##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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 September 30, 2005.



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



For the transition period from



Commission file number: 0-27704



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i2 Telecom International, Inc.

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



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|                                                               |  |                                                 
|-------------------------------------------------------------- |  | ------------------------------------------------
|Washington                                                     |  | 91-1426372                                      
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)               
|                                                               | 
|1200 Abernathy Rd. Suite 1800 Atlanta, GA 30328                |  | (770) 512-7174                                  
|(Address of Principal Executive Offices)                       |  | (Issuers Telephone Number, Including Area Code)



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



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 November 21, 2005, the registrant had 37,998,977
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 |  | 17  
|               |  |                                                             
|Item 3.        |  | Controls and Procedures                                      |  | 22  
|               |  |                                                             
|PART II.       |  | OTHER INFORMATION                                            |  |     
|               |  |                                                             
|Item 1.        |  | Legal Proceedings                                            |  | 23  
|               |  |                                                             
|Item 2.        |  | Unregistered Sales of Equity Securities and Use of Proceeds  |  | 23  
|               |  |                                                             
|Item 3.        |  | Default Upon Senior Securities                               |  | 24  
|               |  |                                                             
|Item 6.        |  | Exhibits                                                     |  | 25  
|               | 
|SIGNATURE PAGE |  | 26                                                          
|               | 
|CERTIFICATIONS |  |                                                             



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



ASSETS



|                                                                                                  |  |                   |           |                  |   |          
|------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                                                                                                  |  | September 30,2005 |           | December 31,2004
|Current Assets                                                                                    |  |                   |           |                  |   |          
|Cash                                                                                              |  | $                 | 177,327   |                  | $ | 231,127  
|Accounts Receivable, net of Allowance for Doubtful Accounts of $400,000 and $75,000, respectively |  |                   | 51,677    |                  |   | 232,371  
|Inventories                                                                                       |  |                   | 815,785   |                  |   | 961,056  
|Prepaid Expenses and Other Current Assets                                                         |  |                   | 407,428   |                  |   | 231,966  
|                                                                                                  |  |                   |           |                  |   |          
|Total Current Assets                                                                              |  |                   | 1,452,217 |                  |   | 1,656,520
|                                                                                                  |  |                   |           |                  |   |          
|Property and Equipment, Net                                                                       |  |                   | 1,299,051 |                  |   | 1,267,763
|Other Assets                                                                                      |  |                   |           |                  |   |          
|Intangible Assets, Net of Accumulated Amortization of $599,085 and $435,507, respectively         |  |                   | 2,748,000 |                  |   | 2,880,579
|Deposits                                                                                          |  |                   | 67,549    |                  |   | 78,164   
|                                                                                                  |  |                   |           |                  |   |          
|Total Other Assets                                                                                |  |                   | 2,815,549 |                  |   | 2,958,743
|                                                                                                  |  |                   |           |                  |   |          
|Total Assets                                                                                      |  | $                 | 5,566,817 |                  | $ | 5,883,026
|                                                                                                  |  |                   |           |                  |   |          



3



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##### Table of Contents

i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)



|                                                                                                                                        |  |                   |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                        |  | September 30,2005 |             |   | December 31,2004 |  
|Current Liabilities                                                                                                                     |  |                   |             |   |                  |   |             |  
|Accounts Payable and Accrued Expenses                                                                                                   |  | $                 | 2,629,038   |   |                  | $ | 1,303,656   |  
|Deferred Revenue                                                                                                                        |  |                   | 99,776      |   |                  |   | 99,901      |  
|Notes Payable-Current                                                                                                                   |  |                   | 2,506,501   |   |                  |   | 100,000     |  
|                                                                                                                                        |  |                   |             |   |                  |   |             |  
|Total Current Liabilities                                                                                                               |  |                   | 5,235,315   |   |                  |   | 1,503,557   |  
|                                                                                                                                        |  |                  
|Long-Term Debt  Notes Payable                                                                                                          |  |                   | -0-         |   |                  |   | -0-         |  
|                                                                                                                                        |  |                   |             |   |                  |   |             |  
|Total Liabilities                                                                                                                       |  |                   | 5,235,315   |   |                  |   | 1,503,557   |  
|                                                                                                                                        |  |                   |             |   |                  |   |             |  
|Shareholders Equity (Deficit)                                                                                                          |  |                   |             |   |                  |   |             |  
|Preferred Stock, No Par Value, 5,000,000 Shares Authorized, 4,085 Shares and 4,075 Shares Issued and Outstanding, respectively          |  |                   | 4,860,000   |   |                  |   | 4,175,000   |  
|Common Stock, No Par Value, 100,000,000 Shares Authorized, 37,337,738 Shares and 34,491,402 Shares Issued and Outstanding,
respectively |  |                   | 14,537,040  |   |                  |   | 13,035,158  |  
|Restricted Common Stock (related to No Par Value above), 661,239 Shares and 991,858 Shares Issued and Outstanding,
respectively         |  |                   | 331,764     |   |                  |   | 497,646     |  
|Additional Paid-In Capital                                                                                                              |  |                   | 900,396     |   |                  |   | 404,100     |  
|Accumulated Deficit During The Development Stage                                                                                        |  |                   | (20,297,698 | ) |                  |   | (13,732,435 | )
|                                                                                                                                        |  |                   |             |   |                  |   |             |  
|Total Shareholders Equity (Deficit)                                                                                                    |  |                   | 331,502     |   |                  |   | 4,379,469   |  
|                                                                                                                                        |  |                   |             |   |                  |   |             |  
|Total Liabilities and Shareholders Equity (Deficit)                                                                                    |  | $                 | 5,566,817   |   |                  | $ | 5,883,026   |  
|                                                                                                                                        |  |                   |             |   |                  |   |             |  



4



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##### Table of Contents

i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------------- | ----------- | - | ----------------------------------------- | - | ---------- | ----------------------------------------- |  | - | ---------------------------------------- | - |  | ---------------------------------------- | ---------- | - |  | - | ---------- | -
|                                                                                         |  | CumulativeFromInception ToSeptember 30,2005 |             |   | For the ThreeMonthsEndedSeptember 30,2005 |   |            | For the ThreeMonthsEndedSeptember 30,2004 |  |   | For the NineMonthsEndedSeptember 30,2005 |   |  | For the NineMonthsEndedSeptember 30,2004 |           
|Revenue                                                                                  |  | $                                           | 1,196,710   |   |                                           | $ | 49,851     |                                           |  | $ | 215,172                                  |   |  | $                                        | 502,389    |   |  | $ | 481,560    |  
|                                                                                         |  |                                             |             |   |                                          
|Cost of Revenue                                                                          |  |                                             | 1,753,027   |   |                                           |   | 369,492    |                                           |  |   | 199,975                                  |   |  |                                          | 775,589    |   |  |   | 488,627    |  
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Gross Profit (Loss)                                                                      |  |                                             | (556,317    | ) |                                           |   | (319,641   | )                                         |  |   | 15,197                                   |   |  |                                          | (273,200   | ) |  |   | (7,067     | )
|                                                                                         |  |                                             |             |   |                                          
|General and Administrative Expenses                                                      |  |                                             | 19,125,248  |   |                                           |   | 2,351,050  |                                           |  |   | 1,827,845                                |   |  |                                          | 6,056,368  |   |  |   | 4,872,017  |  
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Loss From Operations                                                                     |  |                                             | (19,681,565 | ) |                                           |   | (2,670,691 | )                                         |  |   | (1,812,648                               | ) |  |                                          | (6,329,568 | ) |  |   | (4,789,084 | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Other Income (Expense)                                                                   |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Interest Income                                                                          |  |                                             | 15,390      |   |                                           |   | 1,462      |                                           |  |   | 1,628                                    |   |  |                                          | 2,153      |   |  |   | 1,743      |  
|Interest Expense                                                                         |  |                                             | (285,196    | ) |                                           |   | (13,749    | )                                         |  |   | (10,105                                  | ) |  |                                          | (26,454    | ) |  |   | (27,327    | )
|Gain on Forbearance of Debt                                                              |  |                                             | 378,603     |   |                                           |   | 350,960    |                                           |  |   | 27,643                                   |   |  |                                          | 350,960    |   |  |   | 27,643     |  
|Loss on Disposal of Assets                                                               |  |                                             | (593        | ) |                                           |   | 0          |                                           |  |   | 0                                        |   |  |                                          | 0          |   |  |   | 0          |  
|Loss on Subscription List                                                                |  |                                             | (118,000    | ) |                                           |   | 0          |                                           |  |   | 0                                        |   |  |                                          | 0          |   |  |   | 0          |  
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Total Other Income (Expense)                                                             |  |                                             | (9,796      | ) |                                           |   | 338,673    |                                           |  |   | 19,166                                   |   |  |                                          | 326,659    |   |  |   | 2,059      |  
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  |                                             | (19,691,361 | ) |                                           |   | (2,332,018 | )                                         |  |   | (1,793,482                               | ) |  |                                          | (6,002,909 | ) |  | $ | (4,787,025 | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Cumulative Effect of Accounting Change on Years Prior to 2005, Net of Income Tax of $-0- |  |                                             | (340,117    | ) |                                           |   | 0          |                                           |  |   | 0                                        |   |  |                                          | (340,117   | ) |  |   | 0          |  
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Net Income (Loss)                                                                        |  | $                                           | (20,031,478 | ) |                                           | $ | (2,332,018 | )                                         |  | $ | (1,793,482                               | ) |  | $                                        | (6,343,026 | ) |  | $ | (4,787,025 | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Weighted Average Common Shares:                                                          |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Basic                                                                                    |  |                                             | 16,925,304  |   |                                           |   | 37,337,737 |                                           |  |   | 34,238,549                               |   |  |                                          | 36,609,532 |   |  |   | 19,069,547 |  
|Diluted                                                                                  |  |                                             | 35,767,559  |   |                                           |   | 59,579,681 |                                           |  |   | 46,981,359                               |   |  |                                          | 48,075,234 |   |  |   | 39,217,702 |  
|                                                                                         |  |                                             |             |   |                                          
|Basic Earnings Per Common Share:                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  | $                                           | (1.17       | ) |                                           | $ | (.07       | )                                         |  | $ | (.05                                     | ) |  | $                                        | (.17       | ) |  | $ | (.25       | )
|Cumulative Effect of Accounting Change                                                   |  | $                                           | (.02        | ) |                                           |   | (.00       | )                                         |  |   | (.00                                     | ) |  | $                                        | (.01       | ) |  |   | (.00       | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Net Loss                                                                                 |  | $                                           | (1.19       | ) |                                           | $ | (.07       | )                                         |  | $ | (.05                                     | ) |  | $                                        | (.18       | ) |  | $ | (.25       | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Diluted Earnings Per Common Share:                                                       |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Loss Before Cumulative Effect of Accounting Change                                       |  | $                                           | (.55        | ) |                                           | $ | (.04       | )                                         |  | $ | (.04                                     | ) |  | $                                        | (.13       | ) |  | $ | (.12       | )
|Cumulative Effect of Accounting Change                                                   |  |                                             | (.01        | ) |                                           |   | (.00       | )                                         |  |   | (.00                                     | ) |  |                                          | (.01       | ) |  |   | (.00       | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  
|Net Loss                                                                                 |  | $                                           | (.56        | ) |                                           | $ | (.04       | )                                         |  | $ | (.04                                     | ) |  | $                                        | (.14       | ) |  | $ | (.12       | )
|                                                                                         |  |                                             |             |   |                                           |   |            |                                           |  |   |                                          |   |  |                                          |            |   |  |   |            |  



5



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##### Table of Contents

i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | ------------------------------------------- | ----------- | - | ------------------------------------------ | - | ---------- | ------------------------------------------ |  | - | ----------------------------------------- | - |  | ----------------------------------------- | ---------- | - |  | - | ---------- | -
|                                                                                 |  | CumulativeFromInception toSeptember 30,2005 |             |   | For the ThreeMonths EndedSeptember 30,2005 |   |            | For the ThreeMonths EndedSeptember 30,2004 |  |   | For the NineMonths EndedSeptember 30,2005 |   |  | For the NineMonths EndedSeptember 30,2004 |           
|Cash Flows From Operations                                                       |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Net Loss From Continuing Operations                                              |  | $                                           | (20,031,478 | ) |                                            | $ | (2,332,018 | )                                          |  | $ | (1,793,482                                | ) |  | $                                         | (6,343,026 | ) |  | $ | (4,787,025 | )
|Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Bad Debts                                                                        |  |                                             | 407,857     |   |                                            |   | 332,857    |                                            |  |   | 50,000                                    |   |  |                                           | 332,857    |   |  |   | 50,000     |  
|Depreciation and Amortization                                                    |  |                                             | 1,258,346   |   |                                            |   | 155,695    |                                            |  |   | 120,471                                   |   |  |                                           | 432,661    |   |  |   | 333,871    |  
|Interest Paid Via Issuance of Stock                                              |  |                                             | 192,604     |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|Gain of Forbearance of Debt                                                      |  |                                             | (378,603    | ) |                                            |   | (350,960   | )                                          |  |   | (27,643                                   | ) |  |                                           | (350,960   | ) |  |   | (27,643    | )
|Loss on Disposal of Assets                                                       |  |                                             | 593         |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|Stock Compensation                                                               |  |                                             | 1,504,451   |   |                                            |   | 48,975     |                                            |  |   | 0                                         |   |  |                                           | 119,899    |   |  |   | 0          |  
|Cumulative Effect of Accounting Change (Increase) Decrease In:                   |  |                                             | 340,117     |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 340,117    |   |  |   | 0          |  
|Accounts Receivable                                                              |  |                                             | (459,534    | ) |                                            |   | 61,884     |                                            |  |   | (271,274                                  | ) |  |                                           | (152,163   | ) |  |   | (350,385   | )
|Inventories                                                                      |  |                                             | (621,023    | ) |                                            |   | 236,258    |                                            |  |   | 67,667                                    |   |  |                                           | 145,271    |   |  |   | (139,439   | )
|Prepaid Expenses                                                                 |  |                                             | (347,163    | ) |                                            |   | (114,223   | )                                          |  |   | 25,726                                    |   |  |                                           | (159,140   | ) |  |   | (194,570   | )
|Other Assets                                                                     |  |                                             | (67,549     | ) |                                            |   | (31,009    | )                                          |  |   | (6,868                                    | ) |  |                                           | 10,615     |   |  |   | (19,758    | )
|Increase (Decrease) In:                                                          |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Accounts Payable and Accrued Expenses                                            |  |                                             | 2,687,495   |   |                                            |   | 445,377    |                                            |  |   | 586,336                                   |   |  |                                           | 1,618,981  |   |  |   | 656,696    |  
|Deferred Revenue                                                                 |  |                                             | 99,776      |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | (125       | ) |  |   | 0          |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Net Cash Used In Operating Activities                                            |  |                                             | (15,414,111 | ) |                                            |   | (1,547,164 | )                                          |  |   | (1,249,067                                | ) |  |                                           | (4,005,013 | ) |  |   | (4,478,253 | )
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Cash Flows From Investing Activities                                             |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Proceeds from Disposal of Assets                                                 |  |                                             | 6,433       |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|Equipment Purchases                                                              |  |                                             | (1,939,742  | ) |                                            |   | (258,445   | )                                          |  |   | (528,780                                  | ) |  |                                           | (293,540   | ) |  |   | (608,945   | )
|Payments for Patents and Trademarks                                              |  |                                             | (158,917    | ) |                                            |   | (2,749     | )                                          |  |   | (4,290                                    | ) |  |                                           | (33,749    | ) |  |   | (26,259    | )
|Investment in Subsidiary                                                         |  |                                             | (1,239,422  | ) |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Net Cash Used In Investing Activities                                            |  |                                             | (3,331,648  | ) |                                            |   | (261,194   | )                                          |  |   | (533,070                                  | ) |  |                                           | (327,289   | ) |  |   | (635,204   | )
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Cash Flows From Financing Activities                                             |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Proceeds From Shareholder Loans                                                  |  |                                             | 1,530,500   |   |                                            |   | 50,000     |                                            |  |   | 0                                         |   |  |                                           | 1,299,500  |   |  |   | 0          |  
|Payments of Shareholder Loans                                                    |  |                                             | (305,500    | ) |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | (74,500    | ) |  |   | (225,000   | )
|Proceeds from Issuance of Convertible Notes                                      |  |                                             | 6,885,000   |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|Proceeds From Notes Payable                                                      |  |                                             | 1,500,000   |   |                                            |   | 1,200,000  |                                            |  |   | 0                                         |   |  |                                           | 1,400,000  |   |  |   | 985,000    |  
|Payment of Notes Payable                                                         |  |                                             | (509,442    | ) |                                            |   | (118,499   | )                                          |  |   | (248,560                                  | ) |  |                                           | (118,499   | ) |  |   | (272,463   | )
|Issuance of Common Stock                                                         |  |                                             | 3,047,278   |   |                                            |   | 0          |                                            |  |   | 150,016                                   |   |  |                                           | 546,000    |   |  |   | 150,016    |  
|Issuance of Preferred Stock                                                      |  |                                             | 6,920,224   |   |                                            |   | 800,000    |                                            |  |   | 3,515,000                                 |   |  |                                           | 1,375,000  |   |  |   | 5,545,224  |  
|Proceeds from Stock Notes Receivable                                             |  |                                             | 46,491      |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|Dividends Paid                                                                   |  |                                             | (192,982    | ) |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | (148,999   | ) |  |   | 0          |  
|Cash From Subsidiary Acquired Via Stock Exchange                                 |  |                                             | 1,517       |   |                                            |   | 0          |                                            |  |   | 0                                         |   |  |                                           | 0          |   |  |   | 0          |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Net Cash Provided By Financing Activities                                        |  |                                             | 18,923,086  |   |                                            |   | 1,931,501  |                                            |  |   | 3,416,456                                 |   |  |                                           | 4,278,502  |   |  |   | 6,182,967  |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Increase (Decrease) in Cash                                                      |  | $                                           | 177,327     |   |                                            |   | 123,143    |                                            |  |   | 1,634,319                                 |   |  |                                           | (53,800    | ) |  |   | 1,069,510  |  
|Balance, Beginning of Period                                                     |  |                                             | 0           |   |                                            |   | 54,184     |                                            |  |   | 106,612                                   |   |  |                                           | 231,127    |   |  |   | 671,421    |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|Balance, End of Period                                                           |  | $                                           | 177,327     |   |                                            | $ | 177,327    |                                            |  | $ | 1,740,931                                 |   |  | $                                         | 177,327    |   |  | $ | 1,740,931  |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  
|                                                                                 |  |                                             |             |   |                                            |   |            |                                            |  |   |                                           |   |  |                                           |            |   |  |   |            |  



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NOTES TO UNAUDITED CONDENSENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLOCIES



Item 1. Description of the Business



Background of the Company



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



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



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



On February 26, 2004, a newly-formed, wholly-owned subsidiary of the Company merged with and into i2 Telecom International, Inc., a Delaware
corporation (i2 Delaware), with i2 Delaware surviving the merger as a wholly-owned subsidiary of the Company (the Merger), pursuant to that certain Agreement and Plan of Merger dated as of January 30, 2004, among the
Company, a wholly-owned subsidiary of the Company, i2 Delaware and certain Shareholders of the Company and i2 Delaware signatory thereto (the Merger Agreement). In connection with the Merger, former Shareholders of i2 Delaware became
entitled to receive shares of Common Stock and shares of various classes and series of the Companys preferred stock, no par value per share (collectively, the Preferred Stock), constituting 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;
| | - |  | -----------------------------------------



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



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



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



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



The Companys management intends to focus solely upon VoIP as the Companys primary line of business. In addition, the Companys management is constantly exploring various strategic alternatives,
including partnering with other telecommunication companies, both foreign and domestic, and engaging in acquisitions of strategic competitors and/or telecommunication service providers. There can be no assurances that such efforts will be
successful. The Company may finance these new business opportunities through a combination of equity and/or debt. If the Company determines to finance these opportunities by issuing additional equity, then such equity may have rights and preferences
superior to the outstanding Common Stock and Preferred Stock, and the issuance of such equity will dilute the ownership percentage of the Companys existing shareholders. If the Company determines to finance these opportunities by incurring
debt, then such debt may 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 September 30, 2005 of approximately
$20,297,698 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, 2004, as set forth in the Companys
Annual Report on Form



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



Critical Accounting Policies



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



Accounting for the Reverse Merger



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



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



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



Basis of Consolidation



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



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Accounting Estimates



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



Revenue Recognition



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



Impairment of Long-Lived Assets



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



Recent Accounting Pronouncements



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



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



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



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



Quantitative and Qualitative Disclosure about
Market Risk



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



Comprehensive Income or Loss



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



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Earnings Per Share



For the third quarter of 2005 and 2004, net loss per share is based on the weighted average number of shares of Common Stock outstanding. At
September 30, 2005 and September 30, 2004, the Company had, on a weighted average, 36,609,532 shares and 19,069,547 shares of Common Stock outstanding, respectively.



At September 30, 2005, the Company had outstanding 37,998,977 shares of Common Stock and options and warrants to
purchase 25,767,546 shares of Common Stock. Consequently, on an as-converted, fully-diluted basis, the Company would have 63,766,523 shares of Common Stock outstanding at September 30, 2005.



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.



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



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



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



|                       |  |                    |            |   |                    |   |            |  
|---------------------- |  | ------------------ | ---------- | - | ------------------ | - | ---------- | -
|                       |  | September 30, 2005 |            |   | September 30, 2004 |  
|Net Loss               |  | $                  | (2,332,018 | ) |                    | $ | (1,793,482 | )
|                       |  |                    |            |   |                    |   |            |  
|Loss Per Share-Basic   |  | $                  | (.07       | ) |                    | $ | (.05       | )
|                       |  |                    |            |   |                    |   |            |  
|Loss Per Share-Diluted |  | $                  | (.05       | ) |                    | $ | (.04       | )
|                       |  |                    |            |   |                    |   |            |  



Reclassifications



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



Interim Financial Data



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



NOTE 2: NOTES PAYABLE



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



|                                                                                                                                                                                                        |  |      |           |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------
|                                                                                                                                                                                                        |  | 2005 |           | 2004
|                                                                                                                                                                                                        |  |     
|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. |  | $    | 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. |  | $    | 50,000    |      | $ | 50,000 
|                                                                                                                                                                                                        |  |     
|c. 13% note payable due to a bank. The principal and all accrued interest are due and payable in 2005.                                                                                                  |  |      | 81,501    |      |   | -0-    
|                                                                                                                                                                                                        |  |     
|d. Notes payable to various shareholders payable at interest rates ranging from non-interest bearing to 12% per annum                                                                                   |  |      | 900,000   |      |   | -0-    
|                                                                                                                                                                                                        |  |     
|e. 3% notes payable to various shareholders due December 31, 2005. The notes are unsecured.                                                                                                             |  |      | 225,000   |      |   | -0-    
|                                                                                                                                                                                                        |  |     
|f. Secured Notes payable at interest rates bearing to 10%.                                                                                                                                              |  |      | 1,200,000 |      |   | 0      
|                                                                                                                                                                                                        |  |     
|Total Long Term Debt                                                                                                                                                                                    |  |      | 2,506,501 |      |   | 100,000
|                                                                                                                                                                                                        |  |     
|Less: Current Portion                                                                                                                                                                                   |  |      | 2,506,501 |      |   | 100,000
|                                                                                                                                                                                                        |  |      |           |      |   |        
|Long-Term Portion                                                                                                                                                                                       |  | $    | -0-       |      | $ | -0-    
|                                                                                                                                                                                                        |  |      |           |      |   |        



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During the three months ended September 30, 2005, certain shareholders of the Company loaned the
Company $1,200,000 loans are scheduled to be repaid from anticipated proceeds from future financings.



NOTE 3: STOCK OPTIONS AND WARRANTS



|                                                                 |  |                             |   |      |                                 |     |                             |            |   |                                 |   |    
|---------------------------------------------------------------- |  | --------------------------- | - | ---- | ------------------------------- | --- | --------------------------- | ---------- | - | ------------------------------- | - | ---
|                                                                 |  | 2005                        |   | 2004
|                                                                 |  | Number of Options/ Warrants |   |      | Weighted Average Exercise Price |     | Number of Options/ Warrants |            |   | Weighted Average Exercise Price
|Outstanding at Beginning of Period                               |  | 22,757,921                  |   |      | $                               | .67 |                             | 16,178,349 |   |                                 |   | .47
|Options Granted                                                  |  | 4,077,833                   |   |      | $                               | .50 |                             | 537,657    |   |                                 | $ | .77
|Warrants Granted                                                 |  | 4,319,515                   |   |      | $                               | .27 |                             | 3,562,484  |   |                                 | $ | .86
|Exercised                                                        |  | (3,109,306                  | ) |      | $                               | .39 |                             | (473,411   | ) |                                 |   | .45
|Forfeited                                                        |  | (2,278,417                  | ) |      | $                               | .55 |                             | (837,139   | ) |                                 | $ | .44
|                                                                 |  |                             |   |      |                                 |     |                             |            |   |                                 |   |    
|Outstanding at End of Period                                     |  | 25,767,546                  |   |      | $                               | .62 |                             | 18,967,940 |   |                                 | $ | .56
|                                                                 |  |                             |   |      |                                 |     |                             |            |   |                                 |   |    
|Options Exercisable at End of Period                             |  | 20,508,825                  |   |      | $                               | .40 |                             | 2,738,908  |   |                                 |   | .50
|Weighted-average Fair Value of Options Granted During the Period |  |                             |   |      | $                               | .61 |                             |            |   |                                 | $ | .02



As of
September 30, 2005, the range of option and warrant exercise prices for outstanding and exercisable options and warrants was $.01 to $1.00 with a weighted average remaining contractual life of 2.11 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



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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.



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



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



NOTE
5: DEVELOPMENT STAGE ENTERPRISE



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



Because of the factors noted in the preceding paragraph, the Company incurred a net loss of $2,332,018 during the quarter ended September 30, 2005.
These losses, as well as the uncertain conditions that the Company faces relative to its ongoing debt and equity fund-raising efforts, create a substantial doubt as to the Companys ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon the Companys success in its ability to obtain needed financing. There is no guarantee that this financing will be available, and even if available, that it will be available on terms
acceptable or favorable to the Company. As a result of the Companys losses and the difficult capital raising environment, should the Company be unable to continue to raise capital, its existence as a going concern will be in question.



NOTE 6: SUBEQUENT EVENTS



The Company issued 3,700,000 options to two corporations and five individuals in exercise
prices ranging from $.01 to $.40 each which average $.16 each upon exercise for strategic relationship development, marketing and corporate development services.



16



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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.



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,



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##### Table of Contents

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.



The Companys ability to fully comply with the FCCs order is doubtful. Over time,
only partial compliance is possible.



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.



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.
| | - |  | ------------------------------------------------------------------------------------------------------------



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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.



RESULTS OF OPERATIONS



Results of operations for the three months ended September 30, 2005 compared with
the results of operations for the three months ended September 30, 2004.



Revenues decreased from $215,172 for the third quarter of 2004 to $49,851 for the third quarter of 2005. The decrease in revenues was driven by the Companys reorganization of product offerings.



Cost of revenues increased from $199,975 for third quarter of 2004 to
$369,492 for third quarter of 2005. The increase is attributable to the increased sales of the VoiceStick at below cost during the products initial launch.



Gross loss for the third quarter of 2005 was $319,641 as compared to a gross profit of $15,197 for the third quarter of
2004. The decrease in gross profit is attributable to the increased sales of the VoiceStick at below cost during the products initial launch.



Sales, general and administrative expenses for the third quarter of 2005 were $2,351,050 as compared to $1,827,845 for the same period in 2004. This
increase was attributable to quarter over quarter increases in marketing expenses of approximately $200,000. Additionally, reserves for bad debt expenses increased approximately $332,800 as the Company changed its method for evaluating
accounts receivable.



Loss from operations for the third
quarter of 2005 as compared to the third quarter of 2004 increased from $1,812,648 to $2,670,691 due to the increase in sales, general and administrative expenses for the third quarter.



Net loss for the third quarter of 2005 was $2,332,018 as compared to a net loss for the same period in 2004 of $1,793,482.
The increase in net loss for the third quarter 2005 as compared to the same period in 2004 is due to the Companys continued transition of its product line from the MG-2 and MG-3 IADs to the VoiceStick and the associated costs
therein. This transition was coupled with increased spending on the Companys network, customer service and sales and marketing.



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##### Table of Contents

The Companys net accounts receivable balance decreased between September 30, 2004 and
September 30, 2005 by approximately $395,000. This decrease is due to the increase in reserves for doubtful accounts quarter over quarter of $332,800. The Companys inventory balance decreased by approximately $235,000 between
September 30, 2004 and September 30, 2005. The inventory decrease was due to the Company moving the production of the Companys new VoiceStick as it prepared to launch the product in new markets which has a lower inventory
carrying cost.



|                                    |  |                                          |            |   |      |   |            |          |  |   |            |   |  |        |   
|----------------------------------- |  | ---------------------------------------- | ---------- | - | ---- | - | ---------- | -------- |  | - | ---------- | - |  | ------ | --
|                                    |  | For the Three Months Ended September 30, |           
|                                    |  | 2005                                     |            |   | 2004 |   |            | Variance |  |   | Percentage |  
|Gross Revenue                       |  | $                                        | 49,851     |   |      | $ | 215,172    |          |  | $ | (165,321   | ) |  | (76.83 | )%
|Cost of Sales                       |  |                                          | 369,492    |   |      |   | 199,975    |          |  |   | (169,517   | ) |  | (84.77 | )%
|                                    |  |                                          |            |   |      |   |            |          |  |   |            |   |  |        |   
|Gross Profit                        |  | $                                        | (319,641   | ) |      | $ | 15,197     |          |  | $ | (334,838   | ) |  | *      | **
|Operating Expenses:                 |  |                                          |            |   |      |   |            |          |  |   |            |   |  |        |   
|General and Administrative Expenses |  | $                                        | 2,351,050  |   |      | $ | 1,827,845  |          |  | $ | (523,205   | ) |  | (28.62 | )%
|Other Income (Expense) Net          |  |                                          | 338,673    |   |      |   | 19,166     |          |  |   | 319,507    |   |  | *      | **
|                                    |  |                                          |            |   |      |   |            |          |  |   |            |   |  |        |   
|Net Loss                            |  | $                                        | (2,332,018 | ) |      | $ | (1,793,482 | )        |  | $ | (538,536   | ) |  | (30.03 | )%



RESULTS OF OPERATIONS



Results of operations for the nine months
ended September 30, 2005 compared with the results of operations as for the nine months ended September 30, 2004



Revenues increased from $481,560 for the nine months ended September 30, 2004 to $502,389 for the nine months ended September 30, 2005. Revenues increased as a
result of increased sales of the Companys VoiceStick product. Additionally, the Company experienced increased billings for long distance minutes consumed by the Companys customer base.



Cost of revenues increased from $488,627 for the nine months ended September 30, 2004 to
$775,589 the nine months ended September 30, 2005. This increase is again attributable to revenues being made up of more VoiceSticks being sold during the nine months ended September 30, 2005, as well as increases in long distance
minutes and fees charged to distributors during the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004.



Gross loss for the nine months ended September 30, 2005 was $273,200 as compared to gross loss of $7,067 for the nine months ended September 30, 2004. The
increase in gross losses is attributable to the increased sales of the VoiceStick at below cost during the products initial launch for the nine months ended September 30, 2005 as compared with the nine months ended September 30,
2004.



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##### Table of Contents

Loss from operations for nine months ended September 30, 2005 was $6,329,568 compared to $4,789,084 for the nine
months ended September 30, 2004. Total selling, general and administrative expenses for the nine months ended September 30, 2005 was $6,056,368 compared to $4,782,017 for the nine months ended September 30, 2004. The majority of the
selling, general and administrative expense increase came from increased personnel costs and reorganization expenses costs associated with the introduction of the VoiceStick.



Finally, net loss for the nine months ended September 30, 2005 was $6,343,026 as compared to a net loss for the nine months ended
September 30, 2004 of $4,787,025. The increased net loss is a result of the Companys continued spending on developing its business model, the costs associated with expanding its sales force and the continued research and development
expenditures on the Companys VoiceStick product.



|                                    |  |                                        |            |   |      |   |            |          |  |   |            |   |  |        |   
|----------------------------------- |  | -------------------------------------- | ---------- | - | ---- | - | ---------- | -------- |  | - | ---------- | - |  | ------ | --
|                                    |  | For the Nine Months Ended September 30 |           
|                                    |  | 2005                                   |            |   | 2004 |   |            | Variance |  |   | Percentage |  
|Gross Revenue                       |  | $                                      | 502,389    |   |      | $ | 481,560    |          |  | $ | 20,829     |   |  | 4.32   | % 
|Cost of Sales                       |  |                                        | 775,589    |   |      |   | 488,627    |          |  |   | (286,962   | ) |  | (58.72 | )%
|                                    |  |                                        |            |   |      |   |            |          |  |   |            |   |  |        |   
|Gross Profit                        |  | $                                      | (273,200   | ) |      | $ | (7,067     | )        |  | $ | (266,134   | ) |  | *      | **
|Operating Expenses:                 |  |                                        |            |   |      |   |            |          |  |   |            |   |  |        |   
|General and Administrative Expenses |  | $                                      | 6,056,368  |   |      | $ | 4,782,017  |          |  | $ | (1,274,351 | ) |  | (26.65 | )%
|Other Income (Expense) Net          |  |                                        | 326,659    |   |      |   | 2,059      |          |  |   | 324,600    |   |  | *      | **
|                                    |  |                                        |            |   |      |   |            |          |  |   |            |   |  |        |   
|Net Loss                            |  | $                                      | (6,343,026 | ) |      | $ | (4,787,025 | )        |  | $ | (1,556,009 | ) |  | (32.50 | )%



RESULTS OF OPERATIONS-CONTINUED

LIQUIDITY AND CAPITAL RESOURCES



Liquidity and capital resources as of September 30, 2005 as compared with liquidity
and capital resources as of September 30, 2004.



On
September 30, 2005, the Company had a working capital deficit of approximately $3,800,000, compared to September 30, 2004 when the Company had a working capital of approximately $1,700,000. The Companys working capital position
decreased by approximately $5,500,000 for the period ended September 30, 2005 as compared to the period ended September 30, 2004. The decrease in working capital was primarily due to an decrease in cash of approximately $1,600,000,
increase in accounts payable of approximately $1,100,000, and increase in notes payable of approximately $2,400,000. Net cash used in operating activities was ($1,547,164) for the third quarter of September 30, 2005. Again, the increase in net
cash used in operating activities between September 30, 2005 and September 30, 2004 is attributable to an



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decrease in accounts receivable of approximately $62,000, decrease in inventories of approximately $235,000 and an
increase in accounts payable of approximately $445,000. Net loss of approximately $2,332,018 is reduced by non-cash items of depreciation and amortization amounting to approximately $156,000 but increased by the Gain on Forgiveness of Debt by
$350,960. 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 ($261,194) for the third quarter of
2005 as compared to approximately ($533,070) for the same period in 2004. Both periods investing activities were primarily due to equipment purchases and payment for patents and trademarks.



Cash flows provided by financing activities were approximately $1,931,501 for the third
quarter of 2005 as compared to $3,416,456 for the same period in 2004. The principal source of cash for the third quarter of 2005 was from notes payable of $1,200,000 and the issuance of preferred stock of $800,000.



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. Change in Securities and Small Business Issuer Purchases of Equity Securities.



In July 2005, the Company issued to two individuals, one corporation and to the Companys Board of Directors options to purchase 2,832,250 shares of Common Stock at
exercise prices ranging from $.01 to $.96 per share, vesting over three years. The options were issued to employees under the Companys incentive stock option plan as well as to consultants and directors for services rendered to the Company.
The options were issued without registration under the Securities Act, in reliance upon the exemption set forth in Section 4(2). The Company based such reliance upon factual representations made to the Company concerning each recipients
investment intent and sophistication, among other things.



On July 12,
2005, the Company issued to one corporation $800,000 of Series E Convertible Preferred shares which convert into 2,000,000 common shares at $.40 each and warrants to purchase common shares of the Company exercisable at $.50 per share for a three
year period. This effectively changed the conversion price of the Series D Convertible Preferred of which there were 4,185 shares outstanding or ($4,175,000 principal amount) convertible into common shares at $.80 per share to $.40 per share. The
3,187,500 outstanding warrants associated with the Series D Convertible Preferred shares which had an exercise price of $.96 per share have been adjusted to $.40 per share. The Series E Convertible Preferred shares and warrants were issued without
registration under the Securities Act in reliance upon the exemption set forth in Section 4(2).



On September 12, 2005, the Company entered into an agreement for a $1,200,000 Secured Loan Facility with a trust and two individuals. The terms of the agreement call for a repayment of the loan on
January 31, 2005 with a 10% annual percentage rate of interest and the issuance of 1,200,000 warrants exercisable at $.50 each for a period of three years. This effectively changed the conversion price of the Series E Convertible Preferred
holders warrants of which there were 1,000,000 outstanding and exercisable at $.60 per share to $.50 per share. The warrants were issued without registration under the Securities Act in reliance upon the exemption set forth in Section 4(2).



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##### Table of Contents

Item 3. Defaults Upon Senior Securities



As of October 1, 2005, the Company is in arrears in the payment of dividends in the amount of $153,434 owed in respect of the Companys outstanding Preferred Stock Series D. Interest was 7% annual percentage
rate (APR) year 1 from 8/11/04, then 8% APR year 2, 9% APR year 3. Interest rate calculation varies during the third quarter period September 30, 2005. Default interest rate accrues at 13% per annum.



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##### Table of Contents

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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##### Table of Contents

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: November 21, 2005 |  | /S/ Paul R. Arena             
|                        |  | Paul R. Arena                 
|                        |  | Chief Executive Officer       
|                        |  | (duly authorized signatory and
|                        |  | Principal Executive Officer)  



26



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##### Table of Contents

EXHIBIT INDEX



|3.1.1 | Articles of Incorporation, as amended
|----- | -------------------------------------



|3.1.2 | 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 | 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.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------



|3.1.4 | Certificate of Designations of Rights and Preferences Incorporated by reference to Exhibit 3.1 to the Companys of Preferred Stock Series D of i2 Telecom Current Report on Form
8-K filed August 13, 2004. International, Inc.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.1.5 | Amendment to the Companys Articles of Incorporated by reference to Exhibit 3.1 to the Companys Incorporation filed June 3, 2004. Quarterly Report on Form 10-QSB for
the quarter ended June 30, 2004.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.1.6 | Amendment to the Companys Articles of Incorporated by reference to Exhibit 3.2 to the Companys Incorporation filed August 10, 2004. Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2004.
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.1 | Warrant dated April 7, 2005 to purchase 125,000 shares of the Companys common stock granted to Hubert G. Phipps. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on April 12, 2005.)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.2 | Registration Rights Agreement dated as of April 7, 2005 between the Company and Hubert G. Phipps. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report
on Form 8-K filed on April 12, 2005.)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.3 | Warrant dated April 19, 2005 to purchase 52,083 shares of the Companys common stock granted to Midsouth Investor Fund, LP. (Incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K filed on April 25, 2005.)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.4 | Registration Rights Agreement dated as of April 19, 2005 between the Company and Midsouth Investor Fund, LP. (Incorporated by reference to Exhibit 4.2 to the Companys
Current Report on Form 8-K filed on April 25, 2005.)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.5 | Warrant dated April 25, 2005 to purchase 156,249 shares of the Companys common stock granted to Vestal Venture Capital. (Incorporated by reference to Exhibit 4.3 to the
Companys Current Report on Form 8-K filed on April 25, 2005.)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.6 | Registration Rights Agreement dated as of April 25, 2005 between the Company and Vestal Venture Capital. (Incorporated by reference to Exhibit 4.4 to the Companys Current
Report on Form 8-K filed on April 25, 2005.)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

##### Table of Contents

|4.7 | Warrant dated June 28, 2005 to purchase 26,042 shares of the Companys common stock granted to Hubert G. Phipps. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on July 5, 2005.)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.8 | Registration Rights Agreement dated as of June 28, 2005 between the Company and Hubert G. Phipps. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report
on Form 8-K filed on July 5, 2005.)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.9 | Warrant dated July 7, 2005 to purchase 39,062 shares of the Companys common stock granted to Paul R. Arena. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on July 12, 2005.)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.10 | Registration Rights Agreement dated as of July 7, 2005 between the Company and Paul R. Arena. (Incorporated by reference to Exhibit 4.2 to the Companys Current Report on
Form 8-K filed on July 12, 2005.)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.1 | Employment Agreement dated as of April 6, 2005, between the Company and James Rose. Represents an executive compensatory plan or arrangement. (Incorporated by reference to
Exhibit 99.1 to the Companys Current Report on Form 8-K filed on April 11, 2005.)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.2 | Promissory Note dated April 7, 2005 issued by the Company in favor of Hubert G. Phipps in principal amount of $250,000. (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on April 12, 2005.)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.3 | Promissory Note dated April 19, 2005 issued by the Company in favor of Midsouth Investor Fund, LP in principal amount of $100,000. (Incorporated by reference to Exhibit 99.1 to
the Companys Current Report on Form 8-K filed on April 25, 2005.)
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.4 | Promissory Note dated April 25, 2005 issued by the Company in favor of Vestal Venture Capital in principal amount of $300,000. (Incorporated by reference to Exhibit 99.2 to the
Companys Current Report on Form 8-K filed on April 25, 2005.)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.5 | Employment Agreement between the Company and James R. Fultz dated May 2, 2005. (Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K filed
on May 6, 2005.)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.6 | Promissory Note dated June 28, 2005 issued by the Company in favor of Hubert G. Phipps in principal amount of $50,000. (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on July 5, 2005.)
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.7 | Stock Option Agreement dated July 6, 2005 to purchase 85,714 shares of the Companys common stock granted to James Rose. (Incorporated by reference to Exhibit 4.3 to the
Companys Current Report on Form 8-K filed on July 12, 2005.)
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|10.8 | Stock Option Agreement dated July 7, 2005 to purchase 168,000 shares of the Companys common stock granted to James Rose. (Incorporated by reference to Exhibit 4.4 to the
Companys Current Report on Form 8-K filed on July 12, 2005.)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.9 | Promissory Note dated July 7, 2005 issued by the Company in favor of Paul R. Arena in principal amount of $75,000. (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on July 12, 2005.)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.10 | Letter Agreement dated July 6, 2005 between the Company and James Rose. (Incorporated by reference to Exhibit 99.2 to the Companys Current Report on Form 8-K filed on
July 12, 2005.)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.11 | Letter Agreement dated July 7, 2005 between the Company and James Rose. (Incorporated by reference to Exhibit 99.3 to the Companys Current Report on Form 8-K filed on
July 12, 2005).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.12 | Series E Convertible Preferred dated July 12, 2005 between the Company and West Hampton Energy Investors I, LLC.
|----- | ----------------------------------------------------------------------------------------------------------------



|31.1 | Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer and Principal Financial Officer
|---- | ---------------------------------------------------------------------------------------------------------------



|32.1 | Section 1350 Certification by the Companys Chief Executive Officer and Principal Financial Officer
|---- | ---------------------------------------------------------------------------------------------------