**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 **June
        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 companyx
 
 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
        August 14, 2008 there were 43,622,886 shares of the Company’s common stock
        outstanding.
  
  **ELEPHANT
        TALK COMMUNICATIONS, INC.**
  TABLE
        OF
        CONTENTS
  FORM
        10-Q
  June
        30,
        2008
  PART
                  I - FINANCIAL INFORMATION
              3Item
                  1. Consolidated Financial Statements
              3Consolidated
                  Balance Sheets as of June 30, 2008 (Unaudited) and December 31,
                  2007
              3Unaudited
                  Consolidated Statements of Operation for the three and six months
                  periods
                  endedJune
                  30, 2008 and 2007
              4Unaudited
                  Consolidated Statements of Cash Flows for the six months periods
                  endedJune
                  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
              26Item
                  1. Legal Proceedings
              26Item
                  2. Unregistered Sales of Equity Securities and Use of Proceeds
              26Item
                  3. Defaults upon Senior Securities
              26Item
                  4. Submission of Matters to a Vote of Security Holders
              26Item
                  5. Other Information
              26Item
                  6. Exhibits
              26SIGNATURES
              27
  Exhibit
              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
  2
  **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Consolidated Financial Statements**
  **ELEPHANT
                  TALK COMMUNICATIONS, INC. AND SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEETS**
  **June 30, 2008**
              
              **December 31, 2007****(Unaudited)****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              3,745,568
              
              $
              4,366,312Restricted
                  cash
              
              
              23,301
              
              
              23,266Accounts
                  receivable, net
              
              
              5,763,535
              
              
              4,438,224Earnest
                  Deposits
              
              
              549,037
              
              
              442,853Prepaid
                  expenses and other current assets
              
              
              294,348
              
              
              372,331Due
                  from related parties
              
              
              17,731
              
              
              18,514Total
                  Current Assets
              
              
              10,393,520
              
              
              9,661,500**PROPERTY
                  AND EQUIPMENT – NET**
              
              
              3,396,046
              
              
              3,484,224**INTANGIBLE
                  ASSETS, NET**
              
              
              11,773,692
              
              
              11,462,504**TOTAL
                  ASSETS**
              
              $
              25,563,258
              
              $
              24,608,228**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT****)****CURRENT
                  LIABILITIES**Bank
                  Overdraft
              
              $
              209,763
              
              $
              197,815Accounts
                  payable and customer deposits
              
              
              6,248,467
              
              
              4,857,229Deferred
                  revenue
              
              
              219,383
              
              
              93,661Accrued
                  expenses and other payable
              
              
              1,856,399
              
              
              3,011,267Management
                  shares to be issued
              
              
              5,261,428
              
              
              4,974,199Shares
                  to be issued
              
              
              —
              
              
              13,280,866Advances
                  from third parties
              
              
              279,136
              
              
              201,191Loans
                  payable
              
              
              875,052
              
              
              875,432Convertible
                  promissory note - related party
              
              
              —
              
              
              6,484,063Due
                  to related parties
              
              
              —
              
              
              115,241Total
                  Current Liabilities
              
              
              14,949,628
              
              
              34,090,964**MINORITY
                  INTEREST**
              
              
              171,144
              
              
              231,575**COMMITMENT
                  AND CONTINGENCIES****STOCKHOLDERS'
                  EQUITY (DEFICIT)**Preferred
                  stock Class B, no par value, 50,000,000 shares authorized, none
                  issued and
                  outstanding
              
              
              —
              
              
              —Common
                  stock, no par value, 250,000,000 shares authorized, 43,622,886
                  and
                  9,530,637 issued and outstanding for June 30, 2008 and December
                  31, 2007
                  respectively
              
              
              43,722,333
              
              
              17,868,448Deferred
                  Compensation
              
              
              (482,986
              )
              
              —Accumulated
                  Comprehensive gain
              
              
              2,651,420
              
              
              1,437,073Accumulated
                  deficit
              
              
              (35,448,281
              )
              
              (29,019,832
              )Total
                  Stockholders' Equity (Deficit)
              
              
              10,442,486
              
              
              (9,714,311
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
              
              $
              25,563,258
              
              $
              24,608,228The
                  accompanying notes are an integral part of the unaudited consolidated
                  financial statements
  3
  **ELEPHANT
                  TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**CONSOLIDATED
                  STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS(UNAUDITED)
  **For the three months periods**
                **June 30**
              
              **For the six months periods**
                **June 30****2008**
              
              **2007**
              
              **2008**
              
              **2007**REVENUE
              
              $
              11,921,290
              
              $
              12,509,839
              
              $
              23,678,570
              
              $
              23,680,454COST
                  OF REVENUE (including depreciation and amortization of $545,476
                  and
                  $1,104,376 for the three and six months ended June 30, 2008, and
                  $464,467
                  and $927,996 for the three and six months ended June 30,
                  2007)
              
              
              12,119,100
              
              
              12,371,174
              
              
              24,090,511
              
              
              23,561,013GROSS
                  PFOFIT/(LOSS)
              
              
              (197,810
              )
              
              138,665
              
              
              (411,941
              )
              
              119,441OPERATING
                  EXPENSESSelling,
                  general and administrative
              
              
              1,664,504
              
              
              1,479,806
              
              
              3,421,503
              
              
              2,632,732Non-cash
                  compensation
              
              
              228,585
              
              
              4,686,968
              
              
              390,072
              
              
              4,686,968Depreciation
                  and amortization
              
              
              206,249
              
              
              52,392
              
              
              321,805
              
              
              102,238Total
                  Operating Expenses
              
              
              2,099,338
              
              
              6,219,166
              
              
              4,133,380
              
              
              7,421,938LOSS
                  FROM OPERATIONS
              
              
              (2,297,148
              )
              
              (6,080,501
              )
              
              (4,545,321
              )
              
              (7,302,497
              )OTHER
                  INCOME (EXPENSE)Interest
                  income
              
              
              20,710
              
              
              26,294
              
              
              36,463
              
              
              28,496Interest
                  expense
              
              
              (398,494
              )
              
              (193,338
              )
              
              (769,071
              )
              
              (369,982
              )Other
                  expense
              
              
              (7,761
              )
              
              (6,673
              )
              
              (8,969
              )
              
              (7,901
              )Total
                  Other Expense, net
              
              
              (385,545
              )
              
              (173,717
              )
              
              (741,577
              )
              
              (349,387
              )LOSS
                  BEFORE INCOME TAXES AND MINORITY INTEREST
              
              
              (2,682,693
              )
              
              (6,254,218
              )
              
              (5,286,898
              )
              
              (7,651,884
              )Provision
                  for income taxes
              
              
              —
              
              
              —
              
              
              800
              
              
              800LOSS
                  BEFORE MINORITY INTEREST
              
              
              (2,682,693
              )
              
              (6,254,218
              )
              
              (5,287,698
              )
              
              (7,652,684
              )Minority
                  interest
              
              
              (30,232
              )
              
              (5,664
              )
              
              (59,249
              )
              
              (7,963
              )NET
                  LOSS
              
              
              (2,652,461
              )
              
              (6,248,554
              )
              
              (5,228,449
              )
              
              (7,644,721
              )OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation gain (loss)
              
              
              103,715
              
              
              (484,279
              )
              
              1,214,347
              
              
              (463,146
              )COMPREHENSIVE
                  LOSS
              
              $
              (2,548,746
              )
              $
              (6,732,833
              )
              
              (4,014,102
              )
              
              (8,107,867
              )Net
                  loss per common share and equivalents - basic and diluted
              
              $
              (0.152
              )
              $
              (0.793
              )
              $
              (0.306
              )
              
              (0.955
              )Weighted
                  average shares outstanding during the period - basic and
                  diluted
              
              
              16,726,734
              
              
              8,490,637
              
              
              13,108,807
              
              
              8,490,637The
                  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 six months periods ended**
                **June 30,****2008**
              
              **2007****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (5,228,449
              )
              $
              (7,644,721
              )**Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:**Depreciation
                  and amortization
              
              
              1,426,181
              
              
              1,030,234Shares
                  issued for consulting services
              
              
              4,514
              
              
              —Amortization
                  of stock option expense
              
              
              390,072
              
              
              4,686,968Minority
                  interest
              
              
              (59,249
              )
              
              110,469**Changes
                  in operating assets and liabilities:**Decrease
                  (increase) in accounts receivable
              
              
              (975,575
              )
              
              (959,790
              )(Increase)
                  decrease in prepaid expenses, deposits and other assets
              
              
              10,427
              
              
              (28,418
              )Increase
                  (decrease) in accounts payable, proceeds from related parties and
                  customer
                  deposits
              
              
              982,368
              
              
              4,183,407Increase
                  (decrease) in accrued expenses and other payable
              
              
              300,675
              
              
              (2,474,135
              )**Net
                  cash used in operating activities**
              
              
              (3,149,036
              )
              
              (1,095,986
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of property and equipment
              
              
              (489,102
              )
              
              (714,551
              )Restricted
                  cash
              
              
              1,588
              
              
              (20,213
              )Earnest
                  deposit on acquisitions, net
              
              
              —
              
              
              (241,883
              )Cash
                  received from acquisition of subsidiary
              
              
              —
              
              
              382,439**Net cash used in investing activities**
              
              
              (487,514
              )
              
              (594,208
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Cash
                  overdraft
              
              
              12,044
              
              
              12,420Received
                  from investors
              
              
              3,306,372
              
              
              —Placement
                  Fees
              
              
              (462,867
              )
              
              —Proceeds
                  from bank loans
              
              
              (38,011
              )
              
              —Proceeds
                  from note payable
              
              
              —
              
              
              635,190Proceeds
                  from sale of shares
              
              
              15,937
              
              
              1,889,000Proceeds
                  from related parties
              
              
              —
              
              
              6,646Payments
                  to related parties
              
              
              —
              
              
              (19,147
              )**Net cash used in financing activities**
              
              
              2,833,475
              
              
              2,524,109**EFFECT
                  OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS**
              
              
              182,331
              
              
              (363,036
              )**NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              (620,744
              )
              
              470,879**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD**
              
              
              4,366,312
              
              
              332,001**CASH
                  AND CASH EQUIVALENTS, END OF THE PERIOD**
              
              $
              3,745,568
              
              $
              802,880**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                  paid during the period for interest
              
              $
              35,968
              
              $
              48,308Cash
                  paid during the period for income taxes
              
              $
              800
              
              $
              800The
                  accompanying notes are an integral part of the unaudited consolidated
                  financial statements
  5
 
 **ELEPHANT
                  TALK COMMUNICATIONS, INC. AND SUBSIDIARIES**CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (Continued)(UNAUDITED)
 
 **For the six months periods ended**
                **June 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
              
              $
              —Deemed
                  Dividend as 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 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
        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 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).
 
 **NOTE
        2**  **Financial
        Condition and Going Concern**
 
 The
        Company has an accumulated deficit of $35,448,281 including a net loss of
        $2,652,461 and $5,228,449 for the three and six months ended June 30, 2008.
        The
        Company has historically relied on a combination of debt and equity financings
        to fund its ongoing cash requirements. Management believes that its cash
        balance
        at June 30, 2008, cash generated from operations and committed funds in
        connection with a recent financing, will provide sufficient funds through
        at
        least December 31, 2008.
 
 In
        the
        light of the need to raise additional funds in the immediate short term,
        the
        Company has been focused on capital raising activities in addition to continuing
        to control operating costs, aggressively managing working capital and attempting
        to settle certain debt by the issuance of common shares.
 
 In
        May
        2008 the Company received Subscription Agreements as a result of a European
        Funding Round of approximately $7.3 million. As of the date of this filing,
        the
        Company has received $6.3 million of equity financing and expects to receive
        an
        additional $1.0 million in the period ending September 30, 2008 (see also
        Note
        23 - Subsequent Events).
 
 In
        addition to the aforementioned financing activity, the Company intends to
        raise
        additional debt or equity financing if possible in order to fund 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 would 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.
        If
        the Company is unable to secure additional capital as circumstances require,
        it
        may not be able to continue its operations.
 
 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**
 
 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
        has
        been included.
  8
  The
        results of operations for the three and six months ended June 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 six months
        ended June 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 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 comprehensive
        gain
        as at June 30, 2008 and December 31, 2007 were $2,651,420 and $1,437,073,
        respectively. The foreign currency translation gain (loss) for the three
        months
        ended June 30, 2008 and 2007 was $103,715 and ($484,279), respectively. The
        foreign currency translation gain (loss) for the six months ended June 30,
        2008
        and 2007 were $1,214,347 and ($463,146) respectively **.**
 
 **Use
        of Estimate**
 
 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 six months or less at the time of
        purchase to be cash equivalents.
 
 **Restricted
        Cash**
 
 Restricted
        cash represents cash deposited as bank guarantee for interconnects.
 
 9
  **Accounts
        Receivables, net**
 
 The
        Company’s customer base consists of a geographically dispersed customer base.
        The Company maintains reserves 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 reserves. Reserves are recorded primarily
        on a
        specific identification basis. As of June 30, 2008 and December 31, 2007
        the
        reserve for doubtful debts was $120,037 and $146,215, respectively.
 
 **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
        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 $219,383 and $93,661 as of June 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.
 
 **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.
 
 10
  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.
  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**
 
 On
        January 1, 2007, the Company, through its wholly-owned subsidiary Elephant
        Talk
        Europe Holding B.V., completed its acquisition of Elephant Talk Communication
        Holding AG (formerly known as “Benoit Telecom Holding AG” or “Benoit Telecom”),
        a European telecom company. Benoit Telecom is an international telecom operator
        and multi-media distributor servicing primarily the business-to-business
        segment
        of the telecommunications and media market. Benoit Telecom offers a broad
        range
        of products and services based on the integration of telecom, VoIP, SMS,
        FAX,
        Conferencing and Streaming services all integrated with a sophisticated Customer
        Relationship Management and Billing application and using its own fixed-line
        national interconnects and partner interconnects in numerous European countries.
        The Company purchased all of the 100,000 issued and outstanding shares of
        Benoit
        Telecom in exchange for a) cash payment of $6,643,080 and b) 1,600,000 shares
        of
        the Company’s common stock valued at $3,000,000. The common shares were valued
        at the actual date of issuance of such shares. The total consideration for
        the
        purchase of Benoit Telecom was valued at $9,643,080.
 
 A
        summary
        of the assets acquired and liabilities assumed for Benoit Telecom
        are:
 
 Cash
                  & cash equivalents
              
              $
              409,174Accounts
                  receivables
              
              
              4,485,259Property
                  & equipment
              
              
              2,163,157Customer
                  contracts & licenses
              
              
              11,504,192Other
                  assets
              
              
              1,299,647Total
                  Assets acquired
              
              
              19,861,430Accounts
                  payable
              
              
              1,535,504Accrued
                  expenses and other payables
              
              
              3,631,658Payable
                  to third parties
              
              
              4,013,056Others
              
              
              125,160Liabilities
                  assumed
              
              
              9,305,378Net
                  assets acquired
              
              
              10,556,052Consideration
                  paid
              
              
              9,643,080Negative
                  goodwill
              
              $
              (912,972
              )
  11
  The
        Company has reduced the recorded value of the non-current assets acquired,
        by
        negative goodwill of $912,972. The purchase price allocation for Benoit Telecom
        acquisition is based on the fair value of assets acquired and liabilities
        assumed. Immediately after the execution of the definitive agreement, the
        Company obtained effective control over Benoit Telecom. Accordingly, the
        operating results of Benoit Telecom have been consolidated with those of
        the
        Company starting January 1, 2007.
 
 In
        accordance with paragraph 44 of SFAS 142, any excess of cost over net assets
        acquired shall be allocated as a pro rata reduction of the amounts that
        otherwise would have been assigned to all of the acquired assets except
        financial assets other than investments accounted for by the equity method,
        assets to be disposed of by sale, deferred tax assets, prepaid assets relating
        to pension or other postretirement benefit plans and any other current
        assets.
  The
        value
        of the shares issued by the Company in connection with this acquisition exceeded
        the fair market value of the net assets acquired. Thus, negative goodwill
        generated was allocated to reduce the cost of the non-current assets
        acquired.
 
 The
        Company included the financial results of Benoit Telecom in its consolidated
        2007 financial results from the date of the purchase, January 1, 2007 through
        December 31, 2007.
 
 On
        January 1, 2007, the Company’s subsidiary Elephant Talk Europe Holding B.V.,
        entered into a Share Purchase Agreement with 3U Telecom AG, and acquired
        all of
        the issued and outstanding shares of 3U Telecom SARL France, for a consideration
        of 180,000 Euros (approximately $241,935). The Agreement entitled the Company
        to
        a 100% share of the economic benefits of the operations of 3U Telecom SARL.
        On
        June 1, 2007, all the terms and conditions of the Agreement were completed,
        and
        the Company acquired total assets $419,365 and assumed liabilities of $177,430
        upon completion of this acquisition.
 
 The
        following un-audited pro forma consolidated financial information for the
        six
        months period ended June 30, 2007 as presented below, reflects the results
        of
        operations of the Company as of January 1, 2007, and after giving effect
        to the
        purchase accounting adjustments. These pro forma results have been prepared
        for
        information purposes only and do not purport to be indicative of what operating
        results would have been had the acquisitions actually taken place on January
        1,
        2007, and may not be indicative of future operating results.
 
 **FOR THE PERIOD**
                **ENDED****June 30, 2007**REVENUE,
                  net
              
              $
              23,961,296LOSS
                  FROM OPERATION
              
              $
              (7,215,481
              )NET
                  LOSS
              
              $
              (7,557,705
              )Loss
                  per share - basic and fully diluted
              
              $
              (1.00
              )
 
 
 **NOTE
                  5**
              **Earnest
                  deposit**
 
 Deposits
        to various telecom carriers during the course of its operations amount to
        $549,037 as at June 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 $294,348 as at June 30, 2008
        and
        $372,331 as at December 31, 2007. The amount consists primarily of VAT prepaid
        and receivable from various European authorities.
 
 **NOTE
        7****Property
        & Equipment******
 
 Property
        and equipment as at June 30, 2008 and December 31, 2007 consist of:
 
 **Jun 30, 2008**
              
              **Dec 31, 2007**(Unaudited)Furniture
                  and fixtures
              
              
              168,153
              
              
              231,219Computer,
                  communication and network equipment
              
              
              6,680,547
              
              
              6,083,545Automobiles
              
              
              172,819
              
              
              137,726Construction
                  in progress
              
              
              688,069
              
              
              687,962Gross
              
              
              7,709,588
              
              
              7,140,452Less:
                  accumulated depreciation
              
              
              (4,313,542
              )
              
              (3,656,228
              )Net
              
              $
              3,396,046
              
              $
              3,484,224
 
 12
  Total
        depreciation expense for the three months ended June 30, 2008 and 2007 was
        $192,647 and $207,315 respectively. Of the depreciation total expense, $111,038
        and $192,647 was directly attributable to revenue, network costs for the
        three
        months ended June 30, 2008 and 2007, respectively.
 
 Total
        depreciation expense for the six months ended June 30, 2008 and 2007 was
        $469,718 and $417,750 respectively. Of the depreciation expense, $334,330
        and
$390,641
        was directly attributable to revenue, network costs for the six months ended
        June 30, 2008 and 2007, respectively
 
 **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.
  **Jun 30, 2008**
              
              **Dec 31, 2007**(Unaudited)Customer
                  Contracts, Licenses & Interconnect
              
              $
              16,681,434
              
              $
              15,219,998Accumulated
                  amortization Customer Contracts & Licenses
              
              
              (4,907,742
              )
              
              (3,757,496
              )Customer
                  Contracts & Licenses, net
              
              $
              11,773,692
              
              $
              11,462,504
  Amortization
        expense for the three months ended June 30, 2008 and 2007 totaled $559,078
        and
        $309,544 respectively. A total of $434,438 and $271,820for the three months ended June 30, 2008 and 2007, respectively in
        amortization expense was directly attributable to revenue, network costs.
 
 Amortization
        expense for the six months ended June 30, 2008 and 2007 totaled $956,463
        and
        $612,484 respectively. The amortization expense of $770,046 and $537,355
        for the six months ended June 30, 2008 and 2007 was directly attributable
        to
        revenue, network costs.
 
 **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 June 30, 2008 amounted to $17,731 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
        June
        30, 2008 the overdraft balance included accrued interest amounted to $209,763
        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.
  **NOTE
                  11**
              **Accrued
                  Expense**
 
 As
        at
        June 30, 2008 and December 31, 2007, the accrued expenses comprised of the
        following:
 
 **Jun 30, 2008**
              
              **Dec 31, 2007**(Unaudited)Accrued
                  SG&A expenses
              
              $
              1,077,055
              
              $
              877,901Accrued
                  cost of sales and network
              
              
              326,615
              
              
              521,398Accrued
                  taxes
              
              
              —
              
              
              43,941Accrued
                  interest payable
              
              
              481,980
              
              
              1,473,811Other
              
              
              8,787
              
              
              94,216Total
                  accrued expenses
              
              $
              1,856,399
              
              $
              3,011,267
  13
  **NOTE
                  12**
              **Payable
                  To Third Parties**
 
 As
        at
        June 30, 2008 and December 31, 2007 the Company had $279,136 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 June 30, 2008 and December 31, 2007 are summarized as
        follows:
  June 30, 2008
                (Unaudited)
              
              Dec 31, 2007Installment loan payable
                  due December 24, 2006, secured by personal guarantees of two shareholders,
                  a former director, and a third party
              
              $
              318,343
              
              $
              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 director
              
              
              190,216
              
              
              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 director
              
              
              84,575
              
              
              84,612Term
                  loan payable, bank, monthly payments of interest at bank's prime
                  rate,
                  7.0% at June 30, 2008
              
              
              281,918
              
              
              282,040Total
              
              $
              875,052
              
              $
              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 $364,637 as of June 30, 2008. As a
        result
        of the default, the entire loan balance outstanding at June 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, Management 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 $5,049
        and $50,234 in interest expense and default interest expense, respectively,
        on
        loans payable as of June 30, 2008 and $12,752 and $29,964 in interest expense
        as
        of June 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, 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 factor 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 June 30,
        2008
        and December 31, 2007 respectively.
 
 The
        Company recorded interest of $67,083 and $154,583 for the three month and
        six
        month periods ended June 30, 2008. The Company recorded interest of $56,909
        and
        $131,436 for the three month and six month periods ended June 30,
        2007.
 
 14
  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 Reversed Split amounts to 125,425,178. Post
        Reversed 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 factor 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.
 
 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 June 30, 2008 and
        December 31, 2007 respectively. The interest expense for six months period
        ended
        June 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 Reversed Split 1:25) amounts to 84,506,891.  The number of
        post Reversed 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 recorded
        $
        1,200,000 as deemed dividend as a result of reduction in the conversion price
        from the original.
 
 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 own approximately 7.28% and 6.21% of the outstanding
        capital stock of QAT, respectively. 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 will be issued in connection with the Reverse Split. Any fractional
        shares
        will be rounded up. There will not be 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 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 9,530,637 (post reverse stock split) Shares of Common Stock
        issued and outstanding as of March 31, 2008. The shares issued and outstanding
        as per the stock transfer agent’s records are 9,776,537. The company cancelled
        245,900 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 issuance during the three
        months ended June 30, 2008 are as follows :-
  15
 
 **Number of shares to be issued****Computation of Shares Outstanding - June 30, 2008**
              
              **Pre reverse stock split**
              
              **Post reverse stock split**Shared
                  O/S at March 31, 2008 (issued)
              
              
              238,265,927
              
              
              9,530,637Shares
                  issued: RWC – sale of shares
              
              
              95,947,395
              
              
              3,837,896Shares
                  Issued: Pursuant to Existing Ratchet Provision
              
              
              258,546,313
              
              
              10,341,853Shares
                  Issued: Sold to 5 investors – $4,105,500 @$0.9375 per
                  share
              
              
              109,480,000
              
              
              4,379,200Shares
                  Issued: Sold to 5 accredited investors $ 5,271,658 @ $
                  1.4875
              
              
              90,998,790
              
              
              3,639,952Shares
                  Issued: RWC – Conversion of $3.5 million Promissory Note
              
              
              100,000,000
              
              
              4,000,000Shares
                  Issued: Accrued interest $889,881 on Promissory Note
              
              
              25,425,178
              
              
              1,017,007Shares
                  Issued: RWC – Conversion of $3 million Promissory Note
              
              
              71,428,571
              
              
              2,857,143Shares
                  Issued: Accrued cumulated interest $549,289
              
              
              13,078,320
              
              
              523,133Shares
                  Issued: European Funding Round May 2008Received
                  $3,306,372 in second quarter
              
              
              78,723,143
              
              
              3,148,926Shares
                  Issued: Consulting services
              
              
              
              
              
              325,000Shares
                  Issued: Placement Agent
              
              
              
              
              
              16,667Shares
                  issued for fraction shares due to reverse split
              
              
              
              
              
              5,473**Total
                  number of shares issued as of June 30, 2008**
              
              
              **1,081,893,637**
              
              
              **43,622,886**Shares
                  to be issued: Quercus Management Group NV – Placement Fees
              
              
              
              
              
              7,990Shares
                  to be issued: Amelia & Associates NV – Placement Fees
              
              
              
              
              
              33,334Shares
                  to be issued: Management Compensation
              
              
              51,761,600
              
              
              2,070,464Shares
                  to be issued: Management Compensation as of June 30, 2008
              
              
              10,137,600
              
              
              405,504**Total
                  number of shares issued and to be issued as of June 30,
                  2008**
              
              
              **1,143,792,837**
              
              
              **48,657,083**
 
 In
        May
        and June of 2008, the Company consummated an initial closing (the “Closing”) of
        its private placement offering (the “Offering”) 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”). The Company sold an aggregate of 3,148,926
        Shares at a purchase price of $1.05 per Share and is obligated to deliver
        Warrants to purchase an aggregate of 3,148,926 shares of the Company’s common
        stock at a purchase price of $1.25 per share and Warrants to purchase an
        aggregate of 1,574,463 shares of the Company’s common stock at a purchase price
        of $1.45 per share. The Investors of this Offering are not entitled to any
        registration rights with respect to the Securities. 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.
 
 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 issuance at an exercise price of $1.25 and $1.45
        respectively. The Warrants contain certain anti-dilution rights on terms
        specified in the Warrants. The above warrants were to be issued as of June
        30,
        2008. The Warrants had a calculated Black-Scholes value of $4,001,146 at
        time of
        issuance, based on a term of five years, volatility of 59%, and a risk free
        rate
        of 3.2%. 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 effected on June 11, 2008.
 
 From
        July
        1, 2008 through the date of this filing, the Company has received an additional
        $3 million in gross proceeds from the Offering. The Company expects to receive
        an additional $1 million in gross proceeds from the Offering prior to September
        30, 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 six months ended June 30, 2008, the Company did not issue any
        shares of Preferred Stock or warrants.
 
 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 June 30, 2008.
 
 **2006
        Non-Qualified Stock and Option Compensation Plan**
  At
        March
        31, 2008 there were 284,833 options outstanding under this plan. During the
        three months ended June 30, 2008 there were 32,200 options issued each at
        an
        exercise price of $2.25. There were no exercises or cancellations. The total
        number of outstanding options under this plan is at June 30, 2008:
        317,033.
 The
        fair
        market value of the options issued during the three months period ended June
        30,
        2008 of $25,646 was calculated using the Black-Sholes options model. The
        assumptions used for the Black Scholes calculation are: volatility of 59%,
        term
        of 4 years and a risk free rate of 3.2%.
 
 The
        284,833 options were granted with an exercise price of $2.25, the share closing
        price as 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
        are exercisable though December 31, 2011.
 
 **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. As of June 30, 2008, 325,000 shares
        of
        restricted stock have been granted under this Plan.
 
 Common
        stock purchase options consisted of the following as of June 30,
        2008:
 No. of shares
                
                Exercise Price
                
                Aggregate
                  Intrinsic Value**Options:**Outstanding
                    as of March 31, 2008
                
                
                284,833
                
                
                2.25
                
                
                -Granted
                
                
                32,300
                
                
                2.25
                
                
                -Exercised
                
                
                -
                
                
                
                
                
                -Expired
                
                
                -
                
                
                -
                
                
                -Outstanding
                    as of June 30, 2008
                
                
                317,033
                
                
                2.25
                
                $
                -
 
 Following
        is a summary of the status of options outstanding at June 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
              
              
              317,033
              
              
              3.25
                  years
              
              $
              2.25
              
              
              -
              
              
              -
  17


**NOTE
        18**  **Commitments**
 
 As
        of
        June 30, 2008 commitments of the Company relating to leases, co-location,
        interconnect and office rents,
 
 December
                  31, 2008
              
              $
              2,163,974December
                  31, 2009
              
              
              1,804,442December
                  31, 2010
              
              
              1,732,065December
                  31, 2011
              
              
              1,627,801December
                  31, 2012
              
              
              1,578,780**Total**
              
              $
              8,907,062
  **Note
        19********Minority
        interest in subsidiary**
 
 The
        Company had minority interest in several of its subsidiaries. The balance
        of the
        minority interest as of June 30, 2008 and December 31, 2007 was as
        follows:
 
 **Minority Interest Balance at****Subsidiary**
              
              **Minority Interest %**
              
              **June 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%
              
              
              (19,851
              )
              
              39,254ET
                  Bahrain WLL
              
              
              1%
              
              
              630
              
              
              1,955ET
                  ME&A FZ LLC
              
              
              49.46%
              
              
              35,214
              
              
              35,214Total
              
              
              
              
              $
              171,144
              
              $
              231,575
 
 **NOTE
        20**  **Litigation**
 
 **a)
        Beijing Chinawind**
 The
        judgment of the Beijing Haiding Civil Court was recently received. On October
        the 18, 2007 the verdict was given in the two cases:
  ·
              Beijing
                  China Wind Internet Information Technology Ltd. (CW) as Plaintiff
                  against
                  Guangdong Elephant Talk Network Information Ltd.( GDET), Agent
                  of the
                  Company, as Defendant.
 
 The
        Equity Transfer Agreement signed by CW and GDET on January 4, 2006 is confirmed
        to be effective. All requests from CW are rejected.
 
 ·
              Guangdong
                  Elephant Talk Network Information Ltd. (GDET), Agent of the Company,
                  as
                  Plaintiff against Beijing China Wind Internet Information technology
                  Ltd.
                  (CW) Defendant.
 
 The
        Court
        confirmed the opinion of GDET that the resolutions of the shareholders meeting
        of China Wind held on January 27, 2007 are invalid, as the meeting was not
        conducted in a proper way.
 
 An
        appeal
        has not been made in either case.
 
 **(b)
        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
  **NOTE
        21**  **Segment
        Information**
 
 The
        Company allocates its resources and assesses the performance of its sales
        activities based upon geographic locations of its subsidiaries.
  **Six
        months ended June 30, 2008**
  **EUROPE****Netherlands**
              
              **Spain**
              
              **Switzerland**
              
              **Others**
              
              **Total**
              
              **Far East**
                **HK/PRC**
              
              **Middle**
                **East**
              
              **USA**
              
              **TOTAL**Revenue
                  from unaffiliated customers
              
              $
              17,587,448
              
              $
              1,471,589
              
              $
              4,342,523
              
              $
              271,805
              
              $
              23,673,365
              
              $
              5,205
              
              $
              -
              
              $
              -
              
              $
              23,678,570Operating
                  income (loss)
              
              $
              (1,491,408
              )
              $
              214,856
              
              $
              (960,065
              )
              $
              (416,626
              )
              $
              (2,653,243
              )
              $
              (411,152
              )
              $
              (121,002
              )
              $
              (1,359,924
              )
              $
              (4,545,321
              )Net
                  Income (Loss)
              
              $
              (1,464,410
              )
              $
              214,856
              
              $
              (960,065
              )
              $
              (416,626
              )
              $
              (2,626,245
              )
              $
              (768,856
              )
              $
              (121,002
              )
              $
              (1,712,346
              )
              $
              (5,228,449
              )Identifiable
                  assets
              
              $
              8,994,410
              
              $
              1,920,032
              
              $
              12,397,491
              
              $
              1,417,536
              
              $
              24,729,469
              
              $
              238,285
              
              $
              595,504
              
              $
              -
              
              $
              25,563,258Depreciation
                  and amortization
              
              $
              (324,673
              )
              $
              (120,086
              )
              $
              (944,607
              )
              $
              (13,695
              )
              $
              (1,403,061
              )
              $
              (22,284
              )
              $
              (836
              )
              $
              -
              
              $
              (1,426,181
              )Capital
                  expenditure
              
              $
              24,396
              
              $
              1,298
              
              $
              426,682
              
              $
              -
              
              $
              452,376
              
              $
              36,726
              
              $
              -
              
              $
              -
              
              $
              489,102
  **Six
        months ended June 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
  19
  **Note
        22      Related Party
        Transactions**
 
 In
        connection with the Company’s Offering which took place in the three months
        ended June 30, 2008 (see Note 15 – Stockholders Equity – (A) Common Stock), the
        Company paid a placement fee to a European placement agents and a US FINRA
        broker dealer. In relation to the $3,306,372 which was raised during the
        period
        ended June 30, 2008, the Company paid $396,765 to Quercus Management Group
        N.V.
        (“QMG”) which is a 100% owned subsidiary of QAT. 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
        31.5% of QAT. In addition, Mr. Dejager and Mr. van Sante own approximately
        7.28%
        and 6.21% of the outstanding capital stock of QAT, respectively. The
        payments were netted against the funding raised.
 
 **Note
        23**  ****  **Subsequent
        events** ****
 
 As
        of the
        date of this filing, the Company had closed on an additional $3 million of
        Units
        sold pursuant to its Offering (see Note 15 – Stockholders Equity – (A) Common
        Stock).
  **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.
  20
 
 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).
 
 At
        the
        same time the Company is pursuing the above described business opportunities,
        attention is paid by its Management to improve the internal structuring of
        the
        organization and to realize a fully integrated organization. This will have
        to
        be achieved not only on a corporate level but also in the financial, technical
        and operational departments of the Company in order to implement new services,
        connectivity in new countries and extra capacity.
 
 **Results
        of Operations**
 
 Our
        results of operations for the three and six months ended June 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.
 
 The
        results of operations for the three and six months ended June 30, 2007 consisted
        the operations of Elephant Talk Communications, Inc., its wholly-owned
        subsidiary Elephant Talk Limited and its subsidiaries, and its wholly-owned
        subsidiary Elephant Talk Europe Holding BV and its subsidiaries
 
 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
 
 **Three
        and Six Month Periods Ended June 30, 2008 compared to the Three and Six Month
        Periods Ended June 30, 2007**
 
 ***Revenue***
 Revenue
        for the three months ended June 30, 2008 was $11,921,290 compared to $12,509,839
        for the same period in 2007. Revenue for the six months ended June 30, 2008
        was
        $23,678,570 compared to $23,680,454 for the six months ended June 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 six months
        period was flat reflecting overall telecommunications industry trends. In
        addition to focusing our sales and marketing activities on the PRS business,
        we
        are also focused on becoming an MNVE/MVNO.
  ***Cost
        of revenue***
 Cost
        of
        revenue for the three months ended June 30, 2008 was $12,119,100 compared
        to
        $12,371,174 in the 2007 period. For the six months ended June 30, 2008, cost
        of
        revenue was $24,090,511 compared to $23,561,013 for the same period in 2007.
        Gross margin, as a percentage of revenue, was negative 1.7% for both the
        three
        month and six month periods ended June 30, 2008. In the same periods in 2007,
        gross margin was 1.1% and 0.5%. 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 cost 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
        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 June 30, 2008
        was
        $1,664,504 compared to $1,479,806 in 2007. For the six month ended June 30,
        2008, SG&A expense was $3,421,503 compared to $2,632,732 in the same period
        in 2007. The increase in SG&A for both periods is primarily attributable to
        headcount and related cost increases in the sales organization as we focus
        on
        our transition to becoming an MVNE/MVNO.
 
 ***Non-cash
        compensation***
 Non-cash
        compensation for the three month and six months ended June 30, 2008 was $228,585
        and $390,072 respectively, compared to $4,686,968 and $4,686,968, for the
        corresponding 2007 periods. Non-cash compensation is comprised of the expense
        related to shares of restricted common stock that are anticipated to be 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.
  21
 
 *Depreciation
        and amortization*
 Depreciation
        and amortization for the three months and six months ended June 20, 2008
        was
        $206,249 and $321,805 respectively, compared to $52,329 and $102,238 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
        income for the three months ended June 30, 2008 was $20,710 compared to $26,294
        in 2007. Interest income was $36,463 and $28,496 for the six months ended
        June
        30, 2008 and 2007 respectively. For the three months ended June 30, 2008,
        interest expense was $398,494 compared to $193,338 in 2007. Interest expense
        was
        $769,071 and $369,982 for the six months ended June 30, 2008 and 2007
        respectively. The increase in interest expense was due to increased promissory
        note balances in the 2008 period compared to 2007. For the period ended June
        30,
        2008, we also incurred a Beneficial Conversion Charge of $1,200,000 related
        to
        the conversion of the RWC Promissory Notes (see Note 14 – Convertible Promissory
        Notes).
  ***Minority
        Interest***
 Our
        majority owned subsidiaries Elephant Talk Communications PRS U.K. Limited,
        Elephant Talk Communications Premium Rate Services Netherlands B.V., Elephant
        Talk Communications Luxembourg SA, 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 six months ended
        June 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 six months was $103,715 and $1,214,347
        respectively, compared to a loss of $484,279 and $463,146 for the three and
        six
        months ended June 30, 2007. The increase in 2008 compared to 2007 is primarily
        attributable to the translation gain resulting from the increase in the value
        of
        Euro compared to the USD which has occurred throughout 2008.
  **Liquidity
        and Capital Resources**
 We
        have
        an accumulated deficit of $35,448,281 including a net loss of $2,652,461
        and
        $5,228,449 for the three and six months ended June 30, 2008. We have
        historically relied on a combination of debt and equity financings to fund
        its
        ongoing cash requirements. Management believes that its cash balance at June
        30,
        2008, cash generated from operations and the receipt of the committed funds
        in
        connection with our recent Offering, will provide sufficient funds through
        at
        least December 31, 2008.
 
 In
        the
        light of the need to raise additional funds in the immediate short term,
        we have
        been focused on capital raising activities in addition to continuing to control
        operating costs, aggressively managing working capital and attempting to
        settle
        certain debt by the issuance of common shares.
 
 We
        received subscription agreements totaling approximately $7.3 million related
        to
        our Offering. As of the date of this filing, the Company has received $6.3
        million of equity financing and expects to receive an additional $1.0 million
        in
        the period ending September 30, 2008 (see also Note 15 – Stockholders Equity –
(A) Common Stock and Note 23 – Subsequent Events).
 
 In
        addition to the aforementioned financing activity, we intend to raise additional
        debt or equity financing, if possible, in order to fund 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 would 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. If we are unable to secure
        additional capital as circumstances require, we may not be able to continue
        its
        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 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 we be unable to continue as a going
        concern
 
 ***Operating
        activities***
 Net
        cash
        used in operating activities for the six months ended June 30, 2008 was
        $3,149,036. The increase is primarily due to the increase in accounts receivable
        of $975,575, increase in customer deposits of $982,368 and increase in accrued
        expenses and other payable of $261,345.
  ***Investment
        activities***
 Net
        cash
        used in investment activities for the six months ended June 30, 2008 was
        $487,514. Cash used to purchase plant and equipment was $489,102.
  22
  ***Financing
        activities***
 Net
        cash
        received by financing activities for the six months ended June 30, 2008 was
        $2,833,475.
 
 As
        a result of the above activities, the Company recorded a cash and cash
        equivalent balance of $3,745,568 as of June 30, 2008, a net decrease in cash
        and
        cash equivalent of $620,744 for the six months ended June 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
        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 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.
 
 Our
        Chief
        Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), are responsible
        for establishing and maintaining adequate internal control over financial
        reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange
        Act of 1934, as amended (the “Exchange Act”) . Internal
        control over financial reporting is promulgated under the Exchange Act as
        a
        process designed by, or under the supervision of, our CEO and CFO and effected
        by our board of directors, management and other personnel, to provide reasonable
        assurance regarding the reliability of financial reporting and the preparation
        of financial statements for external purposes in accordance with generally
        accepted accounting principles and includes those policies and procedures
        that:
  1.
              Pertain
                  to the maintenance of records that in reasonable detail accurately
                  and
                  fairly reflect the transactions and dispositions of our
                  assets;
 2.
              Provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that our receipts and expenditures are
                  being
                  made only in accordance with authorizations of our management and
                  directors; and
 3.
              Provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition or disposition of our assets that could
                  have a
                  material effect on the financial
                  statements.
 
 The
        Company’s management made an initial assessment 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.
  24
 
 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 has hired a Sarbanes-Oxley (“SOX”) consultant and
        intends to purchase software designed to strengthen internal controls over
        financial reporting. The
        consultant has formulated a Plan to assist the Company in becoming SOX
        compliant. The Plan consists of five phases. During the first half of this
        year
        the first two phases were realized: an overview of SOX requirements for ETCI,
        a
        SOX scoping plan and a Plan of Approach to identify the key risks and the
        key IT
        controls.
 
 The
        Company expects to initiate these remediation efforts in the second half
        of
        2008. The effectiveness of our internal controls following our remediation
        efforts will not be known until we test those controls in connection with
        management’s tests of internal control over financial reporting that will be
        performed after the close of our third fiscal quarter of 2008, ending September
        30.
  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.
  25
  **PART
        II - OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 There
        have been no updates to any of the legal proceedings disclosed in our previous
        quarterly report on Form 10-Q for the three months ended March 31,
        2008.
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 Pursuant
        to a Consulting Agreement dated June 20, 2008, as amended July 9, 2008, the
        Company issued 325,000 shares of its common stock pursuant to its 2008 Long-Term
        Incentive Plan to a consultant in exchange for services to be rendered. The
        shares of common stock were issued pursuant to the exemption from registration
        provided by Section 4(2) of the Securities Act of 1933.
 
 Other
        than the aforesaid and as disclosed on the Company’s Current Reports on Form 8-K
        dated May 19, 2008, as amended June 12, 2008, and dated June 12, 2008, there
        have been no sales of unregistered securities.
 
 **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.
 __________________________
  26
  **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.August
                  14, 2008
              By:
              /s/
                  Steven van der VeldenSteven
                  van der VeldenPresident
                  and Chief Executive Officer(Principal
                  Executive Officer)August
                  14, 2008
              By:
              /s/
                  Willem AckermansWillem
                  AckermansChief
                  Financial Officer(Principal
                  Financial and Accounting Officer)
  27
  **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 906of
                  the Sarbanes-Oxley Act of 2002
              
              X-332.2
              
              Certification
                  pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906of
                  the Sarbanes-Oxley Act of 2002
              
              X-4




28