##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-QSB



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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 March 31, 2006.



| ̈ | 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)



---

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 ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes ̈No x

As of May 12, 2006, the registrant had 148,523,570 shares of common stock outstanding.



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##### Table of Contents

INDEX



|               |  |                                                              |  |     
|-------------- |  | ------------------------------------------------------------ |  | ----
|               |  |                                                              |  | Page
|PART I.        |  | FINANCIAL INFORMATION                                        |  |     
|               |  |                                                             
|Item 1.        |  | Financial Statements                                         |  | 3   
|               |  |                                                             
|Item 2.        |  | Managements Discussion and Analysis of or Plan of Operation |  | 19  
|               |  |                                                             
|Item 3.        |  | Controls and Procedures                                      |  | 24  
|               |  |                                                             
|PART II.       |  | OTHER INFORMATION                                            |  |     
|               |  |                                                             
|Item 1.        |  | Legal Proceedings                                            |  | 25  
|               |  |                                                             
|Item 2.        |  | Unregistered Sales of Equity Securities and Use of Proceeds  |  | 25  
|               |  |                                                             
|Item 3.        |  | Default Upon Senior Securities                               |  | 30  
|               |  |                                                             
|Item 4.        |  | Submission of Matters to a Vote of Security Holders          |  | 31  
|               |  |                                                             
|Item 5.        |  | Other Information                                            |  | 33  
|               |  |                                                             
|Item 6.        |  | Exhibits                                                     |  | 33  
|               | 
|SIGNATURE PAGE |  | 34                                                          
|               | 
|CERTIFICATIONS |  |                                                             



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                   |  |                |           |                   |   |          
|-------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ----------------- | - | ---------
|                                                                                                   |  | March 31, 2006 |           | December 31, 2005
|ASSETS                                                                                             |  |                |           |                   |   |          
|Current Assets                                                                                     |  |                |           |                   |   |          
|Cash                                                                                               |  | $              | 23,814    |                   | $ | 238      
|Restricted Cash                                                                                    |  |                |           |                   |   | 168,965  
|Accounts Receivable, net of Allowance for Doubtful Accounts of $235,000 and $235,000, respectively |  |                | 18,732    |                   |   | 69,927   
|Inventories                                                                                        |  |                | 724,470   |                   |   | 732,663  
|Prepaid Expenses and Other Current Assets                                                          |  |                | 640,229   |                   |   | 84,407   
|                                                                                                   |  |                |           |                   |   |          
|Total Current Assets                                                                               |  |                | 1,407,245 |                   |   | 1,056,200
|                                                                                                   |  |                |           |                   |   |          
|Property and Equipment, Net                                                                        |  |                | 1,139,176 |                   |   | 1,206,982
|                                                                                                   |  |               
|Other Assets                                                                                       |  |                |           |                   |   |          
|                                                                                                   |  |               
|Intangible Assets                                                                                  |  |                | 3,353,199 |                   |   | 3,349,834
|Deposits                                                                                           |  |                | 83,540    |                   |   | 61,540   
|                                                                                                   |  |                |           |                   |   |          
|Total Other Assets                                                                                 |  |                | 3,436,739 |                   |   | 3,411,374
|                                                                                                   |  |                |           |                   |   |          
|Total Assets                                                                                       |  | $              | 5,983,160 |                   | $ | 5,674,556
|                                                                                                   |  |                |           |                   |   |          



3



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##### Table of Contents

i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                        |  |                |             |   |                   |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                        |  | March 31, 2006 |             |   | December 31, 2005 |  
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                          |  |                |             |   |                   |   |             |  
|Current Liabilities                                                                                                                     |  |                |             |   |                   |   |             |  
|Accounts Payable and Accrued Expenses                                                                                                   |  | $              | 4,126,837   |   |                   | $ | 3,797,814   |  
|Notes Payable-Current                                                                                                                   |  |                | 2,966,362   |   |                   |   | 2,780,625   |  
|                                                                                                                                        |  |                |             |   |                   |   |             |  
|Total Current Liabilities                                                                                                               |  |                | 7,093,199   |   |                   |   | 6,578,439   |  
|Long-Term Debt  Convertible Bonds                                                                                                      |  |                | 600,000     |   |                   |   | -0-         |  
|                                                                                                                                        |  |                |             |   |                   |   |             |  
|Total Liabilities                                                                                                                       |  |                | 7,696,724   |   |                   |   | 6,578,439   |  
|                                                                                                                                        |  |                |             |   |                   |   |             |  
|Shareholders Equity (Deficit)                                                                                                          |  |                |             |   |                   |   |             |  
|Preferred Stock, No Par Value, 5,000,000 Shares Authorized, 4,910 Shares and 4,910 Shares Issued and Outstanding, respectively          |  |                | 4, 885,000  |   |                   |   | 4,885,000   |  
|Common Stock, No Par Value, 250,000,000 Shares Authorized, 38,747,120 Shares and 37,460,159 Shares Issued and Outstanding,
respectively |  |                | 14,929,571  |   |                   |   | 14,651,858  |  
|Restricted Common Stock (related to No Par Value above), 5,194,294 Shares and 382,568 respectively                                      |  |                | 445,973     |   |                   |   | 191,846     |  
|Additional Paid-In Capital                                                                                                              |  |                | 1,185,043   |   |                   |   | 1,092,126   |  
|Accumulated Deficit                                                                                                                     |  |                | (23,155,626 | ) |                   |   | (21,724,813 | )
|                                                                                                                                        |  |                |             |   |                   |   |             |  
|Total Shareholders Equity (Deficit)                                                                                                    |  |                | (1,710,039  | ) |                   |   | (903,883    | )
|                                                                                                                                        |  |                |             |   |                   |   |             |  
|Total Liabilities and Shareholders Equity (Deficit)                                                                                    |  | $              | 5,983,160   |   |                   | $ | 5,674,556   |  
|                                                                                                                                        |  |                |             |   |                   |   |             |  



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i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                         |  |                                           |            |   |                                          |   |            |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------------- | ---------- | - | ---------------------------------------- | - | ---------- | -
|                                                                                         |  | For the Three Months Ended March 31, 2006 |            |   | For the Three Months EndedMarch 31, 2005 |  
|Revenue                                                                                  |  | $                                         | 140,003    |   |                                          | $ | 186,308    |  
|                                                                                         |  |                                          
|Cost of Revenue                                                                          |  |                                           | 71,017     |   |                                          |   | 117,026    |  
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Gross Profit (Loss)                                                                      |  |                                           | 68,986     |   |                                          |   | 69,282     |  
|                                                                                         |  |                                          
|General and Administrative Expenses                                                      |  |                                           | 1,369,290  |   |                                          |   | 1,697,707  |  
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Loss From Operations                                                                     |  |                                           | (1,300,304 | ) |                                          |   | (1,628,425 | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Other Income (Expense)                                                                   |  |                                           |            |   |                                          |   |            |  
|Interest Income                                                                          |  |                                           | 942        |   |                                          |   | 396        |  
|Interest Expense                                                                         |  |                                           | (51,777    | ) |                                          |   | (4,194     | )
|Gain on Forbearance of Debt                                                              |  |                                           | 0          |   |                                          |   | 0          |  
|Loss on Disposal of Assets                                                               |  |                                           | 0          |   |                                          |   | 0          |  
|Loss on Subscription List                                                                |  |                                           | 0          |   |                                          |   | 0          |  
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Total Other Income (Expense)                                                             |  |                                           | (50,835    | ) |                                          |   | (3,798     | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  |                                           | (1,351,139 | ) |                                          |   | (1,632,223 | )
|Cumulative Effect of Accounting Change on Years Prior to 2005, Net of Income Tax of $-0- |  |                                           | 0          |   |                                          |   | (340,117   | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Net Income (Loss)                                                                        |  | $                                         | (1,351,139 | ) |                                          | $ | (1,972,340 | )
|Dividends on Preferred Stock                                                             |  |                                           | 79,674     |   |                                          |   |            |  
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Net Loss Available to Common Shareholders                                                |  | $                                         | (1,430,813 | ) |                                          | $ | (1,972,340 | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Weighted Average Common Shares:                                                          |  |                                           |            |   |                                          |   |            |  
|Basic                                                                                    |  |                                           | 38,397,923 |   |                                          |   | 35,390,091 |  
|Diluted                                                                                  |  |                                           | 69,866,654 |   |                                          |   | 40,327,674 |  
|Basic Earnings Per Common Share:                                                         |  |                                           |            |   |                                          |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  | $                                         | (.04       | ) |                                          | $ | (.05       | )
|Cumulative Effect of Accounting Change                                                   |  |                                           | (.00       | ) |                                          |   | (.01       | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Net Loss                                                                                 |  | $                                         | (.04       | ) |                                          | $ | (.06       | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Diluted Earnings Per Common Share:                                                       |  |                                           |            |   |                                          |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  | $                                         | (.02       | ) |                                          | $ | (.04       | )
|Cumulative Effect of Accounting Change                                                   |  |                                           | (.00       | ) |                                          |   | (.01       | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  
|Net Loss                                                                                 |  | $                                         | (.02       | ) |                                          | $ | (.05       | )
|                                                                                         |  |                                           |            |   |                                          |   |            |  



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i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                            |  |                                          |            |   |                                         |   |            |  
|------------------------------------------- |  | ---------------------------------------- | ---------- | - | --------------------------------------- | - | ---------- | -
|                                            |  | For the Three Months Ended March 31,2006 |            |   | For the Three Months EndedMarch 31,2005 |  
|Cash Flows From Operations                  |  |                                          |            |   |                                         |   |            |  
|                                            |  |                                         
|Net Loss From Operations                    |  | $                                        | (1,351,139 | ) |                                         | $ | (1,972,340 | )
|Adjustments to Reconcile Net Income to cash |  |                                          |            |   |                                         |   |            |  
|Depreciation and amortization               |  |                                          | 97,564     |   |                                         |   | 83,001     |  
|Stock compensation                          |  |                                          | 92,917     |   |                                         |   | 45,618     |  
|Cumulative Effect of Accounting Change      |  |                                          | 0          |   |                                         |   | 340,117    |  
|(Increase) Decrease in:                     |  |                                          |            |   |                                         |   |            |  
|Accounts receivable                         |  |                                          | 51,195     |   |                                         |   | (43,945    | )
|Inventories                                 |  |                                          | 8,193      |   |                                         |   | (190,731   | )
|Prepaid Expenses                            |  |                                          | (555,822   | ) |                                         |   | (34,523    | )
|Other Assets                                |  |                                          | (22,000    | ) |                                         |   | 6,612      |  
|Increase (Decrease) In:                     |  |                                          |            |   |                                         |   |            |  
|Accounts Payable and Accrued Expenses       |  |                                          | 249,349    |   |                                         |   | 442,166    |  
|Deferred Revenue                            |  |                                          | 0          |   |                                         |   | (74        | )
|                                            |  |                                          |            |   |                                         |   |            |  
|Net Cash Used In Operating Activities       |  |                                          | (1,429,743 | ) |                                         |   | (1,324,099 | )
|                                            |  |                                          |            |   |                                         |   |            |  
|Cash Flows From Investing Activities        |  |                                          |            |   |                                         |   |            |  
|Proceeds from Disposal of Assets            |  |                                          | 0          |   |                                         |   | 0          |  
|Equipment Purchases                         |  |                                          | (29,758    | ) |                                         |   | (31,631    | )
|Payments for Patents and Trademarks         |  |                                          | (3,365     | ) |                                         |   | (16,176    | )
|Investment in Subsidiary                    |  |                                          | 0          |   |                                         |   | 0          |  
|                                            |  |                                          |            |   |                                         |   |            |  
|Net Cash Used In Investing Activities       |  |                                          | (33,123    | ) |                                         |   | (47,807    | )
|                                            |  |                                          |            |   |                                         |   |            |  
|Cash Flows From Financing Activities        |  |                                          |            |   |                                         |   |            |  
|Proceeds From Shareholder Loans             |  |                                          | 0          |   |                                         |   | 174,500    |  
|Payments of Shareholder Loans               |  |                                          | 0          |   |                                         |   | (74,500    | )
|Proceeds from Issuance of Convertible Bonds |  |                                          | 600,000    |   |                                         |   | 0          |  
|Proceeds From Notes Payable                 |  |                                          | 321,000    |   |                                         |   | 200,000    |  
|Payment of Notes Payable                    |  |                                          | (135,263   | ) |                                         |   | 0          |  
|Issuance of Common Stock                    |  |                                          | 531,740    |   |                                         |   | 496,000    |  
|Issuance of Preferred Stock                 |  |                                          | 0          |   |                                         |   | 575,000    |  
|Dividends Paid                              |  |                                          | 0          |   |                                         |   | (75,906    | )
|                                            |  |                                          |            |   |                                         |   |            |  
|Net Cash Provided By Financing Activities   |  |                                          | 1,317,477  |   |                                         |   | 1,295,094  |  
|                                            |  |                                          |            |   |                                         |   |            |  
|Increase (Decrease) in Cash                 |  |                                          | (145,389   | ) |                                         |   | (76,812    | )
|Balance, Beginning of Period                |  |                                          | 169,203    |   |                                         |   | 231,127    |  
|                                            |  |                                          |            |   |                                         |   |            |  
|Balance, End of Period                      |  | $                                        | 23,814     |   |                                         | $ | 154,315    |  
|                                            |  |                                          |            |   |                                         |   |            |  



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##### Table of Contents

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
websites at www.i2telecom.com and www.voicestick.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 of 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, and Georgia, Redwood City, California. 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 and 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;
| | - |  | -----------------------------------------



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



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| |  |  | 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 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 cannot 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 March 31, 2006 of approximately $23,155,000 million 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 under 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, 2005, as set forth in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2005,
(the Annual Report), these conditions have raised substantial doubt about the Companys ability to continue as a going concern.



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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, 2005, included in the Annual Report. Preparation of this Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006 (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.

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.

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



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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

On
December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123R). SFAS 123R supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS 95, Statement of Cash Flows. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 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. SFAS123R must be adopted no later than
July 1, 2005. Early adoption will be permitted in periods in which financial statement have not yet been issued. The Company adopted SFAS 123R on January 1, 2005.

In December 2004, the Financial Accounting Standards Board issued two FASB Staff Positions  FSP FAS 109-1 Application of FASB Statement 109
Accounting for Income Taxes to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004, and FSB FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision
within the American Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate in the related activities.

In March 2005, the SEC released Staff Accounting Bulletin No 107, Share Based Payment (SAB 107), which provides interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and
regulations. It also provides the SEC staffs views regarding valuation of share-based payment regulations. In April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow companies to implement the standard at the beginning of
the next fiscal year, instead of the next reporting period beginning after June 15, 2005. The impact of SAB 107 had no effect on our financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 provides guidance relating to the identification of and
financial reporting for legal obligations to perform an asset retirement activity. The



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Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when
incurred if the liabilitys fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provision is effective no
later than the end of fiscal years ending after December 15, 2005. The Company adopted FIN 47 beginning the first quarter of fiscal year 2006 the adoption had no material impact on its financial statements.

In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the FASBs goal to converge its standards with those issued by the IASB.
Among other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so.
Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and
(2) correction of errors in previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15,
2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company has adopted Statement 154 and it did not have an impact on the Companys
overall results of operation of financial position.

In February of 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments (SFAS NO. 155), which is intended to simplify the accounting and improve the financial reporting of certain hybrid financial instruments. (i.e., derivatives embedded in other financial instruments). The
statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities  a
replacement of FASB Statement No. 125. SFAS No. 155 is effective for all financial instruments issued or acquired after the beginning of an entitys first fiscal year that begins after September 15, 2006. The Company is currently
evaluating the impact of SFAS No. 155 will have on its financial statements, if any.

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 first quarter of 2006 and 2005, net loss per share is based on the weighted average number of shares of Common Stock outstanding. At March 31, 2006 and March 31, 2005, the Company had, on a weighted
average, 38,397,923 shares and 35,390,091 shares of Common Stock outstanding, respectively.

At March 31, 2006, the Company had
outstanding 38,747,120 shares of Common Stock and options and warrants to purchase 37,749,661 shares of Common Stock. Consequently, on an as-converted, fully-diluted basis, the Company would have 69,866,654 shares of Common Stock outstanding at
March 31 2006.

Stock Compensation

During 2004, the Companys shareholders 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. 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.

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 three months ended March 31, 2005.

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.



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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, 2005, 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 March 31, 2006 and March 31, 2005, and the results of their operations and cash flows for the three months ended March 31, 2006 and 2005. 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, 2006.

NOTE 2: NOTES PAYABLE

Notes Payable as of March 31, 2006 and December 31, 2005:



|                                                                                                                                                                                                                                                                                    |  |      |         |      |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                    |  | 2006 |         | 2005
|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, 2006.     |  | $    | 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, 2006.     |  |      | 50,000  |      |   | 50,000 
|                                                                                                                                                                                                                                                                                    |  |     
|c. 8% note payable to a bank. The principal and all accrued interest were due on December 31, 2005. In April 2006, the maturity date was extended until April 30, 2006. The note is
unsecured and guaranteed by an officer of the Company.                                          |  |      | 80,632  |      |   | 80,625 
|                                                                                                                                                                                                                                                                                    |  |     
|d. 12% note payable due to an individual shareholder of the company. The principal and all accrued interest were due on December 31, 2005. The note is unsecured and guaranteed by an officer
of the Company. In January 2006, the maturity date was extended until April 15, 2006. |  |      | 250,000 |      |   | 250,000
|                                                                                                                                                                                                                                                                                    |  |     
|e. 12% note payable due to an corporation. The principal and all accrued interest were due on Sept. 30, 2005. The note is unsecured and guaranteed by an officer of the Company.                                                                                                    |  |      | 100,000 |      |   | 100,000



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|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |           |  |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------- |  | ---------
|f. 12% note payable due to an corporation. The principal and all accrued interest are due on April 30, 2006. The note is unsecured and guaranteed by an officer of the Company.                                                                                                                                                                                                                                          |  | 300,000   |  | 300,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|g. 12% note payable to and officer of the Company. The principal and accrued interest were due on December 31, 2005. The note is unsecured. In March 2006, the maturity date was extended
until May 31, 2006.                                                                                                                                                                                                            |  | 75,000    |  | 75,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|h. 12% note payable due to an individual. The principal and all accrued interest were due on December 31, 2005. The note is unsecured and guaranteed by an officer of the Company. In March
2006, the maturity date was extended until May 31, 2006.                                                                                                                                                                     |  | 50,000    |  | 50,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|i. 12% note payable due to an individual. The principal and all accrued interest are due on Jan. 31, 2006. The note is unsecured and guaranteed by an officer of the Company. In Jan 2006, the
maturity date was extended until April 30, 2006.                                                                                                                                                                          |  | 50,000    |  | 50,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|j. 12% note payable due to an individual. The principal and all accrued interest are due on January 31, 2006. The note is unsecured and guaranteed by an officer of the Company. In January
2006, the maturity date was extended until August 15, 2006 with a $15,000 payment on January 11, 2006 and monthly payments of $5,000 beginning February 15, 2006. On April 17, 2006 the loan principal & interest were
paid. |  | 35,000    |  | 50,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|k. 3% note payable due to an corporation. The principal and all accrued interest were due on September 30, 2005. In April 2006, the maturity date was extended until June 30, 2006. The
note is unsecured.                                                                                                                                                                                                               |  | 180,000   |  | 200,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|l. 10% note payable due to corporation. The principal and all accrued interest are due on January 31, 2006. The note is unsecured. In February 2006, the maturity date was extended until
May 16, 2006. On May 15, 2006, the maturity date was extended until September 15, 2006.                                                                                                                                        |  | 1,000,000 |  | 1,000,000
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|m. 10% note payable due to an individual. The principal and all accrued interest are due on January 31, 2006. The note is unsecured. In February 2006, the maturity date was extended until
May 16, 2006. On May 15, 2006, the maturity date was extended until September 15, 2006.                                                                                                                                      |  | 100,000   |  | 100,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|n. 10% note payable due to an individual. The principal and all accrued interest are due on January 31, 2006. The note is unsecured. In February 2006, the maturity date was extended until
May 16, 2006. On May 15, 2006, the maturity date was extended until September 15, 2006.                                                                                                                                      |  | 100,000   |  | 100,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|o. 0% note payable due to an individual. The principal matured on November 30, 2005. 25,000 warrants at $.35/share are to be issued in lieu of interest. In April 2006, the maturity was
extended until August 30, 2006.                                                                                                                                                                                                 |  | 50,000    |  | 50,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|p. 8% note payable due to corporation. The principal and all accrued interest are due on February 3, 2006. The note is unsecured.                                                                                                                                                                                                                                                                                        |  | 50,000    |  | 50,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|q. 12% note payable due to corporation. The principal and all accrued interest are due on February 20, 2006. The note is unsecured and guaranteed by an officer of the Company. In March
2006, the maturity was extended until May 30, 2006.                                                                                                                                                                             |  | 75,000    |  | 175,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|r. 8% note payable to a corporation. The principal and all accrued interest are due on February 18, 2006. The note is unsecured. In March, the maturity was extended until June 30,
2006.                                                                                                                                                                                                                                |  | 25,000    |  | 25,000   
|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          
|s. 8% note payable to an individual. The principal and all accrued interest are due on February 18, 2006. The note is unsecured. In March, the maturity was extended until June 30,
2006.                                                                                                                                                                                                                                |  | 25,000    |  | 25,000   



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Notes Payable -continued



|                                                                                                                              |  |   |           |  |   |          
|----------------------------------------------------------------------------------------------------------------------------- |  | - | --------- |  | - | ---------
|t. 8% note payable to an individual. The principal and all accrued interest are due on April 17, 2006. The note is unsecured. |  |   | 100,000   |  |   | -0-      
|u. 8% note payable to an individual. The principal and all accrued interest are due on March 31, 2006. The note is unsecured. |  |   | 200,000   |  |   | -0-      
|v. 12% note payable to an individual. The principal and all accrued interest are due on demand. The note is unsecured.        |  |   | 21,000    |  |   | -0-      
|Total Long Term Debt                                                                                                          |  |   | 2,966,632 |  |   | 2,780,625
|Less: Current Portion                                                                                                         |  |   | 2,966,632 |  |   | 2,780,625
|Long-Term Portion                                                                                                             |  | $ | -0-       |  | $ | -0-      

NOTE 3: CONVERTIBLE BONDS

On January 9, 2006, the Company closed a financing transaction in which it sold 10% secured convertible debentures (the Debentures) to Cornell Capital
Partners, LP (Cornell) to raise $1,750,000 pursuant to a Securities Purchase Agreement dated thereof (the Securities Purchase Agreement). The Company received $600,000 upon closing.

The Debentures mature on January 9, 2009. The Debentures are convertible from time to time into the common stock of the Company by Cornell at the price per share
equal to the lesser of (1) ninety percent (95%) of the lowest volume weighted average price of the Companys common stock, as quoted by Bloomberg, LP, for the thirty (30) trading days immediately preceding the conversion date or
(2) $0.10. In the event that the volume weighted average price of the Companys common stock, as quoted by Bloomberg, LP, is below Four Cents ($0.04) for ten (10) consecutive Trading Days, Cornell shall not, unless waived by the
Company, convert more than Two Hundred Thousand Dollars ($200,000) of principal and interest due and outstanding under the Debentures into shares of the Companys common stock in any thirty (30) calendar day period. Additionally, Cornell
may not convert the Debentures or exercise the Warrant (as defined below) if such conversion or exercise would result in Cornell, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1933 and the rules promulgated thereunder) in excess of 4.9% of the then issued and outstanding shares of the Companys common stock. The Company has an option to redeem a portion or all of the outstanding principle
convertible Debentures, provided that the price of the Companys common stock is trading below the Fixed Conversion Price, with the redeem price of one hundred twenty percent (120%) of the amount redeemed plus accrued interest.

Convertible bonds at March 31, 2006 and December 31, 2005:



|                      |  |      |         |      |   |  
|--------------------- |  | ---- | ------- | ---- | - | -
|                      |  | 2006 |         | 2005
|10% Convertible Bonds |  | $    | 600,000 |      | $ | 
|                      |  |      |         |      |   |  



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NOTE 4: STOCK OPTIONS AND WARRANTS



|                                                                 |  |                             |   |                  |                                 |      |                             |            |   |                                 |   |    
|---------------------------------------------------------------- |  | --------------------------- | - | ---------------- | ------------------------------- | ---- | --------------------------- | ---------- | - | ------------------------------- | - | ---
|                                                                 |  | March 31, 2006              |   | December 31,2005
|                                                                 |  | Number of Options/ Warrants |   |                  | Weighted Average Exercise Price |      | Number of Options/ Warrants |            |   | Weighted Average Exercise Price
|Outstanding at Beginning of Period                               |  | 27,784,602                  |   |                  | $                               | .57  |                             | 22,757,921 |   |                                 |   | .67
|Options Granted                                                  |  | 5,059,290                   |   |                  | $                               | .10  |                             | 4,175,771  |   |                                 | $ | .53
|Warrants Granted                                                 |  | 8,920,000                   |   |                  | $                               | .08  |                             | 9,467,015  |   |                                 | $ | .34
|Exercised                                                        |  | (10,796                     | ) |                  | $                               | .00  |                             | (6,337,688 | ) |                                 |   | .56
|Forfeited                                                        |  | (4,003,435                  | ) |                  | $                               | .14  |                             | (2,278,417 | ) |                                 | $ | .55
|                                                                 |  |                             |   |                  |                                 |      |                             |            |   |                                 |   |    
|Outstanding at End of Period                                     |  | 37,749,661                  |   |                  | $                               | .62  |                             | 27,784,602 |   |                                 | $ | .57
|                                                                 |  |                             |   |                  |                                 |      |                             |            |   |                                 |   |    
|Options Exercisable at End of Period                             |  | 35,671,866                  |   |                  | $                               | .24  |                             | 16,918,676 |   |                                 |   | .60
|Weighted-average Fair Value of Options Granted During the Period |  |                             |   |                  | $                               | ..08 |                             |            |   |                                 | $ | .32

As of March 31, 2006, 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 2.16 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 March 31, 2006 and 2005 is as follows:



|                                                                       |  |      |            |   |      |   |          |  
|---------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | -
|                                                                       |  | 2006 |            |   | 2005 |  
|Restricted Units-Beginning of Year                                     |  |      | 382,588    |   |      |   | 991,858  |  
|Restricted Units Granted                                               |  |      | 6,000,000  |   |      |   | -0-      |  
|Transfer to Common Stock Due to Lapse of Restrictions                  |  |      | (1,191,284 | ) |      |   | (609,290 | )
|                                                                       |  |      |            |   |      |   |          |  
|Restricted Units-End of Year                                           |  |      | 5,191,284  |   |      |   | 382,568  |  
|                                                                       |  |      |            |   |      |   |          |  
|Weighted Average Fair Value of Shares                                  |  | $    | .07        |   |      | $ | .45      |  
|Pre-Tax Compensation Expense Charged to Earnings, net of cancellations |  | $    | -0-        |   |      | $ | -0-      |  

NOTE 6: SUBEQUENT EVENTS

On April 6, 2006, the Company closed the second tranch of a financing transaction in which it sold 10% secured convertible debentures (the
Debentures) to Cornell Capital Partners, LP (Cornell) to raise $1,750,000 pursuant to a Securities Purchase Agreement dated thereof (the Securities Purchase Agreement). The Company received $600,000 upon closing,
will receive another $600,000 on the date the registration statement is filed pursuant to Investors Registration Rights Agreement dated thereof between the Company and Cornell (the Registration Rights Agreement), provided that the
Companys Board of Directors shall have consented, subject to shareholder approval, to increase its authorized shares of Common Stock to at least two hundred fifty million (250,000,000) and the Company shall have entered into
irrevocable voting agreements, with the Buyer(s) as a third party beneficiary of such agreements, with shareholders of the Company who are the beneficial owners of an excess of fifty percent (50%) of the Companys outstanding shares of
Common Stock as of the date hereof, wherein such shareholders shall irrevocably vote in favor of increasing the Companys authorized shares of Common Stock to at least two hundred fifty million (250,000,000), and the Company shall receive
$550,000 one business day prior to the date the registration statement is declared effective by the Securities and Exchange Commission (the Commission). The Debentures mature on January 9, 2009. The Debentures are convertible from
time to time into the common stock of the Company by Cornell at the price per share equal to the lesser of (1) ninety percent (95%) of the lowest volume weighted average price of the Companys common stock, as quoted by Bloomberg, LP,
for the thirty (30) trading days immediately preceding the conversion date or (2) $0.10. In the event that the volume weighted average price of the Companys common stock, as quoted by Bloomberg, LP, is below Four Cents ($0.04) for
ten (10) consecutive Trading Days, Cornell shall not, unless waived by the Company, convert more than Two Hundred Thousand Dollars ($200,000) of principal and interest due and outstanding under the Debentures into shares of the Companys
common stock in any thirty (30) calendar day period. Additionally, Cornell may not convert the Debentures or exercise the Warrant (as



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defined below) if such conversion or exercise would result in Cornell, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1933 and the rules promulgated thereunder) in excess of 4.9% of the then issued and outstanding shares of the Companys common
stock. The Company has an option to redeem a portion or all of the outstanding principle convertible Debentures, provided that the price of the Companys common stock is trading below the Fixed Conversion Price, with the redeem price of one
hundred twenty percent (120%) of the amount redeemed plus accrued interest.

The Company and its subsidiaries granted Cornell a
security interest in certain of its assets pursuant to a Security Agreement dated January 9, 2006 between the Company and Cornell and a Debenture dated January 9, 2006 between i2 Telecom International Limited and Cornell (collectively, the
Security Agreements). The Company entered into a Pledge and Escrow Agreement with Cornell, dated January 9, 2006 (the Pledge Agreement) whereby the Company agreed to pledge 100,000,000 shares of its common stock until
such time all obligations under the Debentures have been satisfied. In December 2005, pursuant to the Pledge Agreement, the Company delivered to the Escrow Agent stock certificates representing 26,987,667 shares of the Companys common stock
with the remaining 72,198,494 shares of common stock to be delivered at such time as the authorized shares of the Companys common stock is increased to at least two hundred fifty million (250,000,000) shares. Additionally, certain of the
Companys shareholders pledged and delivered to the Escrow Agent stock certificates representing a total of 8,269,751 shares of common stock (the Stockholder Pledge Shares) pursuant to Pledge Agreements entered into by and among the
shareholders, the Company and Cornell dated January 9, 2006 (the Shareholder Pledge Agreements). The Stockholder Pledge Shares will be returned to the shareholders when the Company completes delivery of the Company Pledge Shares to
the Escrow Agent. The Company paid Yorkville Advisors, LLC a structuring fee of $15,000 and shall pay a commitment fee equal to 10% of the total purchase price of the Debentures of which $60,000 was paid on January 9, 2006 upon the funding of
$600,000 of the Debentures. Cornell also received a three-year warrant to purchase 7,150,000 shares of common stock at an exercise price of $0.07 per share (the Warrant).

As of May 11, 2006, the Company has received $1,750,000.

Item 2. Managements Discussion and Analysis or Plan of Operation

Certain
statements in this Quarterly Report and in future filings by the Company with the SEC and in the Companys written and oral statements that are not statements of historical facts are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate, intend, will and similar expressions are examples of words that identify forward-looking
statements. Forward-looking statements include, without limitation, statements regarding our future financial position, business strategy and expected cost savings. These forward-looking statements are based on our current beliefs, as well as
assumptions we have made based upon information currently available to us.



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##### Table of Contents

Each forward-looking statement reflects our current view of future events and is subject to risks,
uncertainties and other factors that could cause actual results to differ materially from any results expressed or implied by our forward-looking statements. Important factors that could cause actual results to differ materially from the results
expressed or implied by any forward-looking statements include:



| |  |  | our ability to fund future growth;
| | - |  | ----------------------------------



| |  |  | our ability to become profitable;
| | - |  | ---------------------------------



| |  |  | the volatility of the price of our Common Stock;
| | - |  | ------------------------------------------------



| |  |  | market demand for and market acceptance for our products;
| | - |  | ---------------------------------------------------------



| |  |  | our ability to protect our intellectual property rights;
| | - |  | --------------------------------------------------------



| |  |  | new regulation and legislation;
| | - |  | -------------------------------



| |  |  | trends for the continued growth of our business and other businesses we may acquire;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | our ability to successfully market existing products and services and develop and market new products and services;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to expand our market for existing products and services;
| | - |  | --------------------------------------------------------------------



| |  |  | the effects of our accounting policies and general changes in accounting principles generally accepted in the United States of America;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General economic conditions of the telecommunications market, including the new and evolving market for next-generation communications solutions; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other risks and uncertainties disclosed in our Annual Report.
| | - |  | -------------------------------------------------------------

On Monday, November 7, the Federal Communications Commission (FCC) (www.fcc.gov) Enforcement Bureau issued further revisions to E911 compliance requirements for interconnected VoIP service providers.

In the latest policy, VoIP providers wont be forced to cut off subscribers who dont receive E911 services by November 28, 2005. However,
VoIP companies will be expected to stop marketing their service and accepting new customers in service areas that arent equipped to do E911 call routing, even if subscribers would be able to get basic 911 service. The FCC document
states Although we do not require providers that have not achieved full 911 compliance by November 28, 2005, to discontinue the provision of interconnected VoIP service to any existing customers, we do expect that such providers will
discontinue marketing VoIP service, and accepting new customers for their service, in all areas where they are not transmitting 911 calls to the appropriate PSAP in full compliance with the Commissions rules.

All subsequent forward-looking statements relating to the matters described in this document and attributable to us or to persons acting on our behalf
are expressly qualified in their entirety by such factors. We have no obligation to publicly update or revise these forward-looking statements to reflect new information, future events, or otherwise, except as required by applicable Federal
securities laws, and we caution you not to place undue reliance on these forward-looking statements.



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##### Table of Contents

Business of the Company

The Company, through its subsidiary, i2 Delaware, provides low-cost telecommunications services employing next-generation VoIP technology. These operations are based in Atlanta, Georgia, and Redwood City, California.
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), 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 and call minute termination. The Company believes its
proprietary technology provides meaningful advantages particularly in the areas of ease of use, high quality service, and low cost and robust features.

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;
| | - |  | -----------------------------------------



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



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



| |  |  | plug and play technology using traditional phones (including cellular) 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 not be available to the Company on favorable terms, if at
all.



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##### Table of Contents

RESULTS OF OPERATIONS

Results of operations for the three months ended March 31, 2006 compared with the results of operations for the three months ended March 31, 2005.

Revenues decreased from $186,308 for the first quarter of 2005 to $140,003 for the first quarter of 2006. The decrease in revenues was driven by the
Companys reorganization focusing from product to service offerings.

Cost of revenues decreased from $117,026 for first quarter of
2005 to $71,017 for first quarter of 2006. The decrease was driven by the Companys reorganization focusing from product to service offerings.

Gross profit for the first quarter of 2006 was $68,986 as compared to a gross profit of $69,282 for the first quarter of 2005.

Sales, general and administrative expenses for the first quarter of 2006 were $1,369,290 as compared to $1,697,707 for the same period in 2005. This decrease was attributable to reductions of payroll and related expenses. The company
incurred $392,000 of non recurring expenses of the 1,369,290 of SGA expense for the first quarter 2006.

Loss from operations for the first
quarter of 2006 as compared to the first quarter of 2005 decreased from $1,632,223 to $1,300,304 due to the decrease in sales, general and administrative expenses for the first quarter.

Net loss for the first quarter of 2006 was $1,351,139 as compared to a net loss for the same period in 2005 of $1,972,340. The decrease in net loss for
the first quarter 2006 as compared to the same period in 2005 is due to the Companys continued reduction in operating costs.

The
Companys net accounts receivable balance decreased between March 31, 2005 and March 31, 2006 by approximately $258,000. This decrease is due to the increase in reserves for doubtful accounts quarter over quarter of $160,000. The
Companys inventory decreased by approximately $427,000 between March 31, 2005 and March 31, 2006. The inventory decrease was primarily due to the write offs of obsolete inventory.



|                                    |  |                                      |            |   |      |   |            |          |  |   |            |   |  |        |   
|----------------------------------- |  | ------------------------------------ | ---------- | - | ---- | - | ---------- | -------- |  | - | ---------- | - |  | ------ | --
|                                    |  | For the Three Months Ended March 31, |           
|                                    |  | 2006                                 |            |   | 2005 |   |            | Variance |  |   | Percentage |  
|Gross Revenue                       |  | $                                    | 140,003    |   |      | $ | 186,308    |          |  | $ | (46,305    | ) |  | (24.85 | )%
|Cost of Sales                       |  |                                      | 71,017     |   |      |   | 117,026    |          |  |   | (46,009    | ) |  | (39.31 | )%
|                                    |  |                                      |            |   |      |   |            |          |  |   |            |   |  |        |   
|Gross Profit                        |  | $                                    | 68,986     |   |      | $ | 69,282     |          |  | $ | (334,838   | ) |  | *      | **
|Operating Expenses:                 |  |                                      |            |   |      |   |            |          |  |   |            |   |  |        |   
|General and Administrative Expenses |  | $                                    | 1,369,290  |   |      | $ | 1,696,707  |          |  | $ | (327,417   | ) |  | (19.30 | )%
|Other Income (Expense) Net          |  |                                      | (50,835    | ) |      |   | (3,798     | )        |  |   | 47,037     |   |  | 123.84 | % 
|                                    |  |                                      |            |   |      |   |            |          |  |   |            |   |  |        |   
|Net Loss                            |  | $                                    | (1,351,139 | ) |      | $ | (1,628,425 | )        |  | $ | (277,286   | ) |  | (17.03 | )%



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources as of March 31, 2006 as compared with liquidity and capital resources as of March 31, 2005.

On March 31, 2006, the Company had a working capital deficit of approximately $5,700,000 compared to March 31, 2005 when the Company had a
working capital deficit of approximately $296,742. The Companys working capital position decreased by approximately $5,400,000 for the period ended March 31, 2006 as compared to the period ended March 31, 2005. The decrease in
working capital was primarily due to a decrease in cash of approximately $130,000 increase in accounts payable of approximately $2,400,000, and increase in notes payable of approximately $2,600,000. Net cash used in operating activities was
($1,429,743) for the first quarter of March 31, 2006. Again, the increase in net cash used in operating activities between March 31, 2006 and March 31, 2005 is attributable to a decrease in accounts receivable of approximately
$51,000, decrease in inventories of approximately $6,000 and an increase in accounts payable of approximately $249,000. Net loss of approximately $1,351,139 is reduced by non-cash items of depreciation amounting to approximately $97,000. Primary
sources of cash inflows from operations are from sales of the VoiceStick, VoiceStick activation charges and pre-paid charges and receivables collected from sales to customers for the Companys IAD, as well as the collection of
revenue for carrying long distance calls and from monthly service fees. Future cash inflows from sales are subject to the Companys pricing and ability to procure business at existing market conditions.

Net cash used in investing activities was approximately ($33,123) for the first quarter of 2006 as compared to approximately ($47,807) for the same
period in 2005. Both periods investing activities were primarily due to equipment purchases and payment for patents and trademarks.

Cash
flows provided by financing activities were approximately $1,317,477 for the first quarter of 2006 as compared to $1,295,094 for the same period in 2005. The principal source of cash for the first quarter of 2006 was from notes payable of $321,000
and the issuance of convertible bonds of $600,000



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##### Table of Contents

OFF BALANCE SHEET ARRANAGEMENTS

None.

Item 3: Controls and Procedures

The Companys Chief Executive Officer and principal financial officer
has evaluated the Companys controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this
Quarterly Report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officer has concluded that, as of the end of the period covered by this Quarterly Report, the Companys controls
and procedures are effective.



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##### Table of Contents

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not a party to any material legal proceedings other than ordinary
routine claims and proceedings incidental to its business and the Company does not expect these ordinary claims and proceedings, either individually or in the aggregate, to have a material adverse effect on the Company.

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

Also in January 2006, five investors
were issued 7,590,000 warrants exercisable at $0.07 to $0.10 each as part of loans made to the Company. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in
Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the warrants to the Company regarding their investment interest and sophistication, among other things.

On January 9, 2006, we closed a financing transaction in which we sold 10% secured convertible debentures (the Cornell Debentures) to
Cornell Capital Partners, LP (Cornell) to raise $1,750,000 pursuant to a Securities Purchase Agreement dated thereof. We received $600,000 upon closing, received another $600,000 immediately prior to the date the registration statement
was filed pursuant to Investors Registration Rights Agreement dated thereof between the Company and Cornell, provided that the Companys Board of Directors consented and our shareholders approved, to increase our authorized shares of Common
Stock to at least two hundred fifty million (250,000,000) and we entered into irrevocable voting agreements, with Cornell as a third party beneficiary of such agreements, with our shareholders who are the beneficial owners of an excess of fifty
percent (50%) of our outstanding shares of Common Stock, wherein such shareholders irrevocably voted in favor of increasing our authorized shares of Common Stock to at least two hundred fifty million (250,000,000), and we received $550,000
on May 10, 2006. The Cornell Debentures mature on January 9, 2009, April 6, 2009 and May 10, 2009. The Cornell Debentures are convertible from time to time into our common stock by Cornell at the price per share equal to the
lesser of (1) ninety percent (95%) of the lowest volume weighted average price of our common stock, as quoted by Bloomberg, LP, for the thirty (30) trading days immediately preceding the conversion date or (2) $0.10. In the event
that the volume weighted average price of our common stock, as quoted by Bloomberg, LP, is below Four Cents ($0.04) for ten (10) consecutive Trading Days, Cornell shall not, unless waived by us, convert more than Two Hundred Thousand Dollars
($200,000) of principal and interest due and outstanding under the Cornell Debentures into shares of our common stock in any thirty (30) calendar day period. Additionally, Cornell may not convert the Debentures or exercise the Warrant (as
defined below) if such conversion or exercise would result in Cornell, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1933 and the rules promulgated
thereunder in excess of 4.9% of the then issued and outstanding shares of our common stock. We have an option to redeem a portion or all of the outstanding principal under the convertible Debentures, provided that the price of our common stock is
trading below the Fixed Conversion Price, of the redemption price of one hundred twenty percent (120%) of the amount redeemed plus accrued interest.



25



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##### Table of Contents

The Company and our subsidiaries granted Cornell a security interest in certain of our assets pursuant to
a Security Agreement dated January 9, 2006 between us and Cornell and a Debenture dated January 9, 2006 between i2 Telecom International Limited and Cornell. We entered into a Pledge and Escrow Agreement with Cornell, dated January 9,
2006 (the Pledge Agreement) whereby we agreed to pledge 100,000,000 shares of our common stock until such time all obligations under the Cornell Debentures have been satisfied. Pursuant to the Pledge Agreement, we delivered to the escrow
agent stock certificates representing 26,887,667 shares of our common stock with the remaining 73,112,333 shares of common stock to be delivered at such time as the authorized shares of our common stock is increased to at least two hundred fifty
million (250,000,000) shares. Additionally, certain of our shareholders pledged and delivered to the escrow agent stock certificates representing a total of 8,269,751 shares of common stock (the Stockholder Pledge Shares) pursuant
to Pledge Agreements entered into by and among the shareholders, us and Cornell dated January 9, 2006 (the Shareholder Pledge Agreements). The Stockholder Pledge Shares were returned to the shareholders when the Company completed
delivery of our Pledge Shares to the escrow agent. We paid Yorkville Advisors, LLC a structuring fee of $15,000 and shall pay a commitment fee equal to 10% of the total purchase price of the Debentures of which $60,000 was paid on January 9,
2006 upon the funding of $600,000 of the Debentures. Cornell also received a three-year warrant to purchase 7,150,000 shares of common stock at an exercise price of $0.07 per share (the Warrant). The shares underlying the Warrant and the
Cornell Debentures are being registered on this registration statement. The Company has filed a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.

Also in January 2006, four investors, Dr. Braswell, a director of the Company, Messes. Phipps and Falkner, and Vestal Ventures were issued 230,000
warrants exercisable at $0.10 each as part of loan extensions made to the Company. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation
D. The Company based such reliance upon factual representations by the recipients of the warrants to the Company regarding their investment interest and sophistication, among other things.

In February 2006, the Company issued to a consultant three-year warrants to purchase aggregate of 200,000 shares of Common Stock at an exercise price of
$0.10 per share, vested immediately upon the date of grant with a three-year expiration period. The warrants were issued in connection with consulting services provided by them to the Company. The warrants were issued without registration under the
Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the warrants to the Company regarding their
investment interest and sophistication, among other things.

Also in February 2006, the Company issued to two consultants an aggregate of
6,000,000 shares of Common Stock in lieu of $420,000 in consulting fees due over a one year period. The



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##### Table of Contents

shares were issued in connection with consulting services provided by them to the Company. The shares were issued without
registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the shares to the Company
regarding their investment interest and sophistication, among other things. However, fifty percent of these shares are entitled to piggyback registration rights upon filing of the Companys next registration statement. The Company
has filed a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.

Also in February 2006, the Company issued to Troon and Mssrs. McGraw and Glazov three-year warrants to purchase aggregate of 1,200,000 shares of Common Stock at an exercise price of $0.10 per share, vested immediately
upon the date of grant with a three-year expiration period. The warrants were issued in lieu of additional consideration for a loan extension to the Company. The warrants were issued without registration under the Securities Act in reliance upon the
exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the warrants to the Company regarding their investment interest and sophistication, among
other things.

Also in February 2006, the Company issued to Mr. Phillip Rapp three-year warrants to purchase aggregate of 200,000
shares of Common Stock at an exercise price of $0.10 per share, vested immediately upon the date of grant with a three-year expiration period. The warrants were issued in lieu of additional consideration for a $200,000 loan to the Company. The
warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of
the warrants to the Company regarding their investment interest and sophistication, among other things.

Also in February 2006,
Mr. Fultz exercised $100,000 in options in exchange for 200,000 shares of Common Stock at an exercise price of $.50 per share. The shares were issued in April 2006. The shares were issued without registration under the Securities Act in
reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the shares to the Company regarding their investment interest and
sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the Companys next registration statement. The Company has filed a registration statement on April 13, 2006
and is working with the Securities & Exchange Commission to declare it effective.

Also in March 2006, the Company issued to two
investors, Mr. Arena, an officer and director of the Company and Mr. Purcell three-year warrants to purchase aggregate of 40,000 shares of Common Stock at an exercise price of $0.10 per share, vested immediately upon the date of grant with
a three-year expiration period. The warrants were issued in lieu of additional consideration for loan extensions to the Company. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration
set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the warrants to the Company regarding their investment interest and sophistication, among other things.



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##### Table of Contents

Also in March 2006, the Company issued to Mr. Phillip Rapp three-year warrants to purchase aggregate
of 100,000 shares of Common Stock at an exercise price of $0.10 per share, vested immediately upon the date of grant with a three-year expiration period. The warrants were issued in lieu of additional consideration for a $100,000 loan to the
Company. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the
recipients of the warrants to the Company regarding their investment interest and sophistication, among other things.

Also in March 2006,
the Company had issuable to Richardson & Patel and Peter Hogan, general counsel to the Company, an aggregate of 500,000 shares of Common Stock in lieu of $63,000 in fees due over a four month period in connection with services provided by
them to the Company. The shares were issued in April 2006 without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual
representations by the recipients of the shares to the Company regarding their investment interest and sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the
Companys next registration statement. The Company has filed a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.

In April 2006, the Company issued to Cornell Capital, an aggregate of 73,113,333 shares of Common Stock as additional collateral to meet the requirement
100,000,000 shares of Common Stock issued. Previously in December 2005, 26,886,667 shares of Common Stock were issued to Cornell Capital. These shares were issued collectively in connection with an investment in the Company. The shares were issued
without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the shares to the
Company regarding their investment interest and sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the Companys next registration statement. The Company has filed
a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.

Also in April 2006, 1,663,609 shares of Common Stock were issued to 12 individuals and institutional investors of the Companys Series D and Series E convertible preferred shares in lieu of $251,238 of preferred dividends for the
second , third and fourth quarters of 2005. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance
upon factual representations by the recipients of the shares to the Company regarding their investment interest and sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of
the Companys next registration statement. The Company has filed a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.



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Also in April 2006, the Company issued to one investor Vestal Venture Capital and University Bank
three-year warrants to purchase aggregate of 100,000 shares of Common Stock at an exercise price of $0.10 per share, vested immediately upon the date of grant with a three-year expiration period. The warrants were issued in lieu of additional
consideration for loan extensions to the Company. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such
reliance upon factual representations by the recipients of the warrants to the Company regarding their investment interest and sophistication, among other things.

Also in April 2006, the Company issued to Kenny Securities, financial advisor to the Company, an aggregate of 200,000 shares of Common Stock in lieu of $25,000 in fees due. The shares were issued in connection with
services provided by them to the Company. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon
factual representations by the recipients of the shares to the Company regarding their investment interest and sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the
Companys next registration statement. The Company has filed a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.

Also in April 2006, the Company issued to Mr. Phipps an aggregate of 350,000 shares of Common Stock in lieu of a $35,000 promissory note with
interest. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the
recipients of the shares to the Company regarding their investment interest and sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the Companys next registration
statement. The Company has filed a registration statement on April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective.

Also in April 2006, the Company issued to CEOCast, an investor relations advisory firm providing services to the Company, an aggregate of 1,000,000
shares of Common Stock in lieu of $100,000 in fees due over the next twelve month period. The shares were issued in connection with services provided by them to the Company. The shares are to be issued without registration under the Securities Act
in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the shares to the Company regarding their investment interest and
sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the Companys next registration statement. The Company has filed a registration statement on April 13, 2006
and is working with the Securities & Exchange Commission to declare it effective.

Also in April 2006, 840,000 shares of Common
Stock were issuable upon exercise of a warrant exercisable until April 11, 2011 to 5 individuals, Mssrs. Collins, Dohrman, Hamilton,



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##### Table of Contents

Klages and Olson and 1 Trust, F/B/O, Mr. & Mrs. Swift, at an exercise price of $0.10 per share (subject to
customary adjustments in accordance with the terms thereof). The warrants are issuable as compensation for services rendered by the Selling Shareholders to the Company. Brian Swift exercises on behalf of the Trust Selling Shareholder
voting and dispositive power with respect to the shares of Common Stock registered hereby for the account of the Selling Shareholder. The Selling Shareholders are an affiliate of a registered broker-dealer. The Seller Shareholders have certified to
the Company that the Selling Shareholders received the securities convertible or exercisable into the shares of Common Stock registered hereby in the ordinary course of business and at the time of such receipt had no agreements or understandings
with any person to distribute such shares of Common Stock.

Also in April 2006, the Company had issuable to Mssrs. Lippert and Heilshorn,
consultants to the Company, an aggregate of 180,000 shares of Common Stock in lieu of $18,000 in fees due. The shares were issued in connection with services provided by them to the Company. The shares were issued without registration under the
Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients of the shares to the Company regarding their investment
interest and sophistication, among other things. However, these shares are entitled to piggyback registration rights upon filing of the Companys next registration statement. The Company has filed a registration statement on
April 13, 2006 and is working with the Securities & Exchange Commission to declare it effective. Additionally, the Company issued to Mssrs. Lippert and Heilshorn three-year warrants to purchase aggregate of 54,000 shares of Common
Stock at an exercise price of $1.00 per share, vested immediately upon the date of grant with a three-year expiration period. The warrants were issued in lieu of additional consideration for a discount to the consulting agreement with the Company.
The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. The Company based such reliance upon factual representations by the recipients
of the warrants to the Company regarding their investment interest and sophistication, among other things.

Also in May 2006, the Company
issued to Troon and Mssrs. McGraw and Glazov three-year warrants to purchase aggregate of 1,200,000 shares of Common Stock at an exercise price of $0.15 per share, vested immediately upon the date of grant with a three-year expiration period. The
warrants were issued in lieu of additional consideration for a loan extension to the Company. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and
Regulation D. The Company based such reliance upon factual representations by the recipients of the warrants to the Company regarding their investment interest and sophistication, among other things.

Item 3. Defaults Upon Senior Securities



|None. | 
|----- | 



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

On March 29, 2006, at the Companys
annual meeting (the Annual Meeting), the shareholders of the Company approved by majority of the voting shares to increase the total number of shares which the corporation is authorized to issue to 250,000,000 of common stock having no
par value and the 5,000,000 shares of preferred stock having no par value remained the same. The number of shares voting in favor, against or abstaining was as follows:



|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|45,661,030 |  | 244,510 |  | 388,848

Additionally, at the Annual Meeting, Paul R. Arena, Audrey L. Braswell and James R. Rose were
elected to the Board of Directors. The number of shares voting in favor of each director or withheld authority was as follows:



|                   |  |            |  |                   
|------------------ |  | ---------- |  | ------------------
|                   |  | For        |  | Withhold Authority
|Paul R. Arena      |  | 46,186,829 |  | 107,559           
|Audrey L. Braswell |  | 46,254,262 |  | 40,126            
|James R. Rose      |  | 46,253,262 |  | 41,026            

The shareholders also ratified the appointment of Freedman & Goldberg Certified Public
Accounts, P.C. as the Companys independent auditor for the 2006 fiscal year. The number of shares voting for, against or abstaining was as follows:



|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|45,895,868 |  | 32,159  |  | 366,361

The shareholders also approved an amendment to our 2004 Stock Incentive Plan to increase the
number of shares of Common Stock included in the plan from 10,000,000 to 15,000,000. The number of shares voting for, against or abstaining was as follows:



|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|40,263,901 |  | 327,295 |  | 50,987 

The Certificate of Designations of Rights and Preferences of Preferred Stock Series D was amended to include
the following changes:



| | (a) | (xxx) Standard Conversion Price means, with respect to the Preferred Shares, as of any Conversion Date or other date of determination, $0.20, subject to
adjustment as provided herein.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The previous Certificate of Designations was deleted in its entirety and the following shall appear in its place:
| |  | -----------------------------------------------------------------------------------------------------------------



| | (b) | Holders Conversion Right; Mandatory Redemption or Conversion. Subject to the provisions of Section 5 and Section 12, at any time or times on or after the Issuance
Date, any holder of Preferred Shares shall be entitled to convert any whole or fractional number of Preferred Shares into fully paid and nonassessable shares of Common Stock in accordance with Section 2(d) at the Conversion Rate (as defined
below). If the Weighted Average Price of the Common Stock is equal to or exceeds $0.40 (subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, reverse stock splits or other similar events) for any period of twenty
(20) consecutive trading days, then any Preferred Shares outstanding upon the expiration of such twenty (20) trading day period shall be automatically converted into fully paid and nonassessable shares of Common Stock in accordance with
Section 2(d) at the Conversion Rate. If any
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Preferred Shares remain outstanding on the Maturity Date, then, pursuant and subject to
Section 2(d)(vii), all such Preferred Shares shall be converted at the Conversion Rate as of such date in accordance with Section 2(d)(vii) or redeemed by the Company in accordance with Section 2(d)(vii). The Company shall not issue
any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share.



| | (c) | Section 2(f) of the Certificate of Designations is hereby deleted in its entirety and the following shall appear in its place:
| | --- | ------------------------------------------------------------------------------------------------------------------------------

(f)       [Intentionally omitted.]

The Amendment was adopted by the Corporations Board of Directors on December 9, 2005 and approved by its stockholders in accordance with the provisions of RCW 23B.10.030 and 23B.10.040 on March 29,
2006.

The Certificate of Designations of Rights and Preferences of Preferred Stock Series E was amended to include the following changes:



| | (a) | Conversion Price means, with respect to the Preferred Shares, as of any Conversion Date or other date of determination, $0.20, subject to adjustment as provided
herein.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Section 3(a) of the Certificate of Designations is hereby deleted in its entirety and the following shall appear
in its place:



| | (b) | Holders Conversion Right; Mandatory Redemption or Conversion. Subject to the provisions of Section 12, at any time or times on or after the Issuance Date, any holder of
Preferred Shares shall be entitled to convert any whole or fractional number of Preferred Shares into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c) at the Conversion Rate (as defined below). If the Weighted
Average Price of the Common Stock is equal to or exceeds $0.40 (subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, reverse stock splits or other similar events) for any period of twenty (20) consecutive
trading days, then any Preferred Shares outstanding upon the expiration of such twenty (20) trading day period shall be automatically converted into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c) at the
Conversion Rate. The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of
Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Section 3(e)(i) of the Certificate of Designations is hereby deleted in its entirety and the following shall appear in its place:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

(e)(i)      [Intentionally omitted.]

The Amendments was adopted by the Corporations Board of Directors on December 9, 2005 and approved by its stockholders in accordance with the provisions of RCW 23B.10.030 and 23B.10.040 on March 29,
2006. 65.3% of the Series D Preferred shareholders and 100% of the Series E Preferred shareholders approved the Amendment.



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Item 5. Other Information

None.

Item 6. Exhibits

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



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SIGNATURE

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



|                   |  |                                                            
|------------------ |  | -----------------------------------------------------------
|                   |  | i2 TELECOM INTERNATIONAL, INC.                             
|                   | 
|Date: May 15, 2006 |  | /S/ Paul R. Arena                                          
|                   |  | Paul R. Arena                                              
|                   |  | Chief Executive Officer                                    
|                   |  | (duly authorized signatory and Principal Executive Officer)



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EXHIBIT INDEX



|      |  |                                                                                                                                                                                                                        
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1 |  | Articles of Incorporation, as amended. (Incorporated by reference to Exhibit 3.1 to the Companys Annual Report on Form 10-KSB for the year ended December 31,
2003.)                                                  
|      | 
|3.1.2 |  | Bylaws, as amended. (Incorporated by reference to Exhibit 3.1 to the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003.)                                                                     
|      | 
|3.1.3 |  | Certificate of Designations of Rights and Preferences of Preferred Stock Series D. (Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed August 13,
2004)                        
|      | 
|3.1.4 |  | Amendment to the Companys Articles of Incorporation filed June 3, 2004. (Incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2004)               
|      | 
|3.1.5 |  | Amendment to the Companys Articles of Incorporation filed August 10, 2004. (Incorporated by reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2004)            
|      | 
|3.1.6 |  | Amendment to Certificate of Designations of Rights and Preferences of Preferred Stock Series D. (Incorporated by reference to Exhibit 3.8 to the Companys Registration Statement on Form
SB-2 filed on April 13, 2006)
|      | 
|3.1.7 |  | Amendment to Certificate of Designations of Rights and Preferences of Preferred Stock Series E. (Incorporated by reference to Exhibit 3.9 to the Companys Registration Statement on Form
SB-2 filed on April 13, 2006)
|      | 
|3.1.8 |  | Amendment to Articles of Incorporation filed April 17, 2006. Filed herewith                                                                                                                                            
|      | 
|10.1  |  | Secured Convertible debenture dated April 6, 2006 between the Company and Cornell Capital Partner LP. Filed herewith                                                                                                   
|      | 
|10.2  |  | Secured Convertible Debenture dated May 10, 2006 between the Company and Cornell Capital Partners, LP. Filed herewith                                                                                                  
|      | 
|31.1  |  | Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer and Principal Financial Officer. Filed herewith.                                                                                       
|      | 
|32.1  |  | Section 1350 Certification by the Companys Chief Executive Officer and Principal Financial Officer. Filed herewith