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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Amendment No. 1

on

FORM 10-QSB/A



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(Mark One)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended June 30, 2005.



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the transition period from



Commission file number: 0-27704



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i2 Telecom International, Inc.

(Exact Name of Small Business Issuer as
Specified in its Charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Washington                                                     |  | 91-1426372                       
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)



|                                                |  |                                                 
|----------------------------------------------- |  | ------------------------------------------------
|1200 Abernathy Rd. Suite 1800 Atlanta, GA 30328 |  | (770) 512-7174                                  
|(Address of Principal Executive Offices)        |  | (Issuers Telephone Number, Including Area Code)



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



As of August 10, 2005, the registrant had 37,748,977 shares of common stock outstanding.



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##### Table of Contents

EXPLANATORY NOTE



I2 Telecom International, Inc. is filing this Amendment No. 1 on Form 10-QSB/A to amend its Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2005 to revise Note 2, part C, of the footnotes to the unaudited consolidated financial statements set forth herein to reflect that the 13% promissory note described in Note 2, part C, is unsecured.



INDEX



|               |  |                       |  |     
|-------------- |  | --------------------- |  | ----
|               |  |                       |  | Page
|PART I.        |  | FINANCIAL INFORMATION |  |     
|               |  |                      
|Item 1.        |  | Financial Statements  |  | 3   
|               |  |                      
|PART II.       |  | OTHER INFORMATION     |  |     
|               |  |                      
|Item 6.        |  | Exhibits              |  | 17  
|               | 
|SIGNATURE PAGE |  | 18                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



i2
TELECOM INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)



ASSETS



|                                                                                                 |  |              |           |                  |   |          
|------------------------------------------------------------------------------------------------ |  | ------------ | --------- | ---------------- | - | ---------
|                                                                                                 |  | June 30,2005 |           | December 31,2004
|Current Assets                                                                                   |  |              |           |                  |   |          
|Cash                                                                                             |  | $            | 54,184    |                  | $ | 231,127  
|Accounts Receivable, net of Allowance for Doubtful Accounts of $75,000 and $75,000, respectively |  |              | 446,418   |                  |   | 232,371  
|Inventories                                                                                      |  |              | 1,052,043 |                  |   | 961,056  
|Prepaid Expenses and Other Current Assets                                                        |  |              | 276,883   |                  |   | 231,966  
|                                                                                                 |  |              |           |                  |   |          
|Total Current Assets                                                                             |  |              | 1,829,528 |                  |   | 1,656,520
|                                                                                                 |  |              |           |                  |   |          
|Property and Equipment, Net                                                                      |  |              | 1,136,689 |                  |   | 1,267,763
|                                                                                                 |  |             
|Other Assets                                                                                     |  |              |           |                  |   |          
|Intangible Assets, Net of Accumulated Amortization of $546,304 and $435,507, respectively        |  |              | 2,800,782 |                  |   | 2,880,579
|Deposits                                                                                         |  |              | 36,540    |                  |   | 78,164   
|                                                                                                 |  |              |           |                  |   |          
|Total Other Assets                                                                               |  |              | 2,837,322 |                  |   | 2,958,743
|                                                                                                 |  |              |           |                  |   |          
|Total Assets                                                                                     |  | $            | 5,803,539 |                  | $ | 5,883,026
|                                                                                                 |  |              |           |                  |   |          



3



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##### Table of Contents

i2 TELECOM INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)



LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)



|                                                                                                                                        |  |               |             |   |                   |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                        |  | June 30, 2005 |             |   | December 31, 2004 |  
|Current Liabilities                                                                                                                     |  |               |             |   |                   |   |             |  
|Accounts Payable and Accrued Expenses                                                                                                   |  | $             | 2,550,498   |   |                   | $ | 1,303,656   |  
|Deferred Revenue                                                                                                                        |  |               | 99,776      |   |                   |   | 99,901      |  
|Notes Payable-Current                                                                                                                   |  |               | 1,375,000   |   |                   |   | 100,000     |  
|                                                                                                                                        |  |               |             |   |                   |   |             |  
|Total Current Liabilities                                                                                                               |  |               | 4,025,274   |   |                   |   | 1,503,557   |  
|                                                                                                                                        |  |              
|Long-Term Debt  Notes Payable                                                                                                          |  |               | -0          | - |                   |   | -0          | -
|                                                                                                                                        |  |               |             |   |                   |   |             |  
|Total Liabilities                                                                                                                       |  |               | 4,025,274   |   |                   |   | 1,503,557   |  
|                                                                                                                                        |  |               |             |   |                   |   |             |  
|Shareholders Equity (Deficit)                                                                                                          |  |               |             |   |                   |   |             |  
|Preferred Stock, No Par Value, 5,000,000 Shares Authorized, 4,185 Shares and 4,175 Shares Issued and Outstanding, respectively          |  |               | 4,160,000   |   |                   |   | 4,175,000   |  
|Common Stock, No Par Value, 100,000,000 Shares Authorized, 37,087,738 Shares and 34,491,402 Shares Issued and Outstanding,
respectively |  |               | 14,437,040  |   |                   |   | 13,035,158  |  
|Restricted Common Stock (related to No Par Value above), 661,239 Shares and 991,858 Shares Issued and Outstanding,
respectively         |  |               | 331,764     |   |                   |   | 497,646     |  
|Additional Paid-In Capital                                                                                                              |  |               | 815,141     |   |                   |   | 404,100     |  
|Accumulated Deficit During the Development Stage                                                                                        |  |               | (17,965,680 | ) |                   |   | (13,732,435 | )
|                                                                                                                                        |  |               |             |   |                   |   |             |  
|Total Shareholders Equity (Deficit)                                                                                                    |  |               | 1,778,265   |   |                   |   | 4,379,469   |  
|                                                                                                                                        |  |               |             |   |                   |   |             |  
|Total Liabilities and Shareholders Equity (Deficit)                                                                                    |  | $             | 5,803,539   |   |                   | $ | 5,883,026   |  
|                                                                                                                                        |  |               |             |   |                   |   |             |  



4



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i2 TELECOM INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|---------------------------------------------------------------------------------------- |  | --------------------------------------- | ----------- | - | --------------------------------------- | - | ---------- | --------------------------------------- |  | - | ------------------------------------- | - |  | ------------------------------------- | ---------- | - |  | - | ---------- | -
|                                                                                         |  | CumulativeFromInception toJune 30, 2005 |             |   | For the Three MonthsEnded June 30, 2005 |   |            | For the Three MonthsEnded June 30, 2004 |  |   | For the Six MonthsEnded June 30, 2005 |   |  | For the Six MonthsEnded June 30, 2004 |           
|Revenue                                                                                  |  | $                                       | 1,146,859   |   |                                         | $ | 266,230    |                                         |  | $ | 138,944                               |   |  | $                                     | 452,538    |   |  | $ | 266,388    |  
|                                                                                         |  |                                         |             |   |                                        
|Cost of Revenue                                                                          |  |                                         | 1,383,535   |   |                                         |   | 289,071    |                                         |  |   | 115,269                               |   |  |                                       | 406,097    |   |  |   | 288,652    |  
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Gross Profit (Loss)                                                                      |  |                                         | (236,676    | ) |                                         |   | (22,841    | )                                       |  |   | 23,675                                |   |  |                                       | 46,441     |   |  |   | (22,264    | )
|                                                                                         |  |                                         |             |   |                                        
|General and Administrative Expenses                                                      |  |                                         | 16,774,198  |   |                                         |   | 1,952,305  |                                         |  |   | 1,525,043                             |   |  |                                       | 3,705,318  |   |  |   | 2,954,172  |  
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Loss From Operations                                                                     |  |                                         | (17,010,874 | ) |                                         |   | (1,975,146 | )                                       |  |   | (1,501,368                            | ) |  |                                       | (3,658,877 | ) |  |   | (2,976,436 | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Other Income (Expense)                                                                   |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Interest Income                                                                          |  |                                         | 13,928      |   |                                         |   | 295        |                                         |  |   | 49                                    |   |  |                                       | 691        |   |  |   | 115        |  
|Interest Expense                                                                         |  |                                         | (271,447    | ) |                                         |   | (8,511     | )                                       |  |   | (6,924                                | ) |  |                                       | (12,705    | ) |  |   | (17,222    | )
|Gain on Forbearance of Debt                                                              |  |                                         | 27,643      |   |                                         |   | -0         | -                                       |  |   | -0                                    | - |  |                                       | -0         | - |  |   | -0         | -
|Loss on Disposal of Assets                                                               |  |                                         | (593        | ) |                                         |   | -0         | -                                       |  |   | -0                                    | - |  |                                       | -0         | - |  |   | -0         | -
|Loss on Subscription List                                                                |  |                                         | (118,000    | ) |                                         |   | -0         | -                                       |  |   | -0                                    | - |  |                                       | -0         | - |  |   | -0         | -
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Total Other Income (Expense)                                                             |  |                                         | (348,469    | ) |                                         |   | (8,216     | )                                       |  |   | (6,875                                | ) |  |                                       | (12,014    | ) |  |   | (17,107    | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  |                                         | (17,359,343 | ) |                                         |   | (1,983,362 | )                                       |  |   | (1,508,243                            | ) |  |                                       | (3,670,891 | ) |  |   | (2,933,543 | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Cumulative Effect of Accounting Change on Years Prior to 2005, Net of Income Tax of $-0- |  |                                         | (340,117    | ) |                                         |   | -0         | -                                       |  |   | -0                                    | - |  |                                       | (340,117   | ) |  |   | -0         | -
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Net Income (Loss)                                                                        |  | $                                       | (17,699,460 | ) |                                         | $ | (1,983,362 | )                                       |  | $ | (1,508,243                            | ) |  | $                                     | (4,011,008 | ) |  | $ | (2,993,543 | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Weighted Average Common Shares:                                                          |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Basic                                                                                    |  |                                         | 15,260,611  |   |                                         |   | 37,045,149 |                                         |  |   | 16,544,261                            |   |  |                                       | 36,258,732 |   |  |   | 11,401,693 |  
|Diluted                                                                                  |  |                                         | 32,397,983  |   |                                         |   | 49,087,015 |                                         |  |   | 43,735,229                            |   |  |                                       | 42,542,051 |   |  |   | 39,572,693 |  
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Basic Earnings Per Common Share:                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  | $                                       | (1.14       | ) |                                         | $ | (.05       | )                                       |  | $ | (.09                                  | ) |  | $                                     | (.10       | ) |  | $ | (.26       | )
|Cumulative Effect of Accounting Change                                                   |  | $                                       | (.02        | ) |                                         |   | (.00       | )                                       |  |   | (.00                                  | ) |  | $                                     | (.01       | ) |  |   | (.00       | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Net Loss                                                                                 |  | $                                       | (1.16       | ) |                                         | $ | (.05       | )                                       |  | $ | (.09                                  | ) |  | $                                     | (.11       | ) |  | $ | (.26       | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Diluted Earnings Per Common Share:                                                       |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  | $                                       | (.53        | ) |                                         | $ | (.04       | )                                       |  | $ | (.03                                  | ) |  | $                                     | (.08       | ) |  | $ | (.08       | )
|Cumulative Effect of Accounting Change                                                   |  |                                         | (.01        | ) |                                         |   | (.00       | )                                       |  |   | (.00                                  | ) |  |                                       | (.01       | ) |  |   | (.00       | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  
|Net Loss                                                                                 |  | $                                       | (.54        | ) |                                         | $ | (.04       | )                                       |  | $ | (.03                                  | ) |  | $                                     | (.09       | ) |  | $ | (.08       | )
|                                                                                         |  |                                         |             |   |                                         |   |            |                                         |  |   |                                       |   |  |                                       |            |   |  |   |            |  



5



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i2 TELECOM INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | --------------------------------------- | ----------- | - | -------------------------------------- | - | ---------- | -------------------------------------- |  | - | ------------------------------------ | - |  | ------------------------------------ | ---------- | - |  | - | ---------- | -
|                                                                                 |  | CumulativeFromInception toJune 30, 2005 |             |   | For the ThreeMonths EndedJune 30, 2005 |   |            | For the ThreeMonths EndedJune 30, 2004 |  |   | For the SixMonths EndedJune 30, 2005 |   |  | For the SixMonths EndedJune 30, 2004 |           
|Cash Flows From Operations                                                       |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Net Loss From Continuing Operations                                              |  | $                                       | (17,699,460 | ) |                                        | $ | (1,983,362 | )                                      |  | $ | (1,508,243                           | ) |  | $                                    | (4,011,008 | ) |  | $ | (2,993,543 | )
|Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Bad Debt                                                                         |  |                                         | 75,000      |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | -0         | -
|Depreciation and Amortization                                                    |  |                                         | 1,102,651   |   |                                        |   | 138,659    |                                        |  |   | 107,106                              |   |  |                                      | 276,966    |   |  |   | 213,400    |  
|Interest Paid Via Issuance of Stock                                              |  |                                         | 192,604     |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | -0         | -
|Gain of Forbearance of Debt                                                      |  |                                         | (27,643     | ) |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | -0         | -
|Loss on Disposal of Assets                                                       |  |                                         | 593         |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | -0         | -
|Stock Compensation                                                               |  |                                         | 1,455,476   |   |                                        |   | 25,306     |                                        |  |   | -0                                   | - |  |                                      | 70,924     |   |  |   | -0         | -
|Cumulative Effect of Accounting Change                                           |  |                                         | 340,117     |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | 340,117    |   |  |   | -0         | -
|(Increase) Decrease In:                                                          |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Accounts Receivable                                                              |  |                                         | (521,418    | ) |                                        |   | (170,102   | )                                      |  |   | 17,174                               |   |  |                                      | (214,047   | ) |  |   | (79,111    | )
|Inventories                                                                      |  |                                         | (857,281    | ) |                                        |   | 99,744     |                                        |  |   | (185,433                             | ) |  |                                      | (90,987    | ) |  |   | (207,106   | )
|Prepaid Expenses                                                                 |  |                                         | (232,940    | ) |                                        |   | (10,394    | )                                      |  |   | (11,222                              | ) |  |                                      | (44,917    | ) |  |   | (220,296   | )
|Other Assets                                                                     |  |                                         | (36,540     | ) |                                        |   | 35,012     |                                        |  |   | (9,977                               | ) |  |                                      | 41,624     |   |  |   | (12,890    | )
|Increase (Decrease) In:                                                          |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Accounts Payable and Accrued Expenses                                            |  |                                         | 2,242,118   |   |                                        |   | 731,438    |                                        |  |   | (62,989                              | ) |  |                                      | 1,173,604  |   |  |   | 70,360     |  
|Deferred Revenue                                                                 |  |                                         | 99,776      |   |                                        |   | (51        | )                                      |  |   | (1,329                               | ) |  |                                      | (125       | ) |  |   | -0         | -
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Net Cash Used In Operating Activities                                            |  |                                         | (13,866,947 | ) |                                        |   | (1,133,750 | )                                      |  |   | (1,654,913                           | ) |  |                                      | (2,457,849 | ) |  |   | (3,229,186 | )
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Cash Flows From Investing Activities                                             |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Proceeds from Disposal of Assets                                                 |  |                                         | 6,433       |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | (80,165    | )
|Equipment Purchases                                                              |  |                                         | (1,681,297  | ) |                                        |   | (3,464     | )                                      |  |   | (17,231                              | ) |  |                                      | (35,095    | ) |  |   | (21,969    | )
|Payments for Patents and Trademarks                                              |  |                                         | (156,168    | ) |                                        |   | (14,824    | )                                      |  |   | (5,644                               | ) |  |                                      | (31,000    | ) |  |   | -0         | -
|Investment in Subsidiary                                                         |  |                                         | (1,239,422  | ) |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   |            |  
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Net Cash Used In Investing Activities                                            |  |                                         | (3,070,454  | ) |                                        |   | (18,288    | )                                      |  |   | (22,875                              | ) |  |                                      | (66,095    | ) |  |   | (102,134   | )
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Cash Flows From Financing Activities                                             |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Proceeds From Shareholder Loans                                                  |  |                                         | 1,480,500   |   |                                        |   | 1,075,000  |                                        |  |   | -0                                   | - |  |                                      | 1,249,500  |   |  |   | -0         | -
|Payments of Shareholder Loans                                                    |  |                                         | (305,500    | ) |                                        |   | -0         | -                                      |  |   | 985,000                              |   |  |                                      | (74,500    | ) |  |   | (225,000   | )
|Proceeds from Issuance of Convertible Notes                                      |  |                                         | 6,885,000   |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | 985,000    |  
|Proceeds From Notes Payable                                                      |  |                                         | 300,000     |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | 200,000    |   |  |   | -0         | -
|Payment of Notes Payable                                                         |  |                                         | (390,943    | ) |                                        |   | -0         | -                                      |  |   | (23,903                              | ) |  |                                      | -0         | - |  |   | (23,903    | )
|Issuance of Common Stock                                                         |  |                                         | 3,047,278   |   |                                        |   | 50,000     |                                        |  |   | 190                                  |   |  |                                      | 546,000    |   |  |   | 190        |  
|Issuance of Preferred Stock                                                      |  |                                         | 6,120,224   |   |                                        |   | -0         | -                                      |  |   | 30,224                               |   |  |                                      | 575,000    |   |  |   | 2,030,224  |  
|Proceeds from Stock Notes Receivable                                             |  |                                         | 46,491      |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | -0         | -
|Dividends Paid                                                                   |  |                                         | (192,982    | ) |                                        |   | (73,093    | )                                      |  |   | -0                                   | - |  |                                      | (148,999   | ) |  |   | -0         | -
|Cash From Subsidiary Acquired via Stock Exchange                                 |  |                                         | 1,517       |   |                                        |   | -0         | -                                      |  |   | -0                                   | - |  |                                      | -0         | - |  |   | -0         | -
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Net Cash Provided By Financing Activities                                        |  |                                         | 16,991,585  |   |                                        |   | 1,051,907  |                                        |  |   | 991,511                              |   |  |                                      | 2,347,001  |   |  |   | 2,766,511  |  
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Increase (Decrease) in Cash                                                      |  |                                         | 54,184      |   |                                        |   | (100,131   | )                                      |  |   | (686,277                             | ) |  |                                      | (176,943   | ) |  |   | (564,809   | )
|Balance, Beginning of Period                                                     |  |                                         | -0          | - |                                        |   | 154,315    |                                        |  |   | 792,889                              |   |  |                                      | 231,127    |   |  |   | 671,421    |  
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  
|Balance, End of Period                                                           |  | $                                       | 54,184      |   |                                        | $ | 54,184     |                                        |  | $ | 106,612                              |   |  | $                                    | 54,184     |   |  | $ | 106,612    |  
|                                                                                 |  |                                         |             |   |                                        |   |            |                                        |  |   |                                      |   |  |                                      |            |   |  |   |            |  





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i2 TELECOM INTERNATIOAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLOCIES



Item 1. Description of the Business



Background of the Company



i2 Telecom International, Inc., a Washington corporation formerly known as Digital Data Networks, Inc. (the Company), was incorporated as
Transit Information Systems, Inc. under the laws of the State of Washington on October 17, 1988. In July 1995, the Company changed its name to Digital Data Networks, Inc. In March 2004, the Company changed its name to
i2 Telecom International, Inc. The Companys offices are currently located at 1200 Abernathy Rd., Suite 1800, Atlanta, GA 30328, and the Companys telephone number at that address is (770) 512-7174. The Company maintains a
website at www.i2telecom.com.



From October 17, 1988, until
February 27, 2004, the Company was a wireless, passenger communication and advertising company, principally engaged in selling digital advertising space through the operation of a digital information network, utilizing digital radio transmission
technology to display current news, information and advertising to riders on-board public transit vehicles. From 1991 through February 2004, the Company operated a digital information network in Dallas, Texas under the assumed name The Transit
Network on the Dallas Area Rapid Transit (DART) bus and rail system.



In February 1996, the Company completed an initial public offering of shares of its common stock, no par value per share (the Common Stock), and raised net cash proceeds of approximately $5.8 million.



On February 26, 2004, a newly-formed, wholly-owned subsidiary
of the Company merged with and into i2 Telecom International, Inc., a Delaware corporation (i2 Delaware), with i2 Delaware surviving the merger as a wholly-owned subsidiary of the Company (the Merger), pursuant to that
certain Agreement and Plan of Merger dated as of January 30, 2004, among the Company, a wholly-owned subsidiary of the Company, i2 Delaware and certain Shareholders of the Company and i2 Delaware signatory thereto (the Merger Agreement).
In connection with the Merger, former Shareholders of i2 Delaware became entitled to receive shares of Common Stock and shares of various classes and series of the Companys preferred stock, no par value per share (collectively, the
Preferred Stock), constituting up to 88.44% of the voting securities of the Company, assuming the issuance of all contingent consideration such Shareholders may become entitled to receive pursuant to the Merger Agreement upon the
resolution of a certain legal proceeding pending against i2 Delaware. In connection with the Merger, effective February 26, 2004, (i) the Companys Board of Directors (the Board of Directors) appointed Paul R. Arena, Chief Executive
Officer and Chairman of the Board of i2 Delaware, to serve as a director of the Company; (ii) all individuals serving as officers of the Company immediately prior to the Merger resigned their positions with the Company; and (iii) the officers of i2
Delaware were appointed as officers of the Company.



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On February 27, 2004, the Company sold substantially all of its operating assets relating to the
operations of The Transit Network to Intransit Media, Inc. (InTransit Media) in exchange for InTransit Media assuming certain obligations and liabilities relating to such assets (the Asset Sale), pursuant to that certain
Asset Purchase Agreement dated as of January 30, 2004, as amended by the First Amendment thereto dated as of February 26, 2004, between the Company and InTransit Media (the Asset Purchase Agreement).



On March 5, 2004, in connection with the Merger and the Asset Sale, the
Company changed its name from Digital Data Networks, Inc. to i2 Telecom International, Inc. and changed its ticker symbol on the over-the-counter electronic bulletin board from DIDA to ITUI.



On December 8, 2004, the Company relocated its corporate
headquarters to Atlanta, Georgia in order to be closer to more technology driven companies and to aide in the Companys recruitment of technology workers.



As a result of the Merger and the Asset Sale, the Companys operations now consist of the operations of i2 Delaware. The Companys operations
as currently conducted are described below.



Nature of Business



The Company, through its subsidiary, i2 Delaware,
provides low-cost telecommunications services employing next-generation Voice over Internet Protocol (VoIP) technology. These operations are based in Atlanta, Georgia, Redwood City, California and China. Through i2 Delaware, the Company
controls its own proprietary technology and outsources the majority of its production and service functions with strategic partners. The Company, through i2 Delaware, provides the VoiceStick, micro gateway adapters (InternetTalker(TM)), VoIP long distance and other enhanced
communication services to subscribers. The Companys proprietary technology platform is built to the Session Initiation Protocol (SIP) standard. The Companys revenue model now includes revenue from the sale of the
VoiceStick and other integrated access devices
(IADs) along with recurring monthly subscriptions, call minute termination. The Company believes its proprietary technology provides meaningful advantages particularly in the areas of quality of service, flexibility (i.e., broadband and
dial-up capability in the same unit) and ease of use.



The
Companys proprietary technology platform is built to the SIP standard and offers the end user the following primary benefits:



| |  |  | near carrier grade quality of service;
| | - |  | --------------------------------------



| |  |  | low cost long distance calling worldwide;
| | - |  | -----------------------------------------



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| |  |  | broadband access via laptop with the Companys VoiceStick;
| | - |  | -----------------------------------------------------------



| |  |  | broadband and dial-up technology in the Companys InternetTalkerIAD;
| | - |  | ---------------------------------------------------------------------



| |  |  | plug and play technology using traditional phones without professional installation; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | unlimited global calling among VoiceStick and InternetTalkerIAD
users with a minimal monthly subscription.
| | - |  | ------------------------------------------------------------------------------------------------------------



The
Companys management intends to focus solely upon VoIP as the Companys primary line of business. In addition, the Companys management is constantly exploring various strategic alternatives, including partnering with other
telecommunication companies, both foreign and domestic, and engaging in acquisitions of strategic competitors and/or telecommunication service providers. There can be no assurances that such efforts will be successful. The Company may finance these
new business opportunities through a combination of equity and/or debt. If the Company determines to finance these opportunities by issuing additional equity, then such equity may have rights and preferences superior to the outstanding Common Stock
and Preferred Stock, and the issuance of such equity will dilute the ownership percentage of the Companys existing shareholders. If the Company determines to finance these opportunities by incurring debt, then such debt may impose restrictions
on the Company or not be available to the Company on favorable terms, if at all.



Liquidity and Going Concern



It is imperative
that the Company raise capital in the near-term in order to continue as a going concern. Without raising additional capital, the Company likely will not be able to satisfy its current and other liabilities due in the near-term unless they are
modified or restructured. There is no guarantee that (i) additional capital will be available to the extent required, or that if available, it will be available on terms acceptable to the Company, or (ii) the Companys current and other
liabilities due in the near-term can be modified or restructured. If the Company can not raise additional capital or modify or restructure such liabilities, then the Company may be unable to pursue its business plan and may be forced to cease doing
business.



As can be seen from the Companys filings with
the Securities and Exchange Commission (the SEC) over the past year, the Company has experienced net losses and negative cash flows from operations and has an accumulated deficit at June 30, 2005 of approximately $17,965,680 and a
negative working capital position. The ability of the Company to generate positive cash flows from operations and net income is dependent, among other things, on market conditions, the recovery of recorded assets, cost control, identifying and
securing additional revenue sources, and the Companys ability to raise capital on acceptable terms. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. As noted in an
explanatory paragraph in the Report of Independent Certified Public Accountants on the Companys consolidated financial statements for the year ended December 31, 2004, as set forth in the Companys Annual Report on Form



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10-KSB for the year ended December 31, 2004, as amended (the Annual Report), these conditions have raised
substantial doubt about the Companys ability to continue as a going concern.



Critical Accounting Policies



The policies
identified below are considered as critical to the Companys business operations and the understanding of the Companys results of operations. The impact of and any associated risks related to these policies on the Companys business
operations is discussed throughout Managements Discussion and Analysis or Plan of Operation. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to the Companys
consolidated financial statements for the year ended December 31, 2004, included in the Annual Report. Preparation of this Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005 (this Quarterly Report) requires the Company
to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. There can be no assurance that actual results will not
differ from those estimates.



Accounting for the Reverse Merger



On February 27, 2004, subsequent to the Merger, the
Company sold substantially all of its operating assets relating to its digital information network to InTransit Media. Pursuant to the Asset Purchase Agreement, the assets were exchanged for InTransit Media assuming certain liabilities and
obligations relating thereto.



The Merger and Asset Sale are
being accounted for as a transfer and exchange and are considered a change in legal organization and not a change in the entity. Therefore, all assets and liabilities are transferred at historical cost and the gain on sale of assets is not included
in the statements of operations and cash flows for the year ending December 31, 2004.



As of the date of the Merger, the Companys accumulated deficit was $13,700,794. In accounting for the Merger, the accumulated deficit of the Company has been eliminated. The balance of accumulated deficit as of
the end of the period represents the accumulated deficit of i2 Delaware since inception. The other capital accounts, including Common Stock, Preferred Stock and additional paid-in capital represents the stock issued by the surviving corporation. The
write-off the Companys accumulated deficit has been adjusted by a reduction to the other capital accounts starting with additional paid-in capital, then Preferred Stock, and the balance against Common Stock. Since the Company had no
outstanding Preferred Stock prior to the Merger, the Preferred Stock of the Company has been reduced to zero.



Basis of Consolidation



The consolidated financial statements include the accounts of i2 Delaware and SuperCaller Community, Inc. (SuperCaller), both of which are, directly or indirectly, wholly-owned subsidiaries of the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.



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Accounting Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Estimates are used when accounting for allowances for doubtful accounts, revenue reserves, inventory reserves, depreciation and amortization, taxes, contingencies and impairment allowances. Such estimates are reviewed on an on-going basis
and actual results could differ from those estimates.



Revenue Recognition



The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements (SAB No. 101), as amended by SAB No. 101A and SAB No. 101B. SAB No. 101 requires that four basic criteria must be met before
revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services rendered; (iii) the fee is fixed and determinable; and (iv) collectibility is reasonably assured. Determination of criteria (iii) and
(iv) are based on managements judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. Should changes in conditions cause management to determine these criteria
are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected. The Company has concluded that its revenue recognition policy is appropriate and in accordance with accounting principles generally
accepted in the United States of America and SAB No. 101.



Impairment of
Long-Lived Assets



The Company evaluates its
long-lived assets for financial impairment and continues to evaluate them as events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. The carrying value of long-lived assets is considered
impaired when the anticipated undiscounted cash flows from an asset is less than its carrying value. In that event, a loss is recognized for the amount by which the carrying value exceeds the fair value of the long-lived asset. The Company has not
recognized any impairment losses.



Recent Accounting Pronouncements



In September 2004, the Financial Accounting
Standards Board (FASB) reached a final consensus on Emerging Issues Task Force (EITF) Issue No. 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per Share (ETIF Issue No. 04-8),
that contingently convertible debt instruments will be subject to the if-converted method under Statement of Financial Accounting Standard (SFAS) No. 128 Earnings Per Share, regardless of the



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contingent features included in the instrument. Under current practice, issuers of contingently convertible debt
instruments exclude potential common shares underlying contingently convertible debt instruments from the calculation of diluted earnings per share until the market price or other contingency is met. The effective date for EITF Issue No. 04-8 is for
reporting periods ending after December 15, 2004 and requires the restatement of diluted earnings per share for all periods presented. The effect of this consensus did not have an impact on the accompany consolidated financial statements.



In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43, Chapter 4. This statement amends the guidance in ARB No. 43 Chapter 4, Inventory Pricing (ARB No. 43), to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB No. 43 previously stated that  under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and handling costs may
be so abnormal to require treatment as current period charges. This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. In addition, this
statement requires that allocation of fixed production overheads to the cost of conversion be based on the normal capacity of the production facilities. The provision of this statement will be effective for inventory costs during the fiscal years
beginning after June 15, 2005. The Company does not believe that the adoption of this statement will have a material impact on its financial condition or results of operations.



On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No. 123), which is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123R). SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25) and amends
SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R must be adopted no later than January 1, 2006 for small business issuers. Early adoption will be
permitted in periods in which financial statement have not yet been issued. The Company adopted SFAS No. 123R on January 1, 2005.



Quantitative and Qualitative Disclosure about Market Risk



The Company believes that it does not have any material exposure to interest or commodity risks. The Company does not own any derivative
instruments and does not engage in any hedging transactions.



Comprehensive
Income or Loss



The Company has no components of other
comprehensive income or loss, and accordingly, net loss equals comprehensive loss for all periods presented.



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Earnings Per Share



For the second quarter of 2005 and 2004, net loss per share is based on the weighted average number of shares of Common Stock outstanding. At June 30,
2005 and June 30, 2004, the Company had, on a weighted average, 37,045,149 shares and 16,544,261 shares of Common Stock outstanding, respectively.



At June 30, 2005, the Company had outstanding 37,087,738 shares of Common Stock and options and warrants to purchase 22,763,637 shares of Common Stock.
Consequently, on an as-converted, fully-diluted basis, the Company would have 59,851,375 shares of Common Stock outstanding at June 30, 2005.



Stock Compensation



During 2002, the Companys board of directors approved a stock option plan for its officers, directors and certain key employees. Generally, the
options vest based on the attainment of certain performance criteria set forth in the option agreements. In addition, the Company has issued stock warrants to key employees, consultants, and certain investors, with expiration dates of one to five
years from the date of grant. Effective January 1, 2005, the Company adopted early application of SFAS No. 123R. SFAS No. 123R supersedes APB Opinion No. 25 which was previously used by the Company. Generally, the approach in SFAS No. 123R is
similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Under APB
Opinion No. 25, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price, the intrinsic value method. Under SFAS No. 123R, the Company recognizes an expense over the
vesting period of the fair value of all stock-based awards on the date of grant. Beginning January 1, 2005, all stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123R and related interpretations.



Stock compensation expense is comprised of the amortization of
deferred compensation resulting from the grant of stock options to employees at exercise or sale prices deemed to be less than fair value of the Common Stock at grant date, net of forfeitures related to such employees who terminated service while
possessing unvested stock options, as these terminated employees have no further service obligations.



Additionally, the Company has adopted early application of SFAS No. 123R on January 1, 2005. The cumulative effect of this change in accounting principle
for periods prior to 2005 was $340,117, net of income tax and has been included on the statement of operations for the six months ended June 30, 2005.



The following table summarizes relevant pro-forma information for the three months ended June 30, 2005 and 2004 as if the change in accounting principal
was applied retroactively to the prior period.



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|                       |  |               |            |   |               |   |            |  
|---------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                       |  | June 30, 2005 |            |   | June 30, 2004 |  
|Net Loss               |  | $             | (3,670,890 | ) |               | $ | (3,056,468 | )
|                       |  |               |            |   |               |   |            |  
|Loss Per Share-Basic   |  | $             | (.09       | ) |               | $ | (.27       | )
|                       |  |               |            |   |               |   |            |  
|Loss Per Share-Diluted |  | $             | (.01       | ) |               | $ | (.08       | )
|                       |  |               |            |   |               |   |            |  



Reclassifications



Certain prior year amounts have been reclassified to conform to the
current year presentation.



Interim Financial Data



In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC. These financial statements do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. These statements should be read in conjunction with the Companys audited consolidated financial statements for the year ended December 31, 2004, set forth in the Annual Report. The interim financial
information included herein has not been audited. However, management believes the accompanying unaudited interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the
consolidated financial position of i2 Telecom International, Inc. and Subsidiaries as of June 30, 2005 and June 30, 2004, and the results of their operations and cash flows for the six months ended June 30, 2005 and 2004. The results of operations
and cash flows for the period are not necessarily indicative of the results of operations or cash flows that can be expected for the year ending December 31, 2005.



NOTE 2: NOTES PAYABLE



Notes Payable as of June 30, 2005 and December 31, 2004 consisted of the following:



|                                                                                                                                                                                                                                                                                |  |      |           |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                |  | 2004 |           | 2003
|a. 8% note payable due to an individual previously affiliated with SuperCaller. The principal and all accrued interest are due and payable upon the Company obtaining certain levels of equity
funding. These funding levels are expected to be met prior to December 31, 2004. |  | $    | 50,000    |      | $ | 50,000 
|b. 6% note payable due to an individual previously affiliated with SuperCaller. The principal and all accrued interest are due and payable upon the Company obtaining certain levels of equity
funding. These funding levels are expected to be met prior to December 31, 2004. |  | $    | 50,000    |      | $ | 50,000 
|c. 13% note payable due to a bank. The principal and all accrued interest are due and payable in 2005. The note is unsecured.                                                                                                                                                   |  |      | 200,000   |      |   | -0-    
|d. Notes payable to various shareholders payable on demand and non-interest bearing.                                                                                                                                                                                            |  |      | 850,000   |      |   | -0-    
|e. 3% notes payable to various shareholders due December 31, 2005. The notes are unsecured.                                                                                                                                                                                     |  |      | 225,000   |      |   | -0-    
|                                                                                                                                                                                                                                                                                |  |      |           |      |   |        
|Total Long Term Debt                                                                                                                                                                                                                                                            |  |      | 1,375,000 |      |   | 100,000
|Less: Current Portion                                                                                                                                                                                                                                                           |  |      | 1,375,000 |      |   | 100,000
|                                                                                                                                                                                                                                                                                |  |      |           |      |   |        
|Long-Term Portion                                                                                                                                                                                                                                                               |  | $    | -0-       |      | $ | -0-    
|                                                                                                                                                                                                                                                                                |  |      |           |      |   |        



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During the six months ended June 30, 2005, certain shareholders of the Company loaned the Company
$1,075,000. The loans are scheduled to be repaid from anticipated proceeds from future equity based financings.



NOTE 3: STOCK OPTIONS AND WARRANTS



|                                                                 |  |                             |   |      |                                 |     |                             |            |   |                                 |   |    
|---------------------------------------------------------------- |  | --------------------------- | - | ---- | ------------------------------- | --- | --------------------------- | ---------- | - | ------------------------------- | - | ---
|                                                                 |  | 2005                        |   | 2004
|                                                                 |  | Number of Options/ Warrants |   |      | Weighted Average Exercise Price |     | Number of Options/ Warrants |            |   | Weighted Average Exercise Price
|Outstanding at Beginning of Period                               |  | 22,757,921                  |   |      | $                               | .67 |                             | 16,178,349 |   |                                 |   | .47
|Options Granted                                                  |  | 2,341,500                   |   |      | $                               | .88 |                             | 537,657    |   |                                 | $ | .77
|Warrants Granted                                                 |  | 1,332,015                   |   |      | $                               | .87 |                             | 3,562,484  |   |                                 | $ | .86
|Exercised                                                        |  | (1,389,379                  | ) |      | $                               | .86 |                             | (473,411   | ) |                                 |   | .45
|Forfeited                                                        |  | (2,278,417                  | ) |      | $                               | .55 |                             | (837,139   | ) |                                 | $ | .44
|                                                                 |  |                             |   |      |                                 |     |                             |            |   |                                 |   |    
|Outstanding at End of Period                                     |  | 22,763,640                  |   |      | $                               | .70 |                             | 18,967,940 |   |                                 | $ | .56
|                                                                 |  |                             |   |      |                                 |     |                             |            |   |                                 |   |    
|Options Exercisable at End of Period                             |  | 18,914,126                  |   |      | $                               | .47 |                             | 2,738,908  |   |                                 |   | .50
|Weighted-average Fair Value of Options Granted During the Period |  |                             |   |      | $                               | .88 |                             |            |   |                                 | $ | .02



As of June 30, 2005,
the range of option and warrant exercise prices for outstanding and exercisable options and warrants was $.01 to $1.00 with a weighted average remaining contractual life of 2.09 years.



NOTE 4: STOCK APPRECIATION RIGHTS AND RESTRICTED SHARE UNITS



On December 31, 2003, the Company terminated its stock appreciation plan and cancelled all outstanding rights granted. As
consideration for the consideration of rights cancelled, each employee received restricted stock or cancellation of their notes receivable at rate of $3.00 per right. On December 31, 2003, the Company amended its 2002 Stock Option Plan to properly
administer the granting of restricted stock. Under the amended plan, employees are granted restricted share units without cost to the employee. Each restricted share unit awarded to a participant represents an unfunded, unsecured right, which is
nontransferable except in the event of death, of the employee to receive one share of common stock, $.01 par value, of i2 Delaware on the date specified in the grant. As a result of the Merger each such right was converted into the right to receive
shares of Common Stock, no par value per share, and Preferred Stock Series B, no par value per share (the Preferred Stock Series B), as outlined in the Merger Agreement. The restricted share units granted under the plan vest evenly over
three years, with immediate vesting upon termination.



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Information with respect to restricted share units as of June 30, 2005 and 2004 is as follows:



|                                                                       |  |      |           |   |      |   |           |  
|---------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                       |  | 2005 |           |   | 2004 |  
|Restricted Units-Beginning of Year                                     |  |      | 1,102,088 |   |      |   | 239,481   |  
|Restricted Units Granted                                               |  |      | -0        | - |      |   | -0        | -
|Reverse Merger with Digital Data Networks                              |  |      | -0        | - |      |   | 1,351,584 |  
|Transfer to Common Stock Due to Lapse of Restrictions                  |  |      | (367,363  | ) |      |   | -0        | -
|                                                                       |  |      |           |   |      |   |           |  
|Restricted Units-End of Year                                           |  |      | 734,725   |   |      |   | 1,591,065 |  
|                                                                       |  |      |           |   |      |   |           |  
|Weighted Average Fair Value of Shares                                  |  | $    | .45       |   |      | $ | .45       |  
|Pre-Tax Compensation Expense Charged to Earnings, net of cancellations |  | $    | -0        | - |      | $ | -0        | -



NOTE 5: DEVELOPMENT STAGE ENTERPRISE



The Company is a development stage enterprise in that planned
principal operations have only recently begun and only insignificant amounts of revenue have occurred through June 30, 2005. Development stage activities in which the Company, have been actively engaged include building a management team, financial
planning, raising capital, research and development, establishing sources of supply, acquiring property and equipment and other operating assets, training personnel, developing markets, building a network operation center, and developing customer
billing systems.



Because of the factors noted in the preceding
paragraph, the Company incurred a net loss of $1,983,362 during the quarter ended June 30, 2005. These losses, as well as the uncertain conditions that the Company faces relative to its ongoing debt and equity fund-raising efforts, create a
substantial doubt as to the Companys ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Companys success in its ability to obtain needed financing. There is no
guarantee that this financing will be available, and even if available, that it will be available on terms acceptable or favorable to the Company. As a result of the Companys losses and the difficult capital raising environment, should the
Company be unable to continue to raise capital, its existence as a going concern will be in question.



NOTE 6: SUBEQUENT EVENTS



None.



16



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##### Table of Contents

PART II - OTHER INFORMATION



Item 6. Exhibits



The exhibits
required to be filed with this Quarterly Report are set forth on the Exhibit Index filed herewith.



17



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##### Table of Contents

SIGNATURE



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



|                       |  |                                                                                    
|---------------------- |  | -----------------------------------------------------------------------------------
|                       |  | i2 TELECOM INTERNATIONAL, INC.                                                     
|                       | 
|Date: October 13, 2005 |  | /s/ Paul R. Arena                                                                  
|                       |  | Paul R. Arena                                                                      
|                       |  | Chief Executive Officer (duly authorized signatory
and Principal Executive Officer)



18



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##### Table of Contents

EXHIBIT INDEX



|     |  |                                                                                                                                                                                                                                                               
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1  |  | Warrant dated April 7, 2005 to purchase 125,000 shares of the Companys common stock granted to Hubert G. Phipps. (Incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed on April 12, 2005.)                             
|     | 
|4.2  |  | Registration Rights Agreement dated as of April 7, 2005 between the Company and Hubert G. Phipps. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed on April 12, 2005.)                                             
|     | 
|4.3  |  | Warrant dated April 19, 2005 to purchase 52,083 shares of the Companys common stock granted to Midsouth Investor Fund, LP. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on April 25, 2005.)                   
|     | 
|4.4  |  | Registration Rights Agreement dated as of April 19, 2005 between the Company and Midsouth Investor Fund, LP. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report on
Form 8-K filed on April 25, 2005.)                                  
|     | 
|4.5  |  | Warrant dated April 25, 2005 to purchase 156,249 shares of the Companys common stock granted to Vestal Venture Capital. (Incorporated by reference to Exhibit 4.3 to the Companys
Current Report on Form 8-K filed on April 25, 2005.)                      
|     | 
|4.6  |  | Registration Rights Agreement dated as of April 25, 2005 between the Company and Vestal Venture Capital. (Incorporated by reference to Exhibit 4.4 to the Companys Current Report on Form
8-K filed on April 25, 2005.)                                      
|     | 
|4.7  |  | Warrant dated June 28, 2005 to purchase 26,042 shares of the Companys common stock granted to Hubert G. Phipps. (Incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed on July 5, 2005.)                                
|     | 
|4.8  |  | Registration Rights Agreement dated as of June 28, 2005 between the Company and Hubert G. Phipps. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed on July 5, 2005.)                                               
|     | 
|4.9  |  | Warrant dated July 7, 2005 to purchase 39,062 shares of the Companys common stock granted to Paul R. Arena. (Incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed on July 12, 2005.)                                   
|     | 
|4.10 |  | Registration Rights Agreement dated as of July 7, 2005 between the Company and Paul R. Arena. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed
on July 12, 2005.)                                                  
|     | 
|10.1 |  | Employment Agreement dated as of April 6, 2005, between the Company and James Rose. Represents an executive compensatory plan or arrangement. (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on April 11, 2005.)



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|      |  |                                                                                                                                                                                                                                                    
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2  |  | Promissory Note dated April 7, 2005 issued by the Company in favor of Hubert G. Phipps in principal amount of $250,000. (Incorporated by reference to Exhibit 99.1 to the Companys
Current Report on Form 8-K filed on April 12, 2005.)           
|      | 
|10.3  |  | Promissory Note dated April 19, 2005 issued by the Company in favor of Midsouth Investor Fund, LP in principal amount of $100,000. (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on April 25, 2005.)
|      | 
|10.4  |  | Promissory Note dated April 25, 2005 issued by the Company in favor of Vestal Venture Capital in principal amount of $300,000. (Incorporated by reference to Exhibit 99.2 to the Companys
Current Report on Form 8-K filed on April 25, 2005.)    
|      | 
|10.5  |  | Employment Agreement between the Company and James R. Fultz dated May 2, 2005. (Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K filed on May 6,
2005.)                                                       
|      | 
|10.6  |  | Promissory Note dated June 28, 2005 issued by the Company in favor of Hubert G. Phipps in principal amount of $50,000. (Incorporated by reference to Exhibit 99.1 to the Companys Current
Report on Form 8-K filed on July 5, 2005.)              
|      | 
|10.7  |  | Stock Option Agreement dated July 6, 2005 to purchase 85,714 shares of the Companys common stock granted to James Rose. (Incorporated by reference to Exhibit 4.3 to the Companys
Current Report on Form 8-K filed on July 12, 2005.)            
|      | 
|10.8  |  | Stock Option Agreement dated July 7, 2005 to purchase 168,000 shares of the Companys common stock granted to James Rose. (Incorporated by reference to Exhibit 4.4 to the Companys
Current Report on Form 8-K filed on July 12, 2005.)           
|      | 
|10.9  |  | Promissory Note dated July 7, 2005 issued by the Company in favor of Paul R. Arena in principal amount of $75,000. (Incorporated by reference to Exhibit 99.1 to the Companys Current
Report on Form 8-K filed on July 12, 2005.)                 
|      | 
|10.10 |  | Letter Agreement dated July 6, 2005 between the Company and James Rose. (Incorporated by reference to Exhibit 99.2 to the Companys Current Report on Form 8-K filed on July 12,
2005.)                                                            
|      | 
|10.11 |  | Letter Agreement dated July 7, 2005 between the Company and James Rose. (Incorporated by reference to Exhibit 99.3 to the Companys Current Report on Form 8-K filed on July 12,
2005).                                                            
|      | 
|31.1  |  | Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer.                                                                                                                                                                   



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|     |  |                                                                                 
|---- |  | --------------------------------------------------------------------------------
|31.2 |  | Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer.
|     | 
|32.1 |  | Section 1350 Certification by the Companys Chief Executive Officer.            
|     | 
|32.2 |  | Section 1350 Certification by the Companys Chief Financial Officer.