**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        DC 20549
 
 **FORM
        10-QSB**
 
 x  QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
        OF
        1934
 
 **For
        the quarterly period ended: June 30, 2006**
 
  ̈  QUARTERLY
        REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES AND EXCHANGE ACT
        OF
        1934
 
 For
        the
        transition period from ______________ to _______________
 
 Commission
        File Number: 000-30061
 
 
 **ELEPHANT
        TALK COMMUNICATIONS, INC.**
 (Exact
        name of small business issuer as specified in its charter)
 
 **California**
 (State
        or
        other jurisdiction of incorporation or organization)
 
 **95-4557538**
 (IRS
        Employer Identification No.)
 
 **438
        East Katella Avenue, Suite 217, Orange, California 92867**
 (Address
        of principal executive offices)
 
 **(714)
        288-1570**
 (Issuer's
        telephone number)
 
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days: x No  ̈
 
 As
        of
        August 18, 2006, Elephant Talk Communications, Inc. had 190,250,088 shares
        of
        Common Stock outstanding.
 
 Transitional
        Small Business Disclosure Format (check one): Yes  ̈ No x
 **ELEPHANT
        TALK COMMUNICATIONS, INC.**
 **AND
        SUBSIDIARIES**
 
 Report
        on
        Form 10-QSB
 For
        the
        quarter ended
 June
        30,
        2006
 
 **TABLE
        OF CONTENTS**
  Page**PART
                  I FINANCIAL INFORMATION**Item
                  1.Financial
                  StatementsCondensed
                  Consolidated Balance Sheet at June 30, 2006
                  (Unaudited)
              3Condensed
                  Consolidated Statements of Operations for the
                  Three Months and Six Months
                ended
                  June 30, 2006 and 2005
                  (Unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows for the Six
                  Months
                endedJune
                  30, 2006 and 2005 (Unaudited)
              5Notes
                  to the Condensed Consolidated Financial Statements
                  (Unaudited)
              6
                  -
                  14Item
                  2.Management's
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              15Item
                  3.Controls
                  and Procedures
              21**PART
                  II OTHER INFORMATION**Item
                  1.Legal
                  Proceedings
              22Item
                  2.Changes
                  in Securities
              22Item
                  3.Defaults
                  upon Senior Securities
              22Item
                  4.Submission
                  of Matters to Vote of Security
                  Holders
              22Item
                  5.Other
                  Information
              22Item
                  6.Exhibits
                  and Reports on Form 8-K
              23Signatures
                  and Certifications
              23
 -
              2
              -
 **PART
        I FINANCIAL INFORMATION**
 
 **Item
        1.**  **Financial
        Statements**
 **ELEPHANT
        TALKCOMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 CONDENSED
        CONSOLIDATED BALANCE SHEET (UNAUDITED)
 JUNE
        30,
        2006
 
 **ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              802,787Accounts
                  receivable, net
              
              
              1,261,567Advance
                  to a third party
              
              
              2,256,343Prepaid
                  expenses and other current assets
              
              
              188,681Total
                  Current Assets
              
              
              4,509,378**PROPERTY
                  AND EQUIPMENT - NET**
              
              
              356,476**OTHER
                  ASSETS**Due
                  from related parties
              
              
              922,928Telecom
                  licenses
              
              
              124,668Goodwill
              
              
              3,117,123Earnest
                  deposits for acquisitions
              
              
              6,268,642Total
                  Other Assets
              
              
              10,433,361**TOTAL
                  ASSETS**
              
              $
              15,299,215**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Overdraft
              
              $
              160,095Accounts
                  payable and customer deposits
              
              
              744,533Deferred
                  revenue
              
              
              124,203Accrued
                  expenses and other payable
              
              
              1,532,263Advances
                  from third parties
              
              
              926,330Loans
                  payable
              
              
              989,350Investor
                  deposit for share purchase
              
              
              3,837,896Due
                  to related parties
              
              
              433,847Total
                  Current Liabilities
              
              
              8,748,517**LONG-TERM
                  LIABILITIES**Convertible
                  promissory note
              
              
              3,500,000**TOTAL
                  LIABILITIES**
              
              
              12,248,517**MINORITY
                  INTERESTS**
              
              
              1,214,999**COMMITMENT
                  AND CONTINGENCIES**
              
              
              --**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock Class B, no par value, 5,000,000 shares authorized, none
                  issued and outstanding
              
              
              --Common
                  stock, no par value, 250,000,000 shares authorized, 190,250,088
                  issued and outstanding
              
              
              15,190,711Common
                  stock to be issued for acquisition
              
              
              500,000Common
                  stock subscriptions
              
              
              (8,991
              )Common
                  stock, no par value, 20,000,000 shares issued as earnest deposit
                  for
                  acquisition
              
              
              (720,000
              )Accumulated
                  comprehensive income
              
              
              19,415Accumulated
                  deficit
              
              
              (13,145,436
              )Total
                  Stockholders' Equity
              
              
              1,835,699**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              15,299,215
  The
        accompanying notes are an integral part of these consolidated unaudited
        financial statements.
 -
              3
              -
 **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
        (UNAUDITED)
 
 For
                  the three months ended June 30,
              
              For
                  the six months ended June 30,2006
              
              2005
              
              2006
              
              2005**REVENUES**
              
              $
              1,494,740
              
              $
              79,800
              
              $
              3,668,000
              
              $
              203,633**COST
                  OF REVENUE**
              
              
              267,587
              
              
              73,463
              
              
              765,237
              
              
              166,074**GROSS
                  PROFIT**
              
              
              1,227,153
              
              
              6,337
              
              
              2,902,763
              
              
              37,559**OPERATING
                  EXPENSES**Selling,
                  general and administrative
              
              
              1,544,794
              
              
              521,247
              
              
              3,473,075
              
              
              729,988Depreciation
                  and amortization
              
              
              29,086
              
              
              19,612
              
              
              51,070
              
              
              38,056Total
                  Operating Expenses
              
              
              1,573,880
              
              
              540,859
              
              
              3,524,145
              
              
              768,044**LOSS
                  FROM OPERATIONS**
              
              
              (346,727
              )
              
              (534,522
              )
              
              (621,382
              )
              
              (730,485
              )**OTHER
                  INCOME (EXPENSE)**Interest
                  income
              
              
              132
              
              
              170
              
              
              153
              
              
              657Gain
                  on settlement of vendor payable
              
              
              --
              
              
              49,031
              
              
              --
              
              
              49,031Interest
                  expense
              
              
              (108,271
              )
              
              (51,121
              )
              
              (208,531
              )
              
              (59,460
              )Loss
                  on disposal of fixed assets
              
              
              --
              
              
              (48,370
              )
              
              --
              
              
              (48,370
              )Total
                  Other Expense, net
              
              
              (108,139
              )
              
              (50,290
              )
              
              (208,378
              )
              
              (58,142
              )**LOSS
                  BEFORE INCOME TAXES**
              
              
              (454,866
              )
              
              (584,812
              )
              
              (829,760
              )
              
              (788,627
              )Income
                  taxes
              
              
              --
              
              
              --
              
              
              800
              
              
              800**LOSS
                  FROM CONTINUING OPERATIONS BEFORE MINORITY
                  INTEREST**
              
              
              (454,866
              )
              
              (584,812
              )
              
              (830,560
              )
              
              (789,427
              )Loss
                  in subsidiary attributable to minority interest
              
              
              (70,989
              )
              
              -
              
              
              (182,441
              )
              
              -**LOSS
                  BEFORE DISCONTINUED OPERATIONS**
              
              
              (525,855
              )
              
              (584,812
              )
              
              (1,013,001
              )
              
              (789,427
              )Loss
                  from discontinued operations
              
              
              --
              
              
              (7,229
              )
              
              --
              
              
              (7,229
              )Gain
                  on disposal of discontinued operations
              
              
              --
              
              
              7,229
              
              
              --
              
              
              7,229--
              
              
              --
              
              
              --
              
              
              -**NET
                  LOSS**
              
              
              (525,855
              )
              
              (584,812
              )
              
              (1,013,001
              )
              
              (789,427
              )**OTHER
                  COMPREHENSIVE INCOME**Foreign
                  currency translation gain
              
              
              30,373
              
              
              644
              
              
              30,373
              
              
              64430,373
              
              
              644
              
              
              30,373
              
              
              644**COMPREHENSIVE
                  LOSS**
              
              $
              (495,482
              )
              $
              (584,168
              )
              $
              (982,628
              )
              $
              (788,783
              )Net
                  loss per common share and equivalents-
                  basic and diluted
              
              $
              (0.003
              )
              $
              (0.008
              )
              $
              (0.006
              )
              $
              (0.011
              )Weighted
                  average shares outstanding during the period-
                  basic and diluted
              
              
              170,788,551
              
              
              77,829,747
              
              
              168,740,282
              
              
              72,459,626
 
 The
        accompanying notes are an integral part of these consolidated unaudited
        financial statements.  -
              4
              -
 **ELEPHANT
        TALKCOMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 For
                  the six months ended June 30,2006
              
              2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (1,013,001
              )
              $
              (789,427
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities:Depreciation
                  and amortization
              
              
              51,070
              
              
              38,056Stock
                  issued for acquisition
              
              
              500,000
              
              
              --Provision
                  for uncollectible amounts
              
              
              --
              
              
              182,007Loss
                  on disposal of fixed assets
              
              
              --
              
              
              48,370Issuance
                  of stock for compensation and services
              
              
              --
              
              
              373,000Issuance
                  of stock for consulting services
              
              
              147,125
              
              
              20,000Gain
                  on disposal of subsidiary
              
              
              --
              
              
              (7,229
              )Loss
                  from discontinued operations
              
              
              --
              
              
              7,229Minority
                  interests
              
              
              182,441
              
              
              --Gain
                  on settlement of payables
              
              
              --
              
              
              (49,031
              )Changes
                  in operating assets and liabilities:(Increase)
                  in accounts receivable
              
              
              (182,772
              )
              
              (171,247
              )(Increase)
                  decrease in prepaid expenses, deposits and other assets
              
              
              (129,682
              )
              
              28,247Increase
                  (decrease) in accounts payable and customer deposits
              
              
              267,667
              
              
              (48,595
              )Increase
                  (decrease) in deferred revenue
              
              
              16,781
              
              
              (4,739
              )Increase
                  (decrease) in accrued expenses and other payable
              
              
              400,166
              
              
              (29,628
              )Net
                  cash provided by (used in) operating activities
              
              
              239,795
              
              
              (402,987
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of property and equipment
              
              
              (102,227
              )
              
              (34,882
              )Cash
                  lost in disposition of subsidiary
              
              
              --
              
              
              (127,711
              )Net
                  cash flows from acquisition
              
              
              (1,074,214
              )
              
              --Purchase
                  of telecom licenses
              
              
              (124,668
              )
              
              --Earnest
                  deposits on acquisitions, net
              
              
              355,813
              
              
              (7,099,516
              )Proceeds
                  from acquisition of subsidiary
              
              
              --
              
              
              127,711Net
                  cash used in investing activities
              
              
              (945,296
              )
              
              (7,134,398
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Cash
                  overdraft
              
              
              10,769
              
              
              7,010Advances
                  received for investor
              
              
              926,330
              
              
              --Proceeds
                  from bank loans
              
              
              (6,910
              )
              
              --Proceeds
                  from (payments of) note payable
              
              
              929,700
              
              
              (223,751
              )Proceeds
                  from sale of shares
              
              
              --
              
              
              7,761,655Proceeds
                  from third parties
              
              
              --
              
              
              113,759Investment
                  from minority stockholders
              
              
              193,993
              
              
              --Payments
                  to related parties
              
              
              (774,783
              )
              
              (13,153
              )Net
                  cash provided by financing activities
              
              
              1,279,099
              
              
              7,645,520**EFFECT
                  OF EXCHANGE RATES ON CASH**
              
              
              30,373
              
              
              644**NET
                  INCERASE IN CASH**
              
              
              603,971
              
              
              108,779**CASH,
                  BEGINNING OF THE PERIOD**
              
              
              198,816
              
              
              67,631**CASH,
                  END OF THE PERIOD**
              
              $
              802,787
              
              $
              176,410**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                  paid during the period for interest
              
              $
              11,514
              
              $
              38,804Cash
                  paid during the period for incomes taxes
              
              $
              800
              
              $
              800
 
 The
        accompanying notes are an integral part of these consolidated unaudited
        financial statements.  -
              5
              -
 **ELEPHANT
        TALK COMMUNICATIONS, INC. AND
        SUBSIDIARIES**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 JUNE
        30,
        2006
 
 **NOTE
        1:** **Organization
        and Nature of Operations**
 
 Elephant
        Talk Communications, Inc. (herein referred to as “Elephant Talk”, “ETCI” or
“Company”, formerly known as Staruni Corporation), incorporated on February 5,
        1962 under the laws of the state of California as Altius Corporation, was
        involved in manufacturing of freeway signs. In March 1997, Altius acquired
        Starnet Universe Internet, Inc., a web developer and Internet Service Provider
        (ISP) and changed its name to Staruni Corporation. On January 4, 2002, Staruni
        Corporation merged with Elephant Talk Limited, a company incorporated in
        Hong
        Kong, and filed a Certificate of Amendment of Articles of Incorporation to
        amend
        the corporate name to Elephant Talk Communications, Inc. This name change
        was
        done in conjunction with the merger and to emphasize that the Company’s new
        focus will be the business of Elephant Talk Limited.
 
 On
        January 4, 2002, the Company exchanged 90% of its common stock for 100% of
        the
        common stock of Elephant Talk Limited by issuing 31,164,210 shares of common
        stock to the shareholders of Elephant Talk Limited. Elephant Talk Limited
        is a
        limited liability company incorporated in Hong Kong (ETHK) engaged in long
        distance telephone business. Per the agreement, the Company sold its Internet
        Service Provider (ISP) business to a related party, Vision Aerospace, Inc.
        (Vision) for 1,000,000 shares of Vision valued at $10,835. Vision is owned
        by
        the former CEO and President of the Company. The value of the shares was
        recorded at the book value of the assets exchanged to acquire the shares
        of
        Vision. Pursuant to the terms of the share exchange agreement, control of
        the
        combined companies passed to the former shareholders of Elephant Talk Limited.
        This type of share exchange has been treated as a capital transaction
        accompanied by recapitalization of Elephant Talk Limited in substance, rather
        than a business combination, and is deemed a “reverse merger” for accounting
        purposes, since the former owners of Elephant Talk Limited controlled majority
        of the total common shares outstanding immediately following the merger.
        Recapitalization accounting resulted in consolidated financial statements
        being
        issued under the name of Elephant Talk Communications, Inc., but were considered
        a continuation of Elephant Talk Limited. No pro forma financial statements
        are
        being presented as ETCI has no assets other than the shares of the related
        third
        party discussed above.
 
 On
        January 5, 2005, the Company completed the purchase of 60% of the equity
        ownership interest in True Precise Technology Limited (“True Price”), a limited
        liability company registered in British Virgin Islands, from Keen Solution
        Group
        Limited (“Keen Solution”) in a stock swap arrangement. As consideration for the
        acquisition, the Company issued 23,137,500 restricted common shares to Keen
        Solution valued at $1,436,875 for its 60% equity interest. Upon completion
        of
        the transaction, True Precise became a majority owned subsidiary of the
        Company.
 
 On
        August
        8, 2005, Keen Solution sent notification informing the Company that it has
        unilaterally decided to terminate the Share Exchange Agreement. The Company
        placed a stop transfer restriction on all of the 23,137,500 common
        sha res
        it
        issued to Keen Solution. The Company has treated True Precise’s transaction as
        discontinued operation and has recorded 23,137,500 common shares as cancelled
        shares as of June 30, 2006. Of those shares, 20,137,500 have been returned
        to
        the Company’s treasury, and the Company continues to pursue the return of the
        remainder. The Company has evaluated its legal options in connection with
        the
        termination of the Share Exchange Agreement and concluded that a mutual
        rescission of the agreement was in the Company’s best interest. The Company
        still continues to pursue the return of 3,000,000 common shares from Keen
        Solution.
 
 On
        November 6, 2005, the Company through its subsidiary Elephant Talk Limited
        incorporated a joint venture Free Zone Limited Liability company in Dubai
        Technology Electronic Commerce and Media Free Zone, Dubai, United Arab Emirates
        (UAE) under the name Elephant Talk Middle East & Africa FZ-LLC (“ET
        ME&A”). The registered capital of ET ME&A is $100,817, and the Company’s
        wholly owned subsidiary Elephant Talk Limited has contributed $50,953 towards
        its 50.54% equity share in the joint venture company as of June 30, 2006.
        ET
        ME&A is committed to spend the necessary funds to keep its share of equity
        investment and is currently seeking regulatory approvals for obtaining trade
        and
        business licenses from the UAE government to conduct its business. ET ME&A
        and has not yet begun operations and plans to operate various telecom related
        businesses in the Middle East and Africa.
  -
            6
            -
 After
        evaluating the processes to expand our business and the costs of setting
        up
        regional subsidiaries in the Middle East under the name ET ME&A, it was
        decided to create a new holding company in Bahrain. Therefore, on June 17,
        2006,
        the Company through its subsidiary Elephant Talk Limited, incorporated a
        limited
        liability company in the Kingdom of Bahrain under the name Elephant Talk
        Middle
        East & Africa (Holding) W.L.L (“ET ME&A Holding”). The registered
        capital of ET ME&A Holding is $387,787 and Elephant Talk Limited has
        contributed $197,771 towards its 51% equity interest in ET ME&A Holding.
 
 On
        June
        19, 2006, the Company through its subsidiary ET ME&A Holding, incorporated a
        limited liability company in the Kingdom of Bahrain under the name Elephant
        Talk
        Bahrain W.L.L. (“ET Bahrain”) to manage the Company’s operations in Bahrain. The
        registered capital of ET Bahrain is $387,787 and ET ME&A Holding owns 99% of
        the equity ownership in ET Bahrain. ET ME&A Holding has contributed $383,909
        as its shares of registered capital as of June 30, 2006. ET ME&A Holding and
        ET Bahrain has not yet begun operations.
 
 On
        July
        11, 2005, the Company’s wholly owned subsidiary Elephant Talk Limited formed
        Full Mark Technology Limited, a limited liability company organized under
        the
        laws of British Virgin Islands, to facilitate acquisitions for the Company
        in
        China. On December 13, 2005, Full Mark Technology Limited, a wholly owned
        subsidiary of Elephant Talk Limited, formed a wholly owned subsidiary Jinfuyi
        Technology (Beijing) Co. Ltd. (“Jinfuyi”), a limited liability company organized
        and existing under the laws of the Peoples’ Republic of China, with a registered
        capital of $200,000. On January 2, 2006, Jinfuyi and Beijing China Wind
        Telecommunication Information Technology Co. Limited, a limited liability
        company organized under the laws of the Peoples’ Republic of China (“Beijing
        China Wind”), entered into an Exclusive Technical Consulting and Services
        Agreement (the ”Service Agreement”), pursuant to which Jinfuyi has the exclusive
        right to provide technical and consulting services in exchange for services
        fees
        that will be approximately $4,875,000 per year, subject to the right of Jinfuyi
        to adjust the service fee depending on the quantity of the services that
        it
        actually provides.
 
 On
        January 4, 2006, Guangdong Elephant Talk Network Consulting Limited, a limited
        liability company organized and existing under the laws of the Peoples’ Republic
        of China (“Guangdong Elephant Talk”) and an agent of the Company, and Beijing
        Zhongrun Chuangtou Technology Co., Ltd., a limited liability company organized
        and existing under the laws of the Peoples’ Republic of China (the “Vendor”),
        entered into an Equity Transfer Agreement (the ”Agreement”), pursuant to which
        Guangdong Elephant Talk agreed to acquire sixty percent (60%) of the registered
        capital of Beijing China Wind. Pursuant to the Agreement, the purchase price
        for
        60% equity interest in Beijing China Wind amounted to $4,800,000, subject
        to
        adjustments based on Beijing China Wind’s audited net income for fiscal 2005 and
        2006. The purchase consideration is payable (x) in cash of $2,800,000 in
        five
        installments, the last of which is to be paid on January 31, 2007, and (y)
        by
        the issuance by the Company to the Vendor of 20,000,000 shares of restricted
        common stock valued at $0.10 per share, in four equal installments, the last
        of
        which is to be issued on January 31, 2007. The Vendor has the right to exercise
        an option within 30 days after July 31, 2007 to return the 20,000,000 shares
        of
        restricted common stock either in exchange for a 25% equity interest in Beijing
        China Wind or for settlement in cash within 90 days. The Company has paid
        $1,420,000 in cash and has issued 10,000,000 restricted Common Shares valued
        at
        $500,000 towards its investment in Beijing China Wind joint venture as of
        June
        30, 2006.
 
 **NOTE
        2:**  **Basis
        of Presentation**
 
 The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with generally accepted accounting principles for interim financial
        information and with the instructions to Form 10-QSB. Accordingly, they do
        not
        include all of the information and footnotes required by generally accepted
        accounting principles for complete financial statements and related notes
        included in the Company's 2005 Form 10-KSB.
 
 The
        audited consolidated financial statements of the Company for the year ended
        December 31, 2005 were filed on May 19, 2006 with the Securities and Exchange
        Commission and are hereby referenced. In the opinion of management, the
        accompanying unaudited consolidated financial statements contain all adjustments
        (which include only normal recurring adjustments) considered necessary for
        fair
        presentation has been included.
 
 The
        results of operations for the six months ended June 30, 2006, are not
        necessarily indicative of the results to be expected for the entire year.
        Certain 2005 amounts have been reclassified to conform to current period
        presentation. These reclassifications have no effect on previously reported
        net
        income (loss).
  -
            7
            -
 **NOTE
        3:**  **Principles
        of Consolidation**
 
 The
        accompanying consolidated financial statements for the three months and six
        months ended June 30, 2006 included the accounts of Elephant Talk
        Communications, Inc., its wholly owned subsidiary Elephant Talk Limited,
        its
        wholly owned subsidiary Guangdong Elephant Talk Network Consulting Limited,
        its
        wholly owned subsidiary True Precise Technology Limited, its wholly owned
        subsidiary Full Mark Technology Limited, its majority owned (51%) subsidiary
        Elephant Talk Middle East & Africa (Holding) W.L.L., its majority owned
        (99%) subsidiary Elephant
        Talk Bahrain W.L.L. ,
        and its
        majority owned (50.54%) subsidiary Elephant Talk Middle East & Africa FZ-LLC
        and its majority owned (60%) subsidiary Beijing China Wind. The consolidated
        financial statements for the three months and six months ended June 30, 2005
        included the accounts of Elephant Talk Communications, Inc., and its 100%
        wholly
        owned subsidiary Elephant Talk Limited. Minority interest principally represents
        minority shareholders’ proportionate share of equity in our consolidated
        subsidiary Elephant Talk Middle East and Africa FZ-LLC, Elephant Talk Middle
        East & Africa (Holding) W.L.L., Elephant Talk Bahrain W.L.L., and joint
        venture of Guangdong Elephant Talk Network Consulting Limited. All significant
        inter-company accounts and transactions have been eliminated in
        consolidation.
 
 **NOTE
        4:**  **Use
        of Estimates**
 
 In
        preparing financial statements in conformity with generally accepted accounting
        principles, management is required to make estimates and assumptions that
        affect
        the reported amounts of assets and liabilities and the disclosure of contingent
        assets and liabilities at the date of the financial statements and revenues
        and
        expenses during the reported period. Actual results could differ from those
        estimates.
 
 **NOTE
        5:**  **Supplemental
        Disclosure of Cash Flows**
 
 The
        Company prepares its statements of cash flows using the indirect method as
        defined under the Financial Accounting Standard No. 95. The cash flow statements
        do not include the following non-cash investing and financing
        activities:
 
 During
        the six months ended June 30, 2006, the Company issued 2,400,000 restricted
        common shares valued at $120,000 as compensation to a consultant as finder’s fee
        for an acquisition target. The shares were valued at the closing market price
        of
        the share price on the date of execution of the agreement. The Company issued
        250,000 restricted common shares valued at $22,500 to an employee as
        compensation for services. The shares were valued at the closing market price
        on
        the date of issuance. The Company issued 92,500 restricted common shares
        valued
        at $4,625 as compensation to officers for services rendered in December 2005.
        The shares were valued at the closing market price on the first day of December
        2005 for the month for which services were performed. The Company issued
        10,000,000 common shares valued at $500,000 towards the consideration for
        acquisition of Beijing China Wind. The common shares were valued at the closing
        market price of the share price on the date of execution of the
        agreement.
 
 **NOTE
        6:**  **Recently
        Issued Accounting Pronouncements**
 
 In
        February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities,” and SFAF No. 140, “Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities.” SFAS No. 155, permits fair value re-measurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interests that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company’s first fiscal year that begins
        after September 15, 2006. The Company has not evaluated the impact of this
        pronouncement its financial statements.
  -
            8
            -
 In
        March
        2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this
        Statement amends FASB Statement No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities,* with
        respect to the accounting for separately recognized servicing assets and
        servicing liabilities. This Statement:
 
 1.
            Requires
                an entity to recognize a servicing asset or servicing liability each
                time
                it undertakes an obligation to service a financial asset by entering
                into
                a servicing contract. 
 2.
            Requires
                all separately recognized servicing assets and servicing liabilities
                to be
                initially measured at fair value, if
                practicable. 
 3.
            Permits
                an entity to choose ‘Amortization method’ or ‘Fair value measurement
                method’ for each class of separately recognized servicing assets and
                servicing liabilities: 
 4.
            At
                its initial adoption, permits a one-time reclassification of
                available-for-sale securities to trading securities by entities with
                recognized servicing rights, without calling into question the treatment
                of other available-for-sale securities under Statement 115, provided
                that
                the available-for-sale securities are identified in some manner as
                offsetting the entity’s exposure to changes in fair value of servicing
                assets or servicing liabilities that a servicer elects to subsequently
                measure at fair value. 
 5.
            Requires
                separate presentation of servicing assets and servicing liabilities
                subsequently measured at fair value in the statement of financial
                position
                and additional disclosures for all separately recognized servicing
                assets
                and servicing liabilities. 
 This
        Statement is effective as of the beginning of the Company’s first fiscal year
        that begins after September 15, 2006. Management believes that this statement
        will not have a significant impact on the consolidated financial
        statements.
 
 In
        May
        2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections.
        This
        Statement replaces APB Opinion No, 20, Accounting Changes, and FASB Statement
        No. 3, Reporting Accounting Changes in Interim Financial Statements, and
        changes
        the requirements for the accounting for and reporting of a change in accounting
        principle. This Statement applies to all voluntary changes in accounting
        principle. It also applies to changes required by an accounting pronouncement
        in
        the unusual instance that the pronouncement does not include specific transition
        provisions. SFAS 154 also requires that a change in depreciation, amortization
        or depletion method for long-lived, non-financial assets be accounted for
        as a
        change in accounting estimate effected by a change in accounting principle.
        This
        Statement is effective in fiscal years beginning after December 15, 2005.
        The
        Company has not yet determined the effect of implementing this
        standard.
 
 In
        December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
        an
        Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
        companies to recognize in the statement of operations the grant- date fair
        value
        of stock options and other equity-based compensation issued to employees.
        FAS
        No. 123R is effective beginning in the Company's second quarter of fiscal
        2006.
        The Company is in process of evaluating the impact of this pronouncement
        on its
        financial position.
 
 In
        December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
        Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29
        to
        eliminate the exception for non-monetary exchanges of similar productive
        assets
        and replaces it with a general exception for exchanges of non-monetary assets
        that do not have commercial substance. The Company believes that the adoption
        of
        this standard will have no material impact on its financial
        statements.
 -
              9
              -
 In
        March
        2004, the Emerging Issues Task Force ("EITF") reached a consensus on Issue
        No.
        03-1, "The Meaning of Other-Than-Temporary Impairment and its Application
        to
        Certain Investments.” The EITF reached a consensus about the criteria that
        should be used to determine when an investment is considered impaired, whether
        that impairment is other-than-temporary, and the measurement of an impairment
        loss and how that criteria should be applied to investments accounted for
        under
        SFAS No. 115 "Accounting in certain investments in debt and equity securities.”
EITF 03-01 also included accounting considerations subsequent to the recognition
        of other-than-temporary impairment and requires certain disclosures about
        unrealized losses that have not been recognized as other-than-temporary
        impairments. Additionally, EITF 03-01 includes new disclosure requirements
        for
        investments that are deemed to be temporarily impaired. In September 2004,
        the
        Financial Accounting Standards Board (FASB) delayed the accounting provisions
        of
        EITF 03-01; however the disclosure requirements remain effective for annual
        reports ending after June 15, 2004. The Company will evaluate the impact
        of EITF
        03-01 once final guidance is issued.
 
 **NOTE
        7:**  **Advances
        to a Third Party**
 
 The
        Company has advanced $2,256,343 to a European telecom entity for its working
        capital requirements. The Company has completed its due diligence and expects
        to
        execute the acquisition documents no later than August 31, 2006. The advances
        made by the Company to the European telecom entity are deemed fully recoverable
        as of June 30, 2006.
 
 **NOTE
        8:**  **Earnest
        Deposits for Acquisitions**
 
 On
        January 17, 2005, the Company entered into a Memorandum of Understanding
        with a
        European investor to acquire all of the issued and outstanding shares of
        Benoit
        Telecom Holding AG, a European telecom company. The Company has advanced
        earnest
        deposit of $6,043,080 with an escrow trust company as of June 30, 2006. The
        Company has executed a Promise to Repay Agreement and a Security Agreement
        with
        the escrow trust company to repay the full earnest deposit to the Company
        if the
        acquisition is not consummated for any reason. The Company has completed
        its due
        diligence of its proposed acquisition and fully expects to close the transaction
        and execute a definitive agreement by August 31, 2006.
 
 The
        Company has advanced fully refundable earnest deposit of $225,562 and has
        issued
        20,000,000 common shares valued at $720,000 in connection with its proposed
        acquisition of Phonetone Telecom Ltd. from Calfin Trust as of June 30, 2006.
        The
        Company has completed its due diligence of Phonetone Telecom Ltd. and expects
        to
        execute a definitive agreement in the near future.
 
 The
        Company has recorded $6,988,642 as earnest deposits for acquisitions in the
        accompanying financial statements as of June 30, 2006.
 
 **NOTE
        9:**  **Investment
        in Subsidiaries:**
 
 **Beijing
        China Wind Telecommunication Information Technology Company Limited (“Beijing
        China Wind”)**
 
 On
        January 4, 2006, the Company, through its wholly owned subsidiary Guangdong
        Elephant Talk Network Consulting Limited, entered into an agreement to acquire
        sixty percent (60%) of the registered capital of Beijing China Wind. Pursuant
        to
        the Agreement, the purchase price for 60% of Beijing China Wind was agreed
        to be
        $4,800,000, subject to adjustments based on Beijing China Wind’s audited net
        income for fiscal years 2005 and 2006, and is payable (a) in cash of $2,800,000
        in five installments, the last of which is to be paid on January 31, 2007,
        and
        (b) by issuance of 20,000,000 restricted common shares valued at $0.10 per
        share
        to the owners of Beijing China Wind in four equal installments, the last
        of
        which is to be issued on January 31, 2007. The owners of Beijing China Wind
        has
        the right to exercise an option within 30 days after July 31, 2007 to return
        the
        20,000,000 restricted common shares either in exchange for a 25% equity interest
        in Beijing China Wind or for settlement in cash within 90 days. The Company
        has
        issued 10,000,000 restricted common shares valued at $500,000 and has made
        cash
        payments of $1,420,000 to the owners of Beijing China Wind towards it 60%
        ownership equity in Beijing China Wind as of June 30, 2006. The shares were
        valued at the closing market price of shares on the day of execution of the
        agreement. If Beijing China Wind is able to achieve the net profits and revenue
        targets for 2006 as agreed pursuant to the terms of the Agreement, the Company
        will have a obligation to pay $1,380,000 in cash and 10,000,000 restricted
        shares of common stock on or before January 31, 2007 for the agreed purchase
        price of $4,800,000 for 60% equity ownership in Beijing China Wind.
  -
            10
            -
  **Investment
                  in Beijing China Wind Telecommunication Information Technology
                  Co.
                  Limited**Consideration
                  payable for Beijing China Wind on acquisition date January 4,
                  2006:Cash
                  payable
              
              $
              1,600,000Common
                  shares to be issued - 20,000,000 shares
              
              
              1,000,000$
              2,600,000Fair
                  value of net assets received on acquisition date January 4,
                  2006:Cash
              
              $
              95,786Accounts
                  receivable, net of allowances
              
              
              1,071,595Other
                  receivables and prepayments
              
              
              36,256Due
                  from directors
              
              
              323,657Due
                  from a related company
              
              
              3,849Property
                  and equipment, net
              
              
              218,471Other
                  assets
              
              
              1,712,510Accounts
                  payable
              
              
              (437,943
              )Other
                  payables and accrued expenses
              
              
              (926,781
              )Value
                  added tax payable
              
              
              (47,289
              )Notes
                  payable
              
              
              (30,544
              )Due
                  to stockholders
              
              
              (27,253
              )1,992,314Minority
                  interest - 40%
              
              
              (796,926
              )$
              1,195,388Goodwill
              
              
              1,404,612Total
                  consideration paid
              
              $
              2,600,000
 
 The
        Company recorded goodwill on consolidation of its acquired entities in the
        total
        amount of $3,117,123 as of June 30, 2006. Management is of the opinion that
        there is no impairment of goodwill as of June 30, 2006.
 
 **Elephant
        Talk Middle East & Africa (Holding), W.L.L (“ET ME&A
        Holding”)**
 
 On
        June
        17, 2006, the Company through its subsidiary Elephant Talk Limited, incorporated
        a limited liability company in the Kingdom of Bahrain under the name Elephant
        Talk Middle East & Africa (Holding) W.L.L (“ET ME&A Holding”). The
        registered capital of ET ME&A Holding is $387,787 and Elephant Talk Limited
        has contributed $197,771 towards its 51% equity interest in ET ME&A Holding
        as of June 30, 2006. ET ME&A Holding has not yet started its operations as
        of June 30, 2006.
 
 **Elephant
        Talk Bahrain W.L.L (“ET Bahrain”)**
 
 On
        June
        19, 2006, the Company through its subsidiary ET ME&A Holding, incorporated a
        limited liability company in the Kingdom of Bahrain under the name Elephant
        Talk
        Bahrain W.L.L. (“ET Bahrain”) to manage the Company’s operations in Bahrain. The
        registered capital of ET Bahrain is $387,787. ME&A Holding owns 99% of the
        equity ownership in ET Bahrain and has contributed 100% of registered capital
        as
        of June 30, 2006. ET Bahrain has not yet begun its operations as of June
        30,
        2006.
 
 **Elephant
        Talk Middle East & Africa FZ-LLC (“ET ME&A”)**
 
 On
        November 6, 2005, the Company through its subsidiary Elephant Talk Limited,
        incorporated a joint venture Free Zone Limited Liability company in Dubai
        under
        the name Elephant Talk Middle East & Africa FZ-LLC (“ET ME&A”). The
        registered capital of ET ME&A is $100,817, and the Company’s wholly owned
        subsidiary Elephant Talk Limited has contributed $50,953 towards its 50.54%
        equity share in the joint venture company as of June 30, 2006. ET ME&A and
        has not yet begun operations and plans to operate various telecom related
        businesses in the Middle East and Africa.
  -
            11
            -
 **NOTE
        10:**  **Related
        Party Transactions**
 
 The
        Company has advanced funds amounting to $324,524 to an affiliate that the
        Company’s officers and/or shareholders have an ownership interest in prior to
        2002. The related entity is making monthly payments and therefore, such funds
        advanced as of June 30, 2006 are deemed fully collectible and no provision
        for
        uncollectible debt is provided at June 30, 2006.
 
 The
        Company’s affiliate had signed a promissory note of $408,975 which was fully
        guaranteed by the Company. The note requires a monthly installment of $12,804
        with the remaining balance due on December 24, 2006. The affiliate is making
        monthly payments in accordance with the payment terms, and expects to pay
        the
        balance due in full on due date. In case of default of payments on the
        promissory note, the Company will be obligated to pay the unpaid balance
        of the
        note in full. Since the affiliate is making payments on time, the Company
        did
        not deem it necessary to provide for an allowance for the unpaid balance
        of
        $324,524 on the promissory note in the accompanying financial statements
        at June
        30, 2006.
 
 The
        Company paid $76,385 and $55,679 in business consulting and management advisory
        fees to two entities owned and controlled by the two directors of the Company,
        for the six months ended June 30, 2006 and 2005, respectively.
 
 **NOTE
        11:**  **Loans
        Payable**
 
 Loans
        payable at June 30, 2006 are summarized as follows:
 
 Installment
                  loan payable, bank, monthly principal and interest payments of
                  $12,804
                  including interest at bank's prime rate plus 1.5% per annum, 9.5%
                  at June
                  30, 2006, due December 24, 2006, secured by personal guarantees
                  of two
                  stockholders, a director, and a third party
              $
              360,326Installment
                  loan payable, bank, monthly principal and interest payments of
                  $2,924
                  including interest at bank's prime rate plus 1.5% per annum, 9.5%
                  at June
                  30, 2006, due December 24, 2011, secured by personal guarantees
                  of three
                  stockholders and a director
              
              219,596Installment
                  loan payable, bank, monthly principal and interest payments of
                  $1,751
                  including interest at bank's prime rate plus 1.5% per annum, 9.5%
                  at June
                  30, 2006, due June 28, 2009, secured by personal guarantees of
                  three
                  stockholders and a director
              
              97,139Term
                  loan payable, bank, monthly payments of interest at bank's prime
                  rate,
                  8.0% at June 30, 2006
              
              312,289$
              989,350
 
 The
        Company has executed a credit facility with a bank in Hong Kong since June
        29,
        2004 under which the Company has borrowed funds from the bank under three
        installment loans and a term loan arrangements. The Company is in default
        of
        making loan payments on all the loans and as a result, the entire loan balances
        outstanding at June 30, 2006 are immediately due and payable to the bank.
        Furthermore, the Company is obligated to pay a default interest rate at the
        rate
        of 4.5% per annum in addition to the prescribed interest rate of the installment
        loans and term loan. The Company has recorded $30,045 and $21,915 in interest
        expense and default interest expense on loans payable as of June 30, 2006
        and
        2005.
 -
              12
              -
 **NOTE
        12:**  **Convertible
        Promissory Note**
 
 On
        December 15, 2005, the Company executed a Convertible Promissory Note (the
        “Note”) in the principal sum of $3,500,000 with an investor. The Note has a term
        of thirty (30) months, during which time interest on the Principal Amount
        will
        accrue from the date of this Note at an annual interest rate of 10%. The
        Note
        will be paid in full at the end of the thirty month term with a balloon payment
        of principal and interest accrued. The Note shall be 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) per share of Common Stock provided,
        however, that this Note shall not be convertible during the term when the
        Company has insufficient authorized Common Stock to issue to the Note holder
        when a demand for conversion is made. The Note is secured by shares owned
        or to
        be owned by the Company in the entities Beijing China Wind, ET ME&A Holding
        and ET ME&A. As of June 30, 2006, the Company has received the principal
        balance of $3,500,000, and has recorded an interest expense of $87,418 and
        $166,894 in the accompanying financial statements for the three months and
        six
        months ended June 30, 2006.
 
 **NOTE
        13:**  **Stockholders’
        Equity**
 
 Issuance
        of common stock: During the six months ended June 30, 2006, the Company issued
        92,500 restricted Common Shares valued at $4,625 as partial compensation
        to two
        directors for salaries earned in December 2005. The Common Shares were valued
        at
        the closing market price of the Common Shares on the first day of the month
        for
        which the compensation was earned. The Company entered into an agreement
        with an
        employee and issued 250,000 restricted Common Shares valued at $22,500 for
        compensation earned. The Common Shares were valued at the closing market
        price
        of the shares on the date of issuance. The Company issued 2,400,000 Common
        Shares valued at $120,000 to a consultant for providing consulting, business
        advisory and finder’s fee for a target acquisition. The Common Shares were
        valued at the closing market price of the shares on the date of execution
        of the
        agreement. The Company issued as a partial consideration 10,000,000 restricted
        Common Shares valued at $500,000 to the owners of Beijing China Wind in
        connection with its acquisition of 60% equity interest in Beijing China Wind.
        The shares were valued at the closing market price of the shares on the date
        of
        execution of the agreement.
 
 **NOTE
        14:**  **Basic
        and Diluted Net Loss Per Share**
 
 Basic
        and
        diluted net loss per share for the three months and six months ended June
        30,
        2006 and 2005 was determined by dividing net loss for the periods by the
        weighted average number of basic and diluted shares of common stock outstanding.
        Weighted average number of shares used to compute basic and diluted loss
        per
        share is the same since the effect of dilutive securities is
        anti-dilutive.
 
 **NOTE
        15:**  **Employee
        Benefit Plan**
 
 The
        Company adopted an employee benefit plan “The 2000 Employee Benefit Plan” (the
“Plan”) on May 30, 2000. Under the Plan, the Company may issue shares or grant
        options to acquire the Company’s common stock, no par value, from time to time
        to employees of the Company or its subsidiaries. In addition, at the discretion
        of the Board of Directors, shares may be granted under this Plan to other
        individuals, including consultants or advisors, who contribute to the success
        of
        the Company or its subsidiaries, provided that bona fide services shall be
        rendered by consultants and advisors and such services must not be in
        conjunction with the offer or sale of securities in a capital raising
        transaction. No stock may be issued or options granted under the Plan to
        consultants, advisors or other persons who directly or indirectly promote
        or
        maintain a market for the Company’s securities. The Plan is intended to aid the
        Company in maintaining and developing a management team, attracting qualified
        officers and employees capable of assuring the future success of the Company,
        and rewarding those individuals who have contributed to the success of the
        Company. The Plan is administrated under the direction of the Board of
        Directors. A total of 4,000,000 (four million) common shares and 4,000,000
        (four
        million) stock options to acquire common shares may be subject to, or issued
        pursuant to, benefits granted under the Plan. At any time any stock option
        is
        granted under the terms of this Plan, the Company will reserve for issuance
        the
        number of shares of Stock subject to such option until it is exercised or
        expired. The Plan Administrator shall determine from time to time the terms,
        conditions and price of the options granted. Options shall not be construed
        to
        be stock and cannot be exercised after the expiration of its term. Under
        the
        Plan, 300,000 shares of common stock and 4,000,000 stock options remain
        available for grant at June 30, 2006.
 -
              13
              -
 **NOTE
        16:** **** **Contingent
        Consideration**
 
 In
        January 2006, the Company acquired a 60% interest in Beijing China Wind for
        an
        agreed total consideration of $4,800,000 of which $2,800,000 was payable
        in cash
        and the issuance of 20,000,000 shares of the Company’s common stock. In
        accordance with the Equity Transfer Agreement (“ET Agreement”) signed between
        the vendor and the Company, the agreed valuation for the 20,000,000 shares
        was
        $0.10 per common stock for $2,000,000. The Company recorded the 20,000,000
        shares at $0.05 per common stock for $1,000,000 based on the closing price
        of
        the Company’s stock at the date of closing of agreement of January 4,
        2006.
 
 As
        of
        June 30, 2006, the Company is contingently liable for $1,200,000 to the vendor,
        of which $600,000 was due on or before July 31, 2006 to be adjusted
        proportionately if Beijing China Wind does not achieve a profit of $1,000,000
        (Rmb 8.0 million) in 2005 and $1,125,000 (Rmb 9.0 million) for the first
        half of
        2006. An additional $600,000 cash consideration is due on or before January
        31,
        2007 to be adjusted proportionately if Beijing China Wind does not achieve
        a
        profit of $2,250,000 (Rmb 18.0 million) for 2006.
 
 If
        any of
        the conditions are not met, the vendor has 30 days from July 31, 2007 to
        give
        notice to the Company to buy back 25% equity interest in Beijing China Wind
        from
        the Company in return for the 20,000,000 shares issued as part of the
        acquisition agreement.
 
 **NOTE
        17:**  **Going
        Concern**
 
 The
        accompanying financial statements have been prepared in conformity with
        generally accepted accounting principle, which contemplate continuation of
        the
        Company as a going concern. The Company has an accumulated deficit of
        $13,145,436 and a working capital deficiency of $4,239,139 as of June 30,
        2006
        including a net loss of $1,013,001 for the six months ended June 30, 2006.
        This
        raises a substantial doubt about the Company’s ability to continue as a going
        concern. In view of the matters described below, recoverability of a major
        portion of the recorded asset amounts shown in the accompanying balance sheet
        is
        dependent upon continued operations of the Company, which in turn is dependent
        upon the Company’s ability to raise additional capital, obtain financing and to
        succeed in its future operations.
 
 The
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded asset amounts or amounts and
        classification of liabilities that might be necessary should the Company
        be
        unable to continue as a going concern.
 
 Management
        has taken the following steps to revise its operating and financial
        requirements, which it believes are sufficient to provide the Company with
        the
        ability to continue as a going concern. Management has devoted considerable
        efforts during the period ended June 30, 2006 towards (i) obtaining additional
        equity financing (ii) controlling of salaries and general and administrative
        expenses (iii) management of accounts payable (iv) settlement of debt by
        issuance of common shares and (v) acquire profitable companies that bring
        synergies to the Companies products and services.
 
 **NOTE
        18:**  **Subsequent
        Event**
 
 The
        Company received $1,625,515 in cash advances as of August 18, 2006 against
        a new
        $3,000,000 million Convertible Promissory Note executed by Rising Water
        Capital.
 -
              14
              -
 **PART
        1**
 
 **ITEM
        2.** **ManagementDiscussion
        and Analysis or Plan of
        Operation**
 
 Elephant
        Talk Communications, Inc. (ETCI) is a facility based international long distance
        carrier offering highly reliable and competitively priced services on the
        wholesale market. The Company provides services to first-tier local and
        international telecommunications carriers, enabling those carriers and other
        service providers to offer voice and fax services to their end-customers.
        The
        operations include international long distance on both sides of the Pacific,
        serving over 20 foreign countries through an advanced and flexible network.
        The
        Company has been expanding its foothold in Asia with more profitable routes
        and
        the development of value-added services, such as PC-to-Phone service, voice
        over
        Internet protocol (VoIP), Broadband Internet and Short messaging service
        (SMS).
        The Company is actively pursuing new sales channels for the higher-margin
        prepaid calling card market, expanding from the U.S. to several countries
        in
        South East Asia.
 
 Pursuant
        to an agreement and plan of reorganization, effective August 27, 2001, and
        through the subsequent acquisition that completed on January 4, 2002, Staruni
        Corporation, a California corporation acquired Elephant Talk Limited, a limited
        company incorporated in Hong Kong. This type of share exchange has been treated
        as a capital transaction accompanied by recapitalization of Elephant Talk
        Limited in substance, rather than a business combination, and is deemed a
        “reverse acquisition” for accounting purposes since the former owners of
        Elephant Talk Limited controlled majority of the total common shares outstanding
        immediately following the acquisition. The acquisition caused no change in
        any
        of the shares of the Company’s common stock outstanding on the acquisition date,
        and no other securities were converted as a result of the
        acquisition.
 
 On
        January 5, 2005, the Company completed its purchase of 60% equity ownership
        interest in True Precise Technology Limited (“True Precise”), from Keen Solution
        Group Limited (“Keen Solution”) in a Share Exchange Agreement. As consideration
        for the acquisition, the Company had issued 23,137,500 restricted Common
        Shares
        to Keen Solution valued at $1,436,875. Upon completion of the acquisition
        on
        January 5, 2005, True Precise became a majority owned subsidiary of the
        Company.
 
 On
        August
        8, 2005, Keen Solutions sent notification informing the Company that it had
        unilaterally decided to terminate the Share Exchange Agreement. The True
        Precise
        acquisition has been cancelled, and the Company has taken protective measures
        to
        ensure that the 23,137,500 Common Shares are restricted and nontradeable.
        Of
        those shares, 20,137,500 have been returned to the Company’s treasury. The
        Company has evaluated its legal options in connection with the termination
        of
        the Share Exchange Agreement and concluded that a mutual rescission of the
        agreement was in the Company’s best interest. The Company still continues to
        pursue the return of 3,000,000 Common Shares from Keen Solution. In May 2006,
        True Precise ceased its existence as it discontinued its operations. The
        Company
        recorded $1,923 in expenses of True Precise under general and administrative
        expenses as of the date of cease of operations in May 2006.
 
 On
        January 17, 2005, the Company entered into a Memorandum of Understanding
        to
        acquire all of the issued and outstanding shares of Benoit Telecom Holding
        A.G.,
        a European telecom company from Beltrust A.G. The Company has made the earnest
        deposits of $6,043,080 for its acquisition with an escrow trust company.
        The
        Company has completed its due diligence investigation of Benoit and expects
        to
        close the transaction and execute a definitive agreement by August 31, 2006.
        The
        European telecom is a telecommunications service provider that provides various
        premium rate services such as 0900 service and VoIP services to corporations
        and
        content providers within the European Union. The Company believes that it
        can
        extract considerable synergies with this acquisition by integrating its VOIP
        platforms and extend its reach from China to Europe and vice-versa.
 
 Pursuant
        to the terms of an agency agreement in connection with its acquisition of
        Phonetone Telecom Ltd. from Calfin Trust, the Company agreed to issue 40,000,000
        restricted common shares, pay a cash consideration of $600,000, and share
        15% of
        the yearly total profit margin generated by the Company or any of its affiliated
        companies from the Phonetone’s premium rate numbers in the years 2006, 2007 and
        2008. As of June 30, 2006, the Company has advanced $225,562 and 20,000,000
        shares of its Common Stock valued at $720,000 to Calfin Trust as an earnest
        deposit towards the Phonetone’s proposed acquisition. The Company has completed
        its due diligence on Phonetone and reviewing the current legal structure
        for
        this acquisition, and plans to conclude on this acquisition in the near
        future.
  -
            15
            -
  On
        April
        20, 2005, the Company formed a joint venture Free Zone Limited Liability
        company
        to be incorporated in the Dubai Technology, Electronic Commerce and Media
        Free
        Zone, Dubai, United Arab Emirates (UAE) under the name Elephant Talk Middle
        East
& Africa FZ-LLC (“ET ME&A”). The registered capital of ET ME&A is
        $100,817, and the Company’s wholly owned subsidiary Elephant Talk Limited has
        contributed $50,953 towards its 50.54% equity share in the joint venture
        company
        as of June 30, 2006. ET ME&A is committed to spend the necessary funds to
        keep its share of equity investment and is currently seeking regulatory
        approvals for obtaining trade and business licenses from the UAE government
        to
        conduct its business. ET ME&A and has not yet begun operations and plans to
        operate various telecom related businesses in the Middle East and
        Africa.
 
 On
        July
        11, 2005, the Company’s wholly owned subsidiary Elephant Talk Limited formed
        Full Mark Technology Limited (“Full Mark”), a limited liability company
        organized under the laws of British Virgin Islands, to facilitate acquisitions
        of profitable business in China. On December 13, 2005, Full Mark formed a
        wholly
        owned subsidiary Jinfuyi Technology (Beijing) Co. Ltd. (“Jinfuyi”), a limited
        liability company organized and existing under the laws of the Peoples’ Republic
        of China, with a registered capital of $200,000. On January 2, 2006, Jinfuyi
        and
        Beijing China Wind entered into an Exclusive Technical Consulting and Services
        Agreement, pursuant to which Jinfuyi has the exclusive right to provide
        technical and consulting services in exchange for services fees of approximately
        $4,875,000 per year, subject to the right of Jinfuyi to adjust the service
        fee
        depending on the quantity of the services that it actually provides. As of
        June
        30, 2006, no technical and consulting services were provided by
        Jinfui.
 
 On
        January 4, 2006, Guangdong Elephant Talk Network Consulting Limited, a limited
        liability company organized and existing under the laws of the Peoples’ Republic
        of China (“Guangdong Elephant Talk”) and an agent of the Company, and Beijing
        Zhongrun Chuangtou Technology Co., Ltd., a limited liability company organized
        and existing under the laws of the Peoples’ Republic of China (the “Vendor”),
        entered into an Equity Transfer Agreement (the ”Agreement”), pursuant to which
        Guangdong Elephant Talk agreed to acquire sixty percent (60%) of the registered
        capital of Beijing China Wind.
 
 Pursuant
        to the Agreement, the purchase price for 60% of Beijing China Wind was agreed
        to
        be $4,800,000, subject to adjustments based on Beijing China Wind’s audited net
        income for fiscal 2005 and 2006, and is payable (x) in cash of $2,800,000
        in
        five installments the last of which is to be paid on January 31, 2007, and
        (y)
        by the issuance by the Company to the Vendor of 20,000,000 shares of restricted
        common stock valued at $0.10 per share, in four equal installments the last
        of
        which is to be issued on January 31, 2007. The Vendor has the right to exercise
        an option within 30 days after July 31, 2007 to return the 20,000,000 shares
        of
        restricted common stock either in exchange for a 25% equity interest in Beijing
        China Wind or for settlement in cash within 90 days. If Beijing China Wind
        is
        able to achieve the net profits and revenue targets for 2006 as agreed pursuant
        to the terms of the Agreement, the Company will have a obligation to pay
        $1,380,000 in cash and 10,000,000 restricted shares of common stock on or
        before
        January 31, 2007 for the agreed purchase price for 60% equity ownership in
        Beijing China Wind. As of June 30, 2006, the Company has a past due obligation
        to pay the remaining balance of $180,000 of its fourth installment payment
        of
        $600,000. As of June 30, 2006, the Company is contingently liable for $1,200,000
        to the Vendor, of which $600,000 is due on or before July 31, 2006 to be
        adjusted proportionately if Beijing China Wind does not achieve a profit
        of
        $1,000,000 (Rmb 8.0 million) in 2005 and $1,125,000 (Rmb 9.0 million) for
        the
        first half of 2006. An additional $600,000 cash consideration is due on or
        before January 31, 2007 to be adjusted proportionately if Beijing China Wind
        does not achieve a profit of $2,250,000 (Rmb 18.0 million) for 2006. If any
        of
        the conditions of the Agreement are not met, the Vendor has 30 days from
        July
        31, 2007 to give notice to the Company to buy back 25% equity interest in
        Beijing China Wind from the Company in return for the 20,000,000 shares issued
        as part of the acquisition agreement.
 
 Results
        of Operations: Our results of operations for the three months and six months
        ended June 30, 2006 consisted of operations of Elephant Talk Communications,
        Inc., our wholly owned subsidiary Elephant Talk Limited, our wholly owned
        subsidiary Guangdong Elephant Talk Network Consulting Limited, our wholly
        owned
        subsidiary Full Mark Technology Limited, our majority (50.54%) owned subsidiary
        Elephant Talk Middle East & Africa FZ-LLC, our majority (51%) owned
        subsidiary Elephant Talk Middle East and Africa (Holding) W.L.L., and our
        majority (99%) owned subsidiary Elephant Talk Bahrain W.L.L. The results
        of
        operations of the Company for the three months and six months ended June
        30,
        2005 consisted of our operations of Elephant Talk Communications, Inc. and
        our
        wholly owned subsidiary Elephant Talk Limited. The Company reported net losses
        of $525,855 and $1,013,001 for the three months and six months ended June
        30,
        2006 compared to net losses of $584,812 and $789,427 for the same periods
        in
        2005.
  -
            16
            -
 Revenues
        and Cost of revenues: The Company reported revenues of $1,494,740 and $3,668,000
        during the three months and six months ended June 30, 2006 compared to $79,800
        and $203,633 for the same periods in 2005. Revenues for the three months
        and six
        months ended June 30, 2006 consisted of $1,448,127 and $3,569,158 from mobile
        value-added services offered by the Company’s subsidiary Beijing China Wind, a
        majority owned (60%) subsidiary of Guangdong Elephant Talk Network Consulting
        Limited, to a large subscriber base of customers via mediums such as mobile
        terminals or the internet. The services offered included short messaging
        services, multimedia messaging services, wireless application protocol,
        interactive voice response and ring-back tone services as well as web portal.
        Furthermore, the Company’s sale of telecommunications products such as voice and
        data transmission like IDD, pre-paid calling cards, eTalk and facsimile services
        provided to a wide range of customers including major telecommunication
        companies to retail customers primarily in China, Japan and Hong Kong. During
        the three months and six months period ended June 30, 2005, the Company recorded
        revenues by only selling telecommunications products and provided technical
        consulting and business advisory services relating to data communication
        and
        information systems.
 
 Cost
        of
        revenues was $267,587 and $765,237 for the three months and six months ended
        June 30, 2006 compared to $73,463 and $166,074 for the same periods in 2005.
        Cost of revenues for the three months and six months periods ended June 30,
        2006
        consisted of $220,061 and $676,083 primarily through the mobile operator
        charges
        in providing mobile value added services to our subscriber base by the Company’s
        subsidiary Beijing China Wind, and costs incurred for resale arrangements
        with
        long distance service providers, cost of leasing transmission facilities,
        international gateway switches for voice, data transmission and facsimile
        services and discounts offered on eTalk cards sold by Elephant Talk Limited.
        Gross margins for the three months and six months ended June 30, 2006 was
        $1,227,153 and $2,902,763 or 82% and 79% of revenues as compared to $6,337
        and
        $37,559 or 8% and 18% of revenues for the same periods in 2005. Gross margins
        for the three months and six months periods ended June 30, 2006 consisted
        of
        $1,228,067 and $2,893,076 from the Company’s subsidiary Guangdong Elephant Talk
        Network Consulting Limited. The increases in gross margins for the three
        months
        and six months ended June 30, 2006 compared to the same periods in 2005 was
        due
        to the change in the revenue mix for the mobile value added services provided
        to
        the customers in the telecom markets due to the strategic acquisition of
        Beijing
        China Wind.
 
 Selling,
        general and administrative expenses (S,G&A): S,G&A expenses were
        $1,544,794 and $3,473,075 for the three months and six months ended June
        30,
        2006 compared to $521,247 and $729,988 for the same periods in 2005. S,G&A
        expenses for the three months and six months period ended June 30, 2006
        consisted of $983,461 and $2,391,378 from the Company’s subsidiary Beijing China
        Wind. S,G&A expenses increased during the three months and six months ended
        June 30, 2006 compared to the same periods in 2005, primarily due to the
        increase in marketing and promotion expenses of the new mobile value added
        business services provided to our subscriber base, increased payroll and
        other
        legal and administrative expenses of the newly acquired businesses. Depreciation
        expense increased to $29,086 and $51,070 for the three months and six months
        ended June 30, 2006 compared to $19,612 and $38,056 for the same periods
        in 2005
        primarily due to the acquisition of assets by the subsidiaries of the
        Company.
 
 Other
        Income and Expenses: Interest income was $132 and $153 for the three months
        and
        six months period ended June 30, 2006 compared to $170 and $657 for the same
        periods in 2005. The Company recorded a gain on settlement of debts of $49,031
        and loss on disposal of fixed assets of $48,370 for the six months period
        ended
        June 30, 2005 as compared to none for the same periods in 2006. Interest
        expense
        was $108,271 and $208,531 for the three months and six months ended June
        30,
        2006 compared to $51,121 and $59,460 for the same periods in 2005. Interest
        expense increased due to the Company borrowing additional loans from an investor
        and bank.
 
 Minority
        interest: The Company’s majority owned subsidiary Elephant Talk Middle East
& Africa FZ-LLC incurred a loss of $4,215 and $10,846 for the three months
        and six months ended June 30, 2006 compared to none for the same periods
        in
        2005. Guangdong Elephant Talk Network Consulting Limited incurred a profit
        from
        operations of $144,723 and $273,975 for the three months and six months periods
        ended June 30, 2006 compared to none for the same periods in 2005. Elephant
        Talk
        Middle East and Africa (Holding) W.L.L. incurred a loss of $14,142 for the
        three
        months and six months periods ended June 30, 2006 compared to none for the
        same
        periods in 2005. The Company recorded a net loss of $70,989 and $182,441
        for the
        three months and six months ended June 30, 2006 attributable to minority
        shareholders’ interest in the accompanying financial statements. The Company did
        not have a majority owned subsidiaries during the three months and six months
        periods ended June 30, 2005.
  -
            17
            -
 Liquidity
        and Capital Resources: The Company's principal capital requirements during
        the
        year 2006 are to fund the internal operations and complete the pending
        acquisitions of growth-oriented telecommunications and related businesses
        in
        Asia and Europe. The Company plans to raise necessary funds by selling its
        own
        common shares to selected investors and bringing in business partners whose
        contributions include the necessary cash. In view of low borrowing interest
        rates, the Company continues to actively pursuing additional credit facilities
        with investors and financial institutions in Hong Kong, Europe, Middle East
        and
        USA as a means to obtain new funding. The Company’s management estimates that it
        currently does not have the funds to operate for the next twelve months without
        raising additional capital.
 
 As
        shown
        in the accompanying financial statements, the Company incurred a net loss
        of
        $1,013,001 for the six months ended June 30, 2006 as compared to a net loss
        of
        $789,427 for the same period in 2005. Additionally, the Company’s current
        liabilities exceeded its current assets by $4,239,139 at June 30, 2006. These
        factors and the Company’s inability to meet its debt obligations from current
        operations, and the need to raise additional funds to accomplish its objectives,
        create a substantial doubt about Elephant Talk's ability to continue as a
        going
        concern. Furthermore, the Company’s independent auditors have issued a going
        concern opinion on the Company’s audited financial statements for the fiscal
        year ended December 31, 2005 as the Company did not have sufficient funds
        available to operate for the next twelve months.
 
 The
        Company’s forecast of the period of time through which its financial resources
        will be adequate to support its operations is a forward-looking statement
        that
        involves risks and uncertainties, and actual results could vary as a result
        of a
        number of factors.
 
 Operating
        activities: Net cash provided by operating activities during the six months
        period ended June 30, 2006 amounted to $239,795 primarily due to increase
        in
        accounts receivable of $182,772, increase in prepaid expenses, deposits and
        other current assets of $129,682, increase in accounts payable and customer
        deposits of $267,667, increase in accrued expenses and other payable of
        $400,166, and  increase
        in deferred revenue of $16,781. Additionally, the Company’s current liabilities
        exceeded its current assets by $4,239,139 **** at
        June
        30, 2006. These factors and the Company’s inability to meet its debt obligations
        from current operations, and the need to raise additional funds to accomplish
        its objectives, create a substantial doubt about the Company’s ability to
        continue as a going concern.
 
 Investing
        activities. Net cash used in investing activities during the six months period
        ended June 30, 2006 was $945,296 primarily due to net cash outflow of $1,074,214
        due to acquisition of Beijing China Wind and net cash received for earnest
        deposits of $355,813 to acquire telecom companies in Europe. The Company
        used
        proceeds to acquire equipment for $102,227 and telecom licenses in Middle
        East
        for $124,668 during the six months ended June 30, 2006.
 
 Financing
        activities. Net cash provided by financing activities during the six months
        period ended June 30, 2006 was $1,279,099. The Company received $926,330
        in
        funding against the convertible note payable from an investor. The Company
        received cash proceeds of $342,000 net of payments to related parties and
        payments of bank loans during the six months period ended June 30,
        2006.
 
 As
        a
        result of the above activities, the Company experienced a net increase in
        cash
        of $603,971 for the six months period ended June 30, 2006. The ability of
        the
        Company to continue as a going concern is still dependent on its success
        in
        obtaining additional financing from the institutional investors, acquiring
        profitable operations or by selling its common shares and fulfilling its
        plan of
        restructuring as outlined above.
 -
              18
              -
 **Application
        of Critical Accounting Policies and Estimates** :
 
 Our
        discussion and analysis of financial condition and results of operations
        are
        based on our consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States.
        The preparation of these financial statements requires us to make estimates
        and
        judgments that affect the reported amounts of assets and liabilities and
        the
        disclosure of contingent assets and liabilities at the date of the consolidated
        financial statements, and the reported amounts of revenue and expenses during
        the period reported. By their nature, these estimates and judgments are subject
        to an inherent degree of uncertainty. We based our estimates and judgments
        on
        historical experience, market trends, and other factors that we believed
        to be
        reasonable under the circumstances. The results of these estimates form the
        basis for judgments about the carrying value of assets and liabilities that
        are
        not readily apparent from other sources. Actual results may differ from these
        estimates under different assumptions or conditions. We have discussed the
        development, selection, and disclosure of these estimates with the Audit
        Committee of our Board of Directors. We believe there have been no material
        changes to our critical accounting policies and estimates during the six
        months
        period ended June 30, 2006 compared to those discussed in our Annual Report
        on
        Form 10-KSB for the year ended December 31, 2005.
 
 We
        believe the following critical accounting policies reflect our more significant
        judgments and estimates used in the preparation of our financial statements.
 
 Revenue
        Recognition, Cost of Revenue and Deferred Revenue:
 The
        Company's revenue recognition policies are in compliance with Staff accounting
        bulletin (SAB) 104. The Company derives revenues from mobile value-added
        services offered by the Company’s subsidiary Guangdong Elephant Talk Network
        Consulting Limited to a large subscriber base of customers via mediums such
        as
        mobile terminals or the internet. The services offered include short messaging
        services, multimedia messaging services, wireless application protocol,
        interactive voice response and ring-back tone services as well as web portal.
        Furthermore, the Company’s derives revenues from the sale of minutes of calling
        time via sale of its prepaid calling cards. Cost of revenue includes the
        cost of
        providing value added services to its customers and capacity associated with
        the
        revenue recognized within the corresponding time period. Revenue is deferred
        upon activation of the calling cards and is recognized as the prepaid calling
        card balances are reduced based upon minute usage, imposition of administrative
        fees, or no further obligations exist with respect to a calling card. Deferred
        revenues represent amounts received from its customers for the unused minutes
        of
        the prepaid calling cards sold to its customers since the Company recognizes
        revenues only on the usage of the minutes.
 
 Stock-based
        Compensation:
 The
        Company follows the prescribed accounting and reporting standards for all
        stock-based compensation plans, including employee stock options, restricted
        stock, employee stock purchase plans and stock appreciation rights in accordance
        with SFAS No. 148 “Accounting for Stock-Based Compensation.” SFAS No. 148
        provides alternative methods of transition for a voluntary change to the
        fair
        value based method of accounting for stock-based employee compensation. In
        addition, this Statement requires prominent disclosures in both annual and
        interim financial statements about the method of accounting for stock-based
        employee compensation and the effect of the method used, on reported
        results.
 
 Issuance
        of Shares for Services:
 The
        Company accounts for the issuance of equity instruments to acquire goods
        and
        services based on the fair value of the goods and services or the fair value
        of
        the equity instrument at the time of issuance, whichever is more reliably
        measurable.
 -
              19
              -
 Impact
        of
        Accounting Pronouncements:
 In
        January 2003, the Financial Accounting Standards Board ("FASB") issued
        Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities
        (VIE)," (revised December 2003 by FIN No. 46R), which addresses how a business
        enterprise should evaluate whether it has a controlling financial interest
        in an
        entity through means other than voting rights and accordingly should consolidate
        the entity. For variable interests in VIEs created before January 1, 2004,
        the Interpretation will be applied beginning on January 1, 2005. For any
        VIEs
        that must be consolidated under FIN No. 46R that were created before January
        1,
        2004, the assets, liabilities and non-controlling interests of the VIE initially
        would be measured at their carrying amounts with any difference between the
        net
        amount added to the balance sheet and any previously recognized interest
        being
        recognized as the cumulative effect of an accounting change. If determining
        the
        carrying amounts is not practicable, fair value at the date FIN No. 46R first
        applies may be used to measure the assets, liabilities and non-controlling
        interest of the VIE. The
        guidelines of this statement are not applicable to the Company.
 
 In
        December 2004, the FASB issued SFAS No. 123R “Share-Based Payment” (“SFAS
        123R”), a revision to SFAS No. 123 “Accounting for Stock-Based Compensation”
(“SFAS 123”), and superseding APB Opinion No. 25 “Accounting for Stock Issued to
        Employees” and its related implementation guidance. SFAS 123R establishes
        standards for the accounting for transactions in which an entity exchanges
        its
        equity instruments for goods or services, including obtaining employee services
        in share-based payment transactions. SFAS 123R applies to all awards granted
        after the required effective date and to awards modified, repurchased, or
        cancelled after that date. Adoption of the provisions of SFAS 123R is effective
        as of the beginning of the first interim or annual reporting period that
        begins
        after June 15, 2005. The guidelines of this statement are not applicable
        to the
        Company.
 
 In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs -- an amendment
        of
        ARB No. 43, Chapter 4"(“SFAS 151”) This statement clarifies the criteria of
        "abnormal amounts" of freight, handling costs, and spoilage that are required
        to
        be expensed as current period charges rather than deferred in inventory.
        In
        addition, this statement requires that allocation of fixed production overheads
        to the costs of conversion be based on the normal capacity of the production
        facilities. SFAS 151 is effective for the Company July 1, 2005. The Company
        does
        not expect the adoption of this statement will have any material impact on
        its
        results or financial position.
 
 In
        December 2004, the FASB issued SFAS no. 153, *Exchanges
        of Nonmonetary Assets an amendment of APB Opinion No. 29.* This
        statement addresses the measurement of exchanges of nonmonetary assets. It
        eliminates the exception from fair value measurement for nonmonetary exchanges
        of similar productive assets in paragraph 21(b) of APB Opinion No. 29, *Accounting
        for Nonmonetary Transactions,* and
        replaces it with an exception for exchanges that do not have commercial
        substance. This statement specifies that a nonmonetary exchange has commercial
        substance if the future cash flows of the entity are expected to change
        significantly as a result of the exchange. The Company does not expect the
        adoption of this statement will have any material impact on its results or
        financial position.
 
 In
        December 2004, the FASB issued SFAS No. 152, *Accounting
        for Real Estate Time-Sharing Transactions an amendment of FASB Statements
        No. 66
        and 67.* This
        statement amends FASB
        Statement No. 66 , *Accounting for Sales of Real Estate,* to
        reference the financial accounting and reporting guidance for real estate
        time-sharing transactions that is provided in AICPA Statement of Position
        (SOP)
        04-2, *Accounting for Real Estate Time-Sharing Transactions.* This
        statement also amends FASB
        Statement No. 67 , *Accounting for Costs and Initial Rental Operations of Real Estate
        Projects,* to state
        that the guidance for (a) incidental operations and (b) costs incurred to
        sell
        real estate projects does not apply to real estate time-sharing transactions.
        This statement is effective for financial statements for fiscal years beginning
        after June 15, 2005. The guidelines of this statement are not applicable
        to the
        Company.
 
 SFAS
        No.
        154 (“SFAS 154”), *Accounting
        Changes and Error Corrections,* was
        issued in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3 (“SFAS 3”).
        SFAS No. 154 requires retrospective application for voluntary changes in
        accounting principle in most instances and is required to be applied to all
        accounting changes made in fiscal years beginning after December 15, 2005.
        At
        such, the Company is required to adopt these provisions at the beginning
        of the
        fiscal year ended December 31, 2006. The Company is currently evaluating
        the
        impact of SFAS 154 on its consolidated financial statement.
 -
              20
              -
 In
        February 2006, the FASB issued SFAS No. 155, “ *Accounting
        for Certain Hybrid Financial Instruments* ”
(SFAS
        155”), which amends SFAS No. 133, “Accounting for Derivatives Instruments and
        Hedging Activities” (“SFAS 133”) and SFAS No. 140, “ *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishment of
        Liabilities* ”
(SFAS
        140”). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only
        and principal-only strips on debt instruments to include only such strips
        representing rights to receive a specified portion of the contractual interest
        or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying
        special-purpose entities to hold a passive derivative financial instrument
        pertaining to beneficial interests that itself is a derivative instruments.
        The
        Company is currently evaluating the impact this new Standard, but believes
        that
        it will not have a material impact on the Company’s financial
        position.
 
 **ITEM
        3.** **Controlsand
        Procedures**
 
 The
        Company maintains controls and procedures designed to ensure that it is able
        to
        collect the information it is required to disclose in the reports it files
        with
        the SEC, and process, summarize, and disclose this information within the
        time
        periods specified in the rules of the SEC. The Company's Chief Executive
        Officer
        and Chief Financial Officer (“Certifying Officers”) are responsible for
        establishing and maintaining these procedures and, as required by the rules
        of
        the SEC, evaluate their effectiveness.
 
 **Disclosure
        Controls and Procedures and Internal Controls**
 
 The
        Company maintains disclosure controls and procedures designed with the objective
        of ensuring that information required to be disclosed in our reports filed
        with
        the Commission under the Exchange Act, such as this Quarterly report, is
        recorded, processed, summarized and reported within the time period specified
        in
        the Commission's rules and forms. Disclosure controls are also designed with
        the
        objective of ensuring that material information relating to the Company is
        made
        known to the Certifying Officers by others, particularly during the period
        in
        which the applicable report is being prepared. The Company maintains a system
        of
        internal controls designed to provide reasonable assurance that a) transactions
        are executed in accordance with management's general or specific authorization;
        b) transactions are recorded as necessary, to permit preparation of financial
        statements in conformity with generally accepted accounting principles, and
        to
        maintain accountability for assets; c) access to assets is permitted only
        in
        accordance with management's general or specific authorization; and d) the
        recorded accountability for assets is compared with the existing assets at
        reasonable intervals and appropriate action is taken with respect to any
        differences.
 
 **Scope
        of the Evaluation**
 
 The
        Certifying Officers’ evaluation of our disclosure controls and internal controls
        are done periodically so that the conclusions concerning the effectiveness
        of
        our controls can be reported in our quarterly reports on Form 10-QSB and
        Annual
        reports on Form 10-KSB. The overall goals of these various evaluation activities
        are to monitor our disclosure controls and our internal controls, and to
        make
        modifications, if and as necessary. Our external auditors also review internal
        controls in connection with their audit and review activities.
 
 **Material
        Weakness in Disclosure Controls**
 
 The
        Securities and Exchange Commission rules embodied in the Sarbanes-Oxley Act
        of
        2002, in particular, Section 404, require that a company's internal controls
        over financial reporting be based upon a recognized internal control framework.
        The Certifying Officers have evaluated the effectiveness of our disclosure
        controls and procedures and internal controls over financial reporting (as
        such
        terms are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
        Act of 1934, as amended) as of the end of the period covered by the filing
        of
        the Report, and concluded that, as of the end of such period, our disclosure
        controls and procedures were deficient and not effective. The Company acquired
        a
        majority owned subsidiary in China in January 2006 and is strengthening internal
        controls and disclosure controls over the financial reporting. While the
        Company
        has internal controls and procedures in place, the Certifying Officers believe
        that during the quarter ending June 30, 2006, the Company’s subsidiary in China
        had a breakdown in following the Company’s established policies and procedures
        of recording of transactions in accounting records accurately, preparation
        of
        monthly reconciliations and management’s review of operating results on a timely
        basis.
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              21
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 **Management’s
        Action**
 
 The
        Certifying Officers have recruited an experienced financial manager at the
        Company’s subsidiary in Hong Kong to ensure that the transactions are recorded
        accurately, and account reconciliations are prepared on a timely basis. The
        Company is taking the necessary corrective steps to improve and strengthen
        its
        disclosure controls and procedures, including recruiting an experienced
        financial manager for its China subsidiary, hiring an experienced and seasoned
        legal counsel, hosting monthly management meetings to review and enforce
        existing policies, and implementing new policies and procedures in an effort
        to
        remediate these deficiencies. Management plans to monitor, on a periodic
        basis
        that corrective actions implemented are working effectively, and will report
        on
        progress of the corrective actions in the future filings whether such corrective
        actions have remedied the material weaknesses.
 
 Except
        as
        noted above, there have not been any changes in our disclosure controls and
        procedures and internal control over financial reporting (as such term is
        defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our
        first fiscal quarter that have materially affected, or are reasonably likely
        to
        materially affect, our internal control over financial reporting.
 
 **PART
        II**
 
 **ITEM
        1.**  **Legal
        Proceedings**
 
 None.
 
 **ITEM
        2.**  **Changes
        in Securities**
 
 On
        June
        2, 2006, the Company issued as a partial consideration 5,000,000 restricted
        common shares valued at $250,000 to the owners of Beijing China Wind in
        connection with its acquisition of 60% equity interest in Beijing China Wind.
        The shares were valued at the closing market price of the shares on the date
        of
        execution of the agreement.
 
 **ITEM
        3.**  **Defaults
        Upon Senior Securities**
 
 Not
        applicable.
 
 **ITEM
        4.**  **Submission
        of Matters to Vote of Securities Holders**
 
 None.
 
 **ITEM
        5.**  **Other
        Information**
 
 None.
  
 **ITEM
        6.** **Exhibitsand
        Reports on Form 8-K**
 
 The
        following list describes the exhibits filed as part of this Quarterly Report
        on
        Form 10-QSB and reports on Form 8-K within the last fiscal quarter.
  a)
 Exhibit
                  No.
              Description
                  of Document31.1
              Certification
                  of Chief Executive Officer Pursuant to the
                  Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as
                  Adopted
                Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 200231.2
              Certification
                  of Chief Financial Officer Pursuant to the Securities Exchange
                  Act of
                  1934, Rules 13a-14 and 15d-14 as AdoptedPursuant
                  to Section 302 of the Sarbanes-Oxley Act of 200299.1
              Certification
                  Pursuant to 18 U.S.C. Section 1350, as
                  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
 
 b)  Reports
        on Form 8-K
 
 Change
        in
        Certifying Accountant - Filed on May 17, 2006, Incorporated by reference
        Film
        Nos. 06848958, 06855123 and 06867974.
 
 Beijing
        China Wind Telecommunication Information Technology Company Limited Financial
        Statements and Exhibits - Filed on May 22, 2006, Incorporated by reference
        Film
        No. 06859521
 
 Unregistered
        Sale of Equity Securities - Filed on June 5, 2006, Incorporated by reference
        Film No. 06886407.
 **SIGNATURE**
 
 In
        accordance with the requirements of the Exchange Act, the registrant has
        caused
        this report signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 
 **Elephant
                  Talk Communications, Inc.**Date:
                  August 18, 2006
              
              By:
                  /s/
                  Russelle ChoiRusselle
                  ChoiPresident
                  & Chief Executive Officer






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