption of this statement will have any material impact on its results or
      financial position.





In
      December 2004, the FASB issued SFAS No. 152, *Accounting
      for Real Estate Time-Sharing Transactions an amendment of FASB Statements No.
      66
      and 67.* This
      statement amends FASB
      Statement No. 66 , *Accounting for Sales of Real Estate,* to
      reference the financial accounting and reporting guidance for real estate
      time-sharing transactions that is provided in AICPA Statement of Position (SOP)
      04-2, *Accounting for Real Estate Time-Sharing Transactions.* This
      statement also amends FASB
      Statement No. 67 , *Accounting for Costs and Initial Rental Operations of Real Estate
      Projects,* to state
      that the guidance for (a) incidental operations and (b) costs incurred to sell
      real estate projects does not apply to real estate time-sharing transactions.
      This statement is effective for financial statements for fiscal years beginning
      after June 15, 2005. The guidelines of this statement are not applicable to
      the
      Company.





SFAS
      No.
      154 (“SFAS 154”), *Accounting
      Changes and Error Corrections,* was
      issued in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3 (“SFAS 3”).
      SFAS No. 154 requires retrospective application for voluntary changes in
      accounting principle in most instances and is required to be applied to all
      accounting changes made in fiscal years beginning after December 15, 2005.
      At
      such, the Company is required to adopt these provisions at the beginning of
      the
      fiscal year ended December 31, 2006. The Company is currently evaluating the
      impact of SFAS 154 on its consolidated financial statement.





In
      February 2006, the FASB issued SFAS No. 155, “ *Accounting
      for Certain Hybrid Financial Instruments* ”
(SFAS
      155”), which amends SFAS No. 133, “Accounting for Derivatives Instruments and
      Hedging Activities” (“SFAS 133”) and SFAS No. 140, “ *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishment of
      Liabilities* ”
(SFAS
      140”). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only
      and principal-only strips on debt instruments to include only such strips
      representing rights to receive a specified portion of the contractual interest
      or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying
      special-purpose entities to hold a passive derivative financial instrument
      pertaining to beneficial interests that itself is a derivative instruments.
      The
      Company is currently evaluating the impact this new Standard, but believes
      that
      it will not have a material impact on the Company’s financial
      position.





**Item
      3** **Controls
      and Procedures**





The
      Company maintains controls and procedures designed to ensure that it is able
      to
      collect the information it is required to disclose in the reports it files
      with
      the SEC, and process, summarize, and disclose this information within the time
      periods specified in the rules of the SEC. The Company's Chief Executive Officer
      and Chief Financial Officer (“Certifying Officers”) are responsible for
      establishing and maintaining these procedures and, as required by the rules
      of
      the SEC, evaluate their effectiveness.





**Disclosure
      Controls and Procedures and Internal Controls**





The
      Company maintains disclosure controls and procedures designed with the objective
      of ensuring that information required to be disclosed in our reports filed
      with
      the Commission under the Exchange Act, such as this Quarterly report, is
      recorded, processed, summarized and reported within the time period specified
      in
      the Commission's rules and forms. Disclosure controls are also designed with
      the
      objective of ensuring that material information relating to the Company is
      made
      known to the Certifying Officers by others, particularly during the period
      in
      which the applicable report is being prepared. The Company maintains a system
      of
      internal controls designed to provide reasonable assurance that a) transactions
      are executed in accordance with management's general or specific authorization;
      b) transactions are recorded as necessary, to permit preparation of financial
      statements in conformity with generally accepted accounting principles, and
      to
      maintain accountability for assets; c) access to assets is permitted only in
      accordance with management's general or specific authorization; and d) the
      recorded accountability for assets is compared with the existing assets at
      reasonable intervals and appropriate action is taken with respect to any
      differences.





**Scope
      of the Evaluation**





The
      Certifying Officers’ evaluation of our disclosure controls and internal controls
      are done periodically so that the conclusions concerning the effectiveness
      of
      our controls can be reported in our quarterly reports on Form 10-QSB and Annual
      reports on Form 10-KSB. The overall goals of these various evaluation activities
      are to monitor our disclosure controls and our internal controls, and to make
      modifications, if and as necessary. Our external auditors also review internal
      controls in connection with their audit and review activities.





**Material
      Weakness in Disclosure Controls**





The
      Securities and Exchange Commission rules embodied in the Sarbanes-Oxley Act
      of
      2002, in particular, Section 404, require that a company's internal controls
      over financial reporting be based upon a recognized internal control framework.
      The Certifying Officers have evaluated the effectiveness of our disclosure
      controls and procedures and internal controls over financial reporting (as
      such
      terms are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
      Act of 1934, as amended) as of the end of the period covered by the filing
      of
      the Report, and concluded that, as of the end of such period, our disclosure
      controls and procedures were deficient and not effective. While the Company
      has
      internal controls and procedures in place, the Certifying Officers believe
      that
      during the last quarter ending March 31, 2006, the Company had a breakdown
      in
      following the Company’s established policies and procedures of recording of
      transactions in accounting records accurately, preparation of monthly
      reconciliations and management’s review of operating results on a timely basis.
      The Certifying Officers have recruited an experienced financial manager at
      the
      Company’s subsidiary in Hong Kong to ensure that the transactions are recorded
      accurately, and account reconciliations are prepared on a timely basis. The
      Company has taken the necessary corrective steps to improve and strengthen
      its
      disclosure controls and procedures, including hiring a new legal counsel, and
      implementing new policies and procedures in an effort to remediate these
      deficiencies. Management plans to monitor, on a periodic basis that corrective
      actions implemented are working effectively, and will report on progress of
      the
      corrective actions in the future filings whether such corrective actions have
      remedied the material weaknesses.





**Management’s
      Action**





The
      Certifying Officers have recruited an experienced financial manager at the
      Company’s subsidiary in Hong Kong to ensure that the transactions are recorded
      accurately, and account reconciliations are prepared on a timely basis. The
      Company has taken the necessary corrective steps to improve and strengthen
      its
      disclosure controls and procedures, including hiring a new legal counsel, and
      implementing new policies and procedures in an effort to remediate these
      deficiencies. Management plans to monitor, on a periodic basis that corrective
      actions implemented are working effectively, and will report on progress of
      the
      corrective actions in the future filings whether such corrective actions have
      remedied the material weaknesses.





Except
      as
      noted above, there have not been any changes in our disclosure controls and
      procedures and internal control over financial reporting (as such term is
      defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our
      first fiscal quarter that have materially affected, or are reasonably likely
      to
      materially affect, our internal control over financial reporting.





**PART
      II OTHER INFORMATION**





**Item
      1**   **Legal
      Proceedings**





None.





**Item
      2**   **Changes
      in Securities**





On
      January 30, 2006, the Company issued 92,500 restricted common shares valued
      at
      $4,625 as partial compensation to two directors for salaries earned in December
      2005. The common shares were valued at the closing market price of the common
      shares on the first day of the month for which the compensation was earned.





On
      January 30, 2006, the Company entered into an agreement with an employee and
      issued 250,000 restricted common shares valued at $22,500 for compensation
      earned. The common shares were valued at the closing market price of the shares
      on the date of issuance.





On
      January 30, 2006, the Company issued 2,400,000 common shares valued at $120,000
      to a consultant for providing consulting, business advisory and finder’s fee for
      a target acquisition. The common shares were valued at the closing market price
      of the shares of the date of execution of the agreement.





On
      January 30, 2006, the Company issued as a partial consideration 5,000,000
      restricted common shares valued at $250,000 to the owners of Beijing Chinawind
      in connection with its acquisition of 60% equity interest in Beijing Chinawind.
      The shares were valued at the closing market price of the shares on the date
      of
      execution of the agreement.





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





Not
      applicable.





**Item
      4**   **Submission
      of Matters to Vote of Securities Holders**





None.





**Item
      5**   **Other
      Information**





None.





**Item
      6** **Exhibitsand
      Reports on Form 8-K**





The
      following list describes the exhibits filed as part of this Quarterly Report
      on
      Form 10-QSB and reports on Form 8-K within the last fiscal quarter.





Exhibit
                No.
            Description
                of Document31.1
            Certification
                of Chief Executive Officer Pursuant to the
                Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            Certification
                of Chief Financial Officer Pursuant to the
                Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as
                Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





Reports
      on Form 8-K





Entry
      into Material Contract - Filed on January 13, 2006 - Acquisition of Beijing
      Chinawind Telecommunication Information Technology Company Limited.





Change
      of
      Control - filed on March 1, 2006 - Control acquired by Rising Water
      Capital.





-
          6
          -
 *Table
          of Contents*


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


**OTHER
      INFORMATION (UNAUDITED)**


**MARCH
      31, 2006**








**SIGNATURE**





In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report signed on its behalf by the undersigned, thereunto duly
      authorized.








Date:
                May 21, 2005
            Elephant
                Talk Communications, Inc.By:
                /s/ Russelle ChoiRusselle
                ChoiPresident
                & Chief Executive Officer