**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549 

 

**FORM 10-Q**

(Mark One) 

 

**x**    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED **March 31, 2009**

 

| **o**   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.  |
|-------------------|-------------------------------------------------------------------------------------------------|

 

**Commission File No. 0-27704**

 

**i2 Telecom International, Inc.**

 

(Exact name of registrant as specified in it charter)

 

| ******Washington******                           |   | 91-1426372                   |
|--------------------------------------------------|--------|------------------------------|
| (State or other jurisdiction of incorporation or |   | (IRS Employer Identification |
| organization)                                    |   | No.)                         |

 

**5070 Old Ellis Pointe,**

**Suite 110**

**Roswell, GA 30076**

 

(Address of principal executive offices)

 

**(404) 567-4750**

 

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes xNo o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

| Large Accelerated Filer  o   | Non-Accelerated Filer  o  |
|--------------------------------------------------|-------------------------------------|

 

| Accelerated Filer  o   | Smaller Reporting Company x   |
|--------------------------------------------|-----------------------------------------|

 

The registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes oNo x

 

 

Shares outstanding of the issuer's common stock, as of May 13, 2009:  288,540,926 shares

 

 

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**I2 TELECOM INTERNATIONAL, INC.**

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR PERIOD ENDED March 31, 2009

 

|                                |                                                                                  | ******Page****** |
|-------------------------------------|---------------------------------------------------------------------------------------|------------------|
| ******PART I****** **  ** | ******FINANCIAL INFORMATION******                                                |             |
| Item 1.                             | Financial Statements                                                                  | 3                |
| Item 2.                             | Management's Discussion and Analysis of Financial Condition and Results of Operations | 20               |
| Item 3.                             | Quantitative and Qualitative Disclosures About Market Risk                            | 24               |
| Item 4.                             | Controls and Procedures                                                               | 24               |
|                                |                                                                                  |             |
| ******PART II******                 | ******OTHER INFORMATION******                                                         |             |
| Item 1.                             | Legal Proceedings                                                                     | 25               |
| Item 1A.                            | Risk Factors                                                                          | 25               |
| Item 2.                             | Unregistered Sales of Equity Securities and Use of Proceeds                           | 32               |
| Item 3.                             | Defaults Upon Senior Securities                                                       | 34               |
| Item 4.                             | Submission of Matters to a Vote of Security Holders                                   | 34               |
| Item 5.                             | Other Information                                                                     | 34               |
| Item 6.                             | Exhibits                                                                              | 34               |
| ******Signatures******              | 36                                                                                    |
|                                |                                                                                  |

 

 

 

 

 

 

2

 

 

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**PART I - FINANCIAL INFORMATION**

 

| **ITEM 1.** | **FINANCIAL STATEMENTS** |
|-------------|--------------------------|

 

i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

|  

ASSETS

                                                                                 |
|-------------------------------------------------------------------------------------------------------|
|                                                                                                  | March 31, 2009 | December 31, 2008 |
| Current Assets                                                                                        |   |   |
| Cash (Overdraft)

 

Accounts Receivable

Inventories

Prepaid Expenses and Other Current Assets | $ (31,053)

 

2,350

188,343

164,082 | $ 2,645

 

2,350

187,607

210,709 |
| Total Current Assets                                                                                  | 323,721 | 403,310 |
|                                                                                                  |   |   |
|                                                                                                  |   |   |
| Property and Equipment, Net                                                                           | 1,158,111 | 1,253,074 |
|                                                                                                  |   |   |
|                                                                                                  |   |   |
| Other Assets                                                                                          |   |   |
| Intangible Assets

Deposits                                                                           |  

2,702,324

38,840 |  

2,788,947

38,840 |
| Total Other Assets                                                                                    |  

2,741,164 |  

2,827,787 |
|                                                                                                  |   |   |
|                                                                                                  |   |   |
| Total Assets                                                                                          | $ 4,222,996 | $ 4,484,172 |
|                                                                                                  |

 

 

 

 

 

 

 

 

 

 

3

 

 

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i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

|   |  

 

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | March 31, 2009                                                                                                                                                       | December 31, 2008 |   |
|   | Current Liabilities

Accounts Payable and Accrued Expenses

Deferred Revenue

Convertible Bonds 

Notes Payable-Current                                              |  

$ 2,624,812

25,985

100,000

4,190,262 |  

$ 2,399,660

25,985

100,000

3,356,014 |
|   | Total Current Liabilities                                                                                                                                            | 6,941,059 | 5,881,659 |
|   |                                                                                                                                                                 |   |   |
|   |                                                                                                                                                                 |   |   |
|   |                                                                                                                                                                 |   |   |
|   |                                                                                                                                                                 |   |   |
|   | Shareholders’ Equity (Deficit)

Preferred Stock, No Par Value 7% Cumulative, 5,000,000

Shares Authorized, 0 and 0 Shares Issued and Outstanding, respectively | 0 | 0 |
|   | Common Stock, No Par Value, 500,000,000 Shares Authorized, 275,048,878 Shares and 272,785,596Shares Issued and Outstanding, respectively                             | 35,905,738 | 35,756,541 |
|   |                                                                                                                                                                 |   |   |
|   | Additional Paid-In Capital                                                                                                                                           | 3,334,605 | 3,100,500 |
|   | Accumulated Deficit                                                                                                                                                  | (41,958,406) | (40,254,528) |
|   | Total Shareholders’ Equity (Deficit)                                                                                                                           | (2,718,063) | (1,397,487) |
|   |                                                                                                                                                                 |   |   |
|   | Total Liabilities and Shareholders’ Equity (Deficit)                                                                                                           | $4,222,996 | $ 4,484,172 |
|        |                                                                                                                                                                      |  |  |  |  |

 

 

 

 

 

 

 

 

 

 

 

 

| i2 TELECOM INTERNATIONAL, INC. |
|--------------------------------|

 

 

4

 

 

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| CONSOLIDATED STATEMENT OF OPERATIONS |
|--------------------------------------|
| (Unaudited)                          |

 

|                                                                                                                          | For the Three

Months Ended 

March 31, 2009 | For the Three

Months Ended March 31, 2008 |
|-------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------------------------------------------|
| Revenue                                                                                                                       | $ 132,142                                    | $ 157,456                                  |
| Cost of Revenue                                                                                                               | 126,051                                      | 182,237                                    |
|                                                                                                                          |                                         |                                       |
| Gross Profit (Loss)                                                                                                           | 6,091                                        | (24,781)                                   |
|                                                                                                                          |                                         |                                       |
| General and Administrative Expenses                                                                                           | 1,597,556                                    | 1,051,960                                  |
|                                                                                                                          |                                         |                                       |
| Loss From Operations                                                                                                          | (1,591,465)                                  | (1,076,741)                                |
|                                                                                                                          |                                         |                                       |
| Other Income (Expense)

Interest Expense

                                                                               |  

(114,294)

                     |  

(120,653)

                   |
| Total Other Income (Expense)                                                                                                  | (114,294)                                    | (120,653)                                  |
|                                                                                                                          |                                         |                                       |
|                                                                                                                          |                                         |                                       |
| Net Income (Loss)                                                                                                             | $ (1,705,759)                                | $ (1,197,394)                              |
| Dividends on Preferred Stock                                                                                                  | 0                                            | 6,000                                      |
| Net Loss Available to Common Shareholders                                                                                     | $ (1,705,759)                                | $ (1,203,394)                              |
|                                                                                                                          |                                         |                                       |
| Weighted Average Common Shares:

Basic

                                                                                 |  

273,573,543

 

           |  

184,633,838                        |
| Basic Earnings Per Common Share:

Loss Before Cumulative Effect of

Accounting Change

Cumulative Effect of Accounting Change |  

 

$ (.01)

(.00)               |  

 

$ (.01)

(.00)             |
| Net Loss                                                                                                                      | $ (.01)                                      | $ (.01)                                    |

 

 

 

 

 

 

 

 

5

 

 

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i2 TELECOM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|  

                                                                                                                                                                               |  

For the Three

Months Ended March 31, 2009 | For the Three

Months Ended March 31, 2008 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|--------------------------------------------|
|                                                                                                                                                                                        |                                               |                                       |
| Net Loss From Operations                                                                                                                                                                    | $(1,705,759)                                       | $(1,197,394)                               |
| Adjustments to Reconcile Net Income to cash                                                                                                                                                 |                                               |                                       |
| Depreciation and amortization

Amortization of Loan Fees

Gain on Forbearance of Debt                                                                                                       | 188,208

95,694

0                                 | 159,316

104,385

0                        |
| Stock compensation                                                                                                                                                                          | 0                                                  | 29,035                                     |
| Accounts receivable                                                                                                                                                                         | 0                                                  | 0                                          |
| Inventories                                                                                                                                                                                 | (736)                                              | (735)                                      |
| Prepaid Expenses                                                                                                                                                                            | (49,067)                                           | (44,909)                                   |
| Other Assets                                                                                                                                                                                | 0                                                  | 0                                          |
| Increase (Decrease) In:                                                                                                                                                                     |                                               |                                       |
| Accounts Payable and Accrued Expenses                                                                                                                                                       | 227,033                                            | 344,157                                    |
| Deferred Revenue                                                                                                                                                                            | 0                                                  | 4,603                                      |
| Net Cash Used In Operating Activities                                                                                                                                                       | (1,244,627)                                        | (601,542)                                  |
| Cash Flows From Investing Activities                                                                                                                                                        |                                               |                                       |
| Equipment Purchases

Payments for Intangible Assets                                                                                                                                         | (6,622)

0                                         | (98,357)

0                                |
| Net Cash Used In Investing Activities                                                                                                                                                       | (6,622)                                            | (98,357)                                   |
| Cash Flows From Financing Activities                                                                                                                                                        |                                               |                                       |
| Payment of Convertible Bonds

Proceeds From Notes Payable

Payment of Notes Payable

Issuance of Common Stock

Issuance of Preferred Stock                                                  | 0

835,000

(752)

149,197

0                      | 0 

1,550,000

(1,016,343)

0 

0          |
| Proceeds from redemption of options

Payment of Financing costs with warrants

Payment of Professional fees with warrants

Dividends Paid

Cash From Subsidiary Acquired Via Stock Exchange | 0

96,729

137,376

0

0                           | 2,250

0

0

0

0                          |
| Net Cash Provided By Financing Activities                                                                                                                                                   | 1,217,550                                          | 535,907                                    |
| Increase (Decrease) in Cash                                                                                                                                                                 | (33,699)                                           | (163,992)                                  |
| Balance, Beginning of Period                                                                                                                                                                | 2,645                                              | 194,279                                    |
| Balance, End of Period                                                                                                                                                                      | $ (31,054)                                         | $ 30,287                                   |
|                                                                                                                                                                                        |                                               |                                       |
|                                                                                                                                                                                        |                                               |                                       |
|                                                                                                                                                                                        |                                               |                                       |

 

 

 

6

 

 

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i2 TELECOM INTERNATIONAL, INC 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES** |
|-------------|------------------------------------------------------------|

 

**Nature of Business**

 

The Company, through its subsidiary, i2Telecom International, Inc., (“i2Telecom (DE)”), provides low-cost telecommunications services employing next-generation VoIP technology. These operations are based in Roswell, Georgia. Through i2Telecom (DE), the Company controls its own proprietary technology and outsources the majority of its production and service functions with            strategic partners. The Company, through i2Telecom (DE), provides the VoiceStick®, MyGlobalTalkTM, micro gateway adapters, 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®, MyGlobalTalkTM, 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, a Washington corporation was incorporated as “Transit Information Systems, Inc.” under the laws of the State of Washington on October 17, 1988. In March 2004, the Company changed its name to “i2 Telecom International, Inc. The Company’s offices are currently located at 5070 Old Ellis Pointe, Suite 110, Roswell, GA 30076, and the Company’s            telephone number at that address is (404) 567-4750. The Company maintains websites at www.i2telecom.com, www.voicestick.comand www.myglobaltalk.com.

 

 

 

7

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)** |
|-------------|------------------------------------------------------------------------|

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 telephony access via your laptop with the Company’s VoiceStick®; |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

 

|   |   |   | **•**     broadband telephony technology; |
|--------|--------|--------|-------------------------------------------------------------------------|

 

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

 

|   |   |   | **•**     unlimited and “Pay as You” global calling among VoiceStick® and MyGlobalTalkTM users; and

 

**•**     local and long distance calling via cellular phones utilizing Company’s proprietary technology. |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

  

The Company’s management is focused 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 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. 

 

**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, 2008, included in the Annual Report. Preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (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.

 

 

 

 

 

 

 

 

 

 

8

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)** |
|-------------|------------------------------------------------------------------------|

 

**Basis of Consolidation**

 

The consolidated financial statements include the accounts of i2Telecom (DE) and SuperCaller Community, Inc. (“SuperCaller”), both of which are, directly or indirectly, wholly-owned subsidiaries of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

**Accounting Estimates**

 

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

 

**Revenue Recognition**

 

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”), as amended by SAB No. 101A and SAB No. 101B. SAB No. 101 requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has            occurred or services rendered; (iii) the fee is fixed and determinable; and (iv) collectability is reasonably assured. Determinations under 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 collectability 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. 

 

 

 

 

 

 

 

9

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)** |
|-------------|------------------------------------------------------------------------|

 

This summary of significant accounting policies of i2 Telecom International, Inc. and Subsidiary (the “Company”) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who is responsible for their integrity and objectivity. These accounting policies conform to generally            accepted accounting principles and have been consistently applied in the preparation of the financial statements.

 

|   | A. | Nature of Operations – The parent Company was incorporated under the laws of the State of Washington on October 17, 1988, and the operating subsidiary was incorporated on February 28, 2002. The Company, headquartered in Atlanta, Georgia, is a telecommunications service provider of Voice over Internet Protocol (“VoIP”) technology. The                            Company has proprietary patent pending technology that allows transmission of VoIP, connection to long distance public-switched telephone network (“PSTN”), and other enhanced communications services through an Internet Access Device (“IAD”). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The Company has targeted specific markets that are connected to the Internet. Customers are supplied an i2 Telecom “IAD” micro gateway, which will enable them to: 1) make, at no cost other than the initial cost of micro gateway and the subscription fee, unlimited calls to other i2 Telecom subscribers – anywhere in the world using the customer’s existing phone            (no new or special IP phone required); 2) make long distance calls to people who use a normal telephone line using the i2 Telecom least cost routing network that provides competitive long distance rates; and 3) use either a broadband (DSL, Cable, etc.) or dial up service.

 

|   | B. | Basis of Consolidation – The consolidated financial statements include the accounts of SuperCaller Community, Inc., a wholly owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | C. | Revenues - The Company recognizes revenue from sale of its i2 Telecom “IAD” micro gateway at time of shipment. Revenues from per-minute charges and user fees are recognized as incurred by its customers. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | D. | For purposes of the statement of cash flows, the Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | E. | Inventories - Inventories consisting of purchased components available for resale are stated at lower of cost or market. Cost is determined on the first-in, first-out (FIFO) basis. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | F. | Costs associated with obtaining loans have been capitalized and are being amortized on a straight-line basis over the life of the loan. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

 

|   | G. | Property, Equipment and Related Depreciation - Property and equipment are recorded at cost. Depreciation is computed using the straight-line method for financial and tax reporting purposes. Estimated lives range from five to ten years. When properties are disposed of, the related costs and accumulated depreciation are removed from the respective                            accounts and any gain or loss on disposition is recognized at that time. Maintenance and repairs which do not improve or extend the lives of assets are expensed as incurred. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | H. | Intangible Assets – The Company has capitalized certain costs related to registering trademarks and patent pending technology. In accordance with SFAS No. 142, intangible assets with an indefinite life are not amortized but are tested for impairment at least annually or whenever changes circumstances indicate that the carrying value may not be                            recoverable. The Company amortizes its intangible assets with a finite life over 10 years on a straight-line basis. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

10

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)** |
|-------------|------------------------------------------------------------------------|

 

|   | I. | In accordance with SFAS No. 144, the Company reviews its long-lived assets, including property and equipment, goodwill and other identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the                            Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value. The Company had no impairment of assets during the first quarter or the three months ended March 31, 2009 or the year ended December 31, 2008. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | J. | Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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                            revenues and expenses during the reporting period. Actual results could differ from those estimates. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | K. | Income Taxes - The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements or tax returns. Under                            this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | L. | Research and Development Expenses – The Company expenses research and development expenses as incurred. Amounts payable to third parties under product development agreements are recorded at the earlier of the milestone achievement, or when payments become contractually due. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | M. | Earnings (loss) per share - Basic earnings (loss) per share represents income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as                            any adjustment to income that would result from the assumed issuance. Options on shares of common stock and certain bonds convertible into common shares were not included in the computing of diluted earnings (loss) per share because their effects were anti-dilutive. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

 

 

11

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)** |
|-------------|------------------------------------------------------------------------|

 

|   | N. | New Accounting Pronouncements |
|--------|----|-------------------------------|

 

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified            election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15. 2007. Management is currently evaluating the effect that adoption of this statement will have on the Company’s consolidated financial position and results of operations.

 

On January 1, 2007, we adopted FASB Interpretation No. 48 (“FIN No. 48”), “*Accounting for Uncertainty in Income Taxes,*” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain income tax positions that the            Company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The adoption of FIN No. 48 on January 1, 2007 did not result in a cumulative-effect adjustment or have an effect on our consolidated financial statements. 

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal            years beginning after November 15, 2007 and interim periods within those years. Two FASB Staff Positions on SFAS No. 157 were subsequently issued. On February 12, 2007, FSP No. 157-2 delayed the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. This FSP is effective for fiscal years beginning after November 15, 2008. On            February 14, 2007, FSP No. 157-1 excluded FASB No. 13 *Accounting for Leases*and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under FASB No. 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141,            *Business**Combinations*or FASB No. 141R, *Business Combinations.*This FSP is effective upon initial adoption of SFAS No. 157. We are assessing the impact that SFAS No. 157 will have on our consolidated financial statements. 

 

In September 2006, the FASB ratified the consensus on EITF Issue No. 06-3, “*How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement*” (“EITF No. 06-3”). The scope of EITF No. 06-3 includes any tax assessed by a governmental authority            that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, USF contributions and excise taxes. The Task Force concluded that entities should present these taxes in the income statement on either a gross or net basis, based on their accounting policy, which should be disclosed pursuant to APB Opinion No. 22, “Disclosure of Accounting Policies.” If such taxes are            significant and are presented on a gross basis, the amount of those taxes should be disclosed. The consensus on EITF No. 06-3 was effective for interim and annual reporting periods beginning after December 15, 2006. We currently record sales, use and excise taxes on a net basis in our consolidated financial statements whereas USF contributions are recorded on a gross basis in our consolidated financial statements. The adoption of EITF No. 06-3 did not have an effect            on our consolidated results of operations. 

 

**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.

 

 

12

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 1.** | **NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)** |
|-------------|------------------------------------------------------------------------|

 

**Earnings per Share**

 

For the first quarter of 2009 and 2008, net income (loss) per share is based on the weighted average number of shares of Common Stock outstanding. At March 31, 2009 and March 31, 2008, the Company had, on a weighted average, 273,573,543 shares and 184,633,838 shares of Common Stock outstanding, respectively. 

 

At March 31, 2009, the Company had outstanding 275,048,878 shares of Common Stock and options and warrants to purchase 186,189,163 shares of Common Stock. Consequently, on an as-converted, fully-diluted basis, the Company would have 461,238,041 shares of Common Stock outstanding at March 31, 2009. 

 

**Stock Compensation**

 

During 2004, the Company’s shareholders approved a stock option plan for its officers, directors and certain key employees. Generally, the options vest based on the attainment of certain performance criteria set forth in the option agreements. In addition, the Company has issued stock warrants to key employees, consultants, and certain investors, with expiration dates of one to            five years. Effective January 1, 2005, the Company adopted early application of SFAS No. 123R. SFAS No. 123R supersedes APB Opinion No. 25 which was previously used by the Company. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Under APB Opinion No.            25, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price, the intrinsic value method. Under SFAS No. 123R, the Company recognizes an expense over the vesting period of the fair value of all stock-based awards on the date of grant. Beginning January 1, 2005, all stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123R and related            interpretations.

 

Additionally, the Company adopted early application of SFAS No. 123R on January 1, 2005. The cumulative effect of this change in accounting principle for periods prior to 2005 was $340,117, net of income tax and has been included on the statement of operations for the three months ended March 31, 2005. 

 

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

 

**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, 2008, set forth in the Annual Report. The interim financial information included herein has not been audited. However, management believes the accompanying unaudited interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position of i2 Telecom International, Inc. and            Subsidiaries as of March 31, 2009 and March 31, 2008, and the results of their operations and cash flows for the three months ended March 31, 2009 and 2008. 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, 2009.

 

 

13

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 2.** | **NOTES PAYABLE** |
|-------------|-------------------|

 

Notes Payable as of March 31, 2009 and December 31, 2008:

|   | 03/31/2009 | 12/31/2008 |
|--------|------------|------------|

|                                                                                                                                                                                                                                                                                            |    |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|---------|
| a.   10% note payable due to an individual shareholder of the company payable in monthly installments of $4,000, including interest, through July 27, 2009 when all outstanding principal and interest is due. The note is unsecured and guaranteed by an officer of the Company | 145,262 | 146,013 |
| b.   12% note payable. The principal and all accrued interest were due on December 31, 2008. The note is unsecured and guaranteed by an officer of the Company. In March 2009, the maturity date was extended until June 30, 2009.                                               | 100,000 | 100,000 |
| c.   8% note payable. The principal and all accrued interest were due on December 31, 2008. The note is unsecured. In March 2009, the maturity date was extended until June 30, 2009                                                                                             | 25,000  | 25,000  |
| d.   8% note payable. The principal and all accrued interest were due on December 31, 2008. The note is unsecured. In March 2009, the maturity date was extended until June 30, 2009.                                                                                            | 25,000  | 25,000  |
| e.   12% note payable to an institutional investor. The principal and all accrued interest were due on November 24, 2008. The note is secured. In April 2009, the maturity date was extended until May 24, 2009                                                                  | 150,000 | 150,000 |
| f.   12% note payable to an institutional investor. The principal and all accrued interest were due on November 24, 2008. The note is secured. In April 2009, the maturity date was extended until May 24, 2009                                                                  | 162,500 | 162,500 |
| g.   12% note payable to an institutional investor. The principal and all accrued interest were due on December 7, 2008. The note is secured. In April 2009 the maturity date was extended until June 7, 2009.                                                                   | 62,500  | 62,500  |
| h.   12% note payable to an institutional investor. The principal and all accrued interest were due on November 22, 2008. The note is secured. In April 2009, the maturity date was extended until May 24, 2009.                                                                 | 25,000  | 25,000  |
| i.    12% note payable to an institutional investor. The principal and all accrued interest were due on March 23, 2009. The note is secured. In March 2009, the maturity date was extended until June 23, 2009.                                                             | 135,000 | 135,000 |
| j.    12% note payable to an institutional investor. The principal and all accrued interest were due on March 2, 2009. The note is secured. In March 2009, the maturity date was extended until June 23, 2009.                                                              | 225,000 | 0       |
| k.   12% note payable. The principal and all accrued interest were due on November 27, 2008. The note is secured. In April 2009, the maturity date was extended until May 27, 2009.                                                                                              | 50,000  | 50,000  |

 

 

 

 

 

 

14

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 2.** | **NOTES PAYABLE (CONTINUED)** |
|-------------|-------------------------------|

 

| l.    12% note payable. The principal and all accrued interest were due on December 7, 2008. The note is secured. In May 2009, the maturity date was extended until June 7, 2009.                                                                                    | 100,000   | 100,000   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|-----------|
| m.  12% note payable. The principal and all accrued interest were due on December 14, 2008. The note is secured. In December 2008, the maturity date was extended until May 15, 2009.                                                                                          | 100,000   | 100,000   |
| n.   12% note payable. The principal and all accrued interest were due on February 10, 2009. The note is secured. In March 2009, the maturity date was extended until June 12, 2009.                                                                                      | 100,000   | 100,000   |
| o.   12% note payable. The principal and all accrued interest were due on November 19, 2008. The note is secured. In November 2008, the maturity date was extended until May 20, 2009.                                                                                    | 100,000   | 100,000   |
|  

p.   12% note payable. The principal and all accrued interest were due on November 20, 2008. The note is secured. In November 2008, the maturity date was extended until June 1, 2009.                                                                            | 200,000   | 200,000   |
| q.   12% note payable. The principal and all accrued interest were due on November 22, 2008. The note was unsecured. In April 2009, the maturity date was extended until May 27, 2009.                                                                                    | 50,000    | 50,000    |
| r.   12% notes payable to a director and an individual. The principal and all accrued interest were due on January 25, 2009. The note is secured and half is guaranteed by an officer of the Company. In January 2009, the maturity date was extended until May 25, 2009. | 1,000,000 | 1,000,000 |
| s.   12% notes payable to a director and an individual. The principal and all accrued interest were due on January 25, 2009. The note is secured. In January 2009, the maturity date was extended until May 25, 2009.                                                     | 100,000   | 100,000   |
| t.    12% notes payable to a director and an individual. The principal and all accrued interest were due on January 25, 2009. The note is unsecured. In January 2009, the maturity date was extended until May 25, 2009.                                             | 100,000   | 100,000   |
| u.   12% note payable. The principal and all accrued interest were due on December 1, 2008. The note is secured. In May 2009, the maturity date was extended until June 1, 2009.                                                                                          | 25,000    | 25,000    |
| v.   12% note payable. The principal and all accrued interest were due on August 28, 2008. The note is secured. In April 2009, the maturity date was extended until May 28, 2009.                                                                                         | 50,000    | 50,000    |
| w.  12% note payable. The principal and all accrued interest were due on December 7, 2008. The note is secured. In May 2009, the maturity date was extended until June 7, 2009.                                                                                                | 50,000    | 50,000    |
| x.   12% note payable. The principal and all accrued interest were due on December 1, 2008. The note is secured. In May 2009, the maturity date was extended until June 1, 2009.                                                                                          | 50,000    | 50,000    |

 

 

 

 

 

 

 

15

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 2.** | **NOTES PAYABLE (CONTINUED)** |
|-------------|-------------------------------|

 

| y.   12% note payable. The principal and all accrued interest were due on December 1, 2008. The note is secured. In May 2009, the maturity date was extended until June 1, 2009.   | 50,000  | 50,000  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|---------|
| z.   12% note payable. The principal and all accrued interest were due on November 20, 2008. The note is secured. In May 2009, the maturity date was extended until June 20, 2009. | 25,000  | 25,000  |
| aa. 12% note payable. The principal and all accrued interest were due on December 15, 2008. The note is secured. In December 2008, the maturity date was extended until May 15, 2009.        | 50,000  | 50,000  |
| bb.12% note payable. The principal and all accrued interest were due on December 25, 2008. The note is secured. In May 2009, the maturity date was extended until June 25, 2009.                  | 25,000  | 25,000  |
| cc. 12% note payable. The principal and all accrued interest were due on December 1, 2008. The note is secured. In May 2009, the maturity date was extended until June 1, 2009.              | 25,000  | 25,000  |
| dd.12% note payable. The principal and all accrued interest were due on November 25, 2008. The note is secured. In May 2009, the maturity date was extended until June 25, 2009.                  | 50,000  | 50,000  |
| ee. 12% note payable. The principal and all accrued interest were due on December 28, 2008. The note is secured. In January 2009, the maturity date was extended until June 28, 2009.        | 50,000  | 50,000  |
| ff.  12% note payable. The principal and all accrued interest were due on December 14, 2008. The note is secured. In May 2009, the maturity date was extended until June 15, 2009.      | 50,000  | 50,000  |
| gg.12% note payable. The principal and all accrued interest were due on April 10, 2009. The note is secured. In April 2009, the maturity date was extended until July 10, 2009.                   | 50,000  | 0       |
| hh.12% note payable. The principal and all accrued interest were due on December 14, 2008. The note is secured. In April 2009, the maturity date was extended until June 15, 2009.                | 25,000  | 25,000  |
| ii.  12% note payable. The principal and all accrued interest were due on November 18, 2008. The note is secured. In November 2009, the maturity date was extended until May 19, 2009.  | 100,000 | 100,000 |
| jj.  12% note payable. The principal and all accrued interest were due on March 17, 2009. The note is secured. In March 2009, the maturity date was extended until June 17, 2009.       | 50,000  | 0       |
| kk.12% note payable. The principal and all accrued interest were due on May 6, 2009. The note is secured. In May 2009, the maturity date was extended until August 6, 2009.                       | 25,000  | 0       |
| ll.   12% note payable. The principal and all accrued interest were due on May 7, 2009. The note is secured. In May 2009, the maturity date was extended until August 7, 2009.     | 25,000  | 0       |
| mm.12% note payable. The principal and all accrued interest were due on May 4, 2009. The note is secured. In May 2009, the maturity date was extended until August 4, 2009.                       | 25,000  | 0       |
| nn.12% note payable. The principal and all accrued interest were due on May 6, 2009. The note is secured. In May 2009, the maturity date was extended until August 6, 2009.                       | 25,000  | 0       |
| oo.12% note payable. The principal and all accrued interest were due on May 6, 2009. The note is secured. In May 2009, the maturity date was extended until August 6, 2009.                       | 100,000 | 0       |

 

 

16

 

 

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|  

i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

 

**NOTE 2.**              **NOTES PAYABLE (CONTINUED)**

  |    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|
| pp.12% note payable. The principal and all accrued interest are due on May 19, 2009. The note is secured                                                                                                                                                      | 40,000  | 0      |
| qq.12% note payable. The principal and all accrued interest are due on May 28, 2009. The note is secured                                                                                                                                                      | 30,000  | 0      |
| rr.  12% note payable. The principal and all accrued interest are due on May 24, 2009. The note is secured                                                                                                                                          | 110,000 | 0      |
| ss. 12% note payable. The principal and all accrued interest are due on May 31, 2009. The note is secured.                                                                                                                                               | 50,000  | 0      |
| tt.  12% note payable. The principal and all accrued interest are due on June 10, 2009. The note is secured.                                                                                                                                        | 50,000  | 0      |
| uu.12% note payable. The principal and all accrued interest are due on June 11, 2009. The note is secured.                                                                                                                                                    | 25,000  | 0      |
| vv.12% note payable. The principal and all accrued interest are due on June 11, 2009. The note is secured                                                                                                                                                     | 5,000   | 0      |
|                                                                                                                                                                                                                                                          |    |   |

 

| Total Notes Payable           | $4,190,262 | $3,356,014 |
|-------------------------------|------------|------------|
| Due to Officers and Directors | 1,200,000  | 1,200,000  |
| Due to Others                 | $2,990,262 | $2,156,014 |

 

We have been able to meet our operating requirements since January 1, 2009 by raising approximately $1,000,000 of short term loans and approximately $500,000 of equity related financing. We will need to receive additional capital to continue our operations.

 

Financing may not be available to us on commercially reasonable terms, if at all. There is no assurance that we will be successful in raising additional capital or that the proceeds of any future financings will be sufficient to meet our future capital needs. It is not likely that we will be able to continue our business without additional financing. Currently, we have no commitments            for additional financing. 

 

| **NOTE 3.** | **CONVERTIBLE BONDS** |
|-------------|-----------------------|

 

On January 9, 2006, the Company sold $1,750,000 of 10% secured convertible debentures pursuant to a Securities Purchase Agreement dated thereof. The Company received $600,000 upon closing, $600,000 on April 6, 2006, and $550,000 May 10, 2006. The debentures were secured by all assets of the Company.

 

During the year ended December 31, 2006, the holders converted $425,000 of the convertible bonds into 14,707,310 shares of common stock. In January 2007, the Company paid off the remaining balance due.

On December 9, 2006, the Company sold $2,000,000 of 6% secured convertible debentures pursuant to a Securities Purchase Agreement dated thereof. The Company received $1,625,000 in December 2006 and remaining $375,000 in January 2007. The Debentures matured on May 9, 2007. The Debentures were convertible from time to time into 28,571,429 shares of common stock of the Company at the            price of $.07 per share and 28,571,429 warrants exercisable at the price of $.07 per share.

On February 28, 2007, the Company sold $2,000,000 of 6% Senior Subordinated Secured Convertible Notes convertible into 16,666,666 shares of the Company's common stock priced at $.12 each, and 8,333,333 Warrants, priced at $.12 each. For every two shares of common stock to be issued, the investor(s) received one warrant which is exercisable into the Company's common stock at 100% of            the Issue Price. These warrants mature three years from issuance. The Notes will automatically convert into the Company's common stock if any of the following events occur: (i) the Shares become registered 

 

17

 

 

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and freely trading, or (ii) the financial closing by the Company of $10,000,000 or more. The Notes are secured by all assets of the Company and its subsidiaries. All future debt securities issued by the Company will be subordinate in right of payment to 

 

 

| **NOTE 3.** | **CONVERTIBLE BONDS (continued)** |
|-------------|-----------------------------------|

the Notes; provided, however, that the Company may raise up to $1.0 million of senior indebtedness that ranks pari passu with the Notes in the future.

 

During the year ended December 31, 2007, the Company converted Convertible debt in the amount of $3,392,274, net of bond discount of $557,419, in principal and accrued interest, to common stock. Total shares issued in exchange for the debt were 40,851,517.

 

Due to the late registration of shares received in conversion of the Convertible Debt during 2007, penalty shares were awarded & issued to convertible note holders. The total number of penalty shares issued was 6,320,476.

 

Convertible bonds remaining at March 31, 2009 and December 31, 2008 consisted of the following:

 

|                                                                   | March 31, 2009   | Dec 31, 2008     |
|------------------------------------------------------------------------|------------------|------------------|
| December 2006 6% Convertible Bonds

February 2007 6% Convertible Bonds | $ 50,000

50,000 | $ 50,000

50,000 |
|  

                                                          | 100,000          | 100,000          |

 

| **NOTE 4.** | **STOCK OPTIONS AND WARRANTS** |
|-------------|--------------------------------|

 

|                                                              | March 31, 2009                                    | December 31, 2008                  |
|-------------------------------------------------------------------|---------------------------------------------------|------------------------------------|
|                                                              |  

Number of

Options/

Warrants             | Weighted

Average

Exercise

Price |  

Number of

Options/

Warrants | Weighted

Average

Exercise

Price |
| Outstanding at Beginning of 

Period                              |  

164,828,343                               |  

$ .10                      |  

122,448,231 |  

$.23 |
| Options Granted

Warrants Granted

Exercised

Forfeited           | 12,950,000

48,321,277

(40,000,000)

(3,332,111) | $ .08

$ .08

$ .12

$ .09         | 15,100,000

204,463,500

(12,514,834)

(164,468,554) | $ .09

$ .10

$.09

$ .33 |
| Outstanding at End of Period                                      | 182,767,509                                       | $ .09                              | 164,828,343 | $ .13 |
| Options Exercisable at End of 

Period                            |  

166,760,702                               |  

$ .13                      |  

137,354,425 |  

.09 |
| Weighted-average Fair Value of

Options Granted During the Period |                                              |  

$ .08                      |  

  |  

$ .10 |

 

 

As of March 31, 2009, 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 2.31 years.

 

 

 

 

 

 

18

 

 

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i2 TELECOM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

| **NOTE 5.** |
|-------------|

 

**None**

 

**NOTE 6. SUBSEQUENT EVENTS**

 

In April 2009, we issued a total of 400,000 shares of Common Stock to an individual in lieu of $30,000 of debt owed by us to the consultant for services performed for us. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual            representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things.

 

Also in April 2009, we issued a total of 1,040,000 shares of Common Stock to two individuals in lieu of $62,500 of debt owed by us to these consultants for services performed for us. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual            representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things.

 

Also in April 2009, we issued a total of 1,250,000 shares of Common Stock to two institutions in lieu of a $100,000 equity investment in the Company. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients            of the shares to us regarding their investment interest and sophistication, among other things. 

 

In May 2009, we have pending issuance a total of 943,594 shares of our Common Stock in exchange for the exercise of 5,644,383 warrants to four individuals and one institution. Of the total amount of shares issued, 881,962 shares of Common Stock were issued in exchange for 5,336,223 cashless warrants from one individual who is one of our directors and another individual who is an            officer and director of ours. These shares of our Common Stock shall be issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things.

 

Also in May 2009, we issued to one institution, warrants to purchase an aggregate of 1,125,000 shares of Common Stock at an exercise price of $0.01 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the settlement of a debt owed by us to a consultant for services performed for us. The warrants were issued without            registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things.

 

Also in May 2009, we have pending issuance a total of 400,000 shares of Common Stock to four individuals in lieu of $24,000 of debt owed by us to these consultants for services performed for us. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance            upon factual representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things. 

 

Also in May 2009, we issued to one individual, warrants to purchase an aggregate of 625,000 shares of Common Stock at an exercise price of $0.08 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the execution of a promissory note extension in the aggregate amount of $125,000 made to us. One of our            directors made the loan. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things. However, these shares are entitled to “piggyback registration” rights upon filing by us of a registration            statement.

 

19

 

 

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**ITEM 2.**            **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

**Forward Looking Statements**

 

*Certain statements in the Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of            the Private Securities Litigation Reform Act of 1995, Section* *27A of the Securities Act of 1933 and Section* *21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,”            “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and            uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section under “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.*

 

*As used in this Form 10-Q, unless the context requires otherwise, “we” or “us” or the “Company” or “i2” or “i2 Telecom” means i2 Telecom International, Inc. and its subsidiaries.*

 

**Overview**

 

The Company, through its subsidiary, i2Telecom International, Inc., (“i2Telecom (DE)”), provides low-cost telecommunications services employing next-generation VoIP technology. These operations are based in Roswell, Georgia. Through i2Telecom (DE), the Company controls its own proprietary technology and outsources the majority of its production and service functions with            strategic partners. The Company, through i2Telecom (DE), provides the VoiceStick®, MyGlobalTalkTM, micro gateway adapters, 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®, MyGlobalTalkTM, 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; |
|--------|--------|-----------------------|

 

|   | • | plug and play technology using traditional phones (including cellular) without professional installation; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

 

|   | • | unlimited and “Pay as You” global calling among VoiceStick® and MyGlobalTalkTM users. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

 

The Company’s management intends to focus upon the monetization and royalty revenues from our Intellectual property portfolio and related technology for mobile communications applications as the Company’s primary lines 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 

 

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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. 

 

**Critical Accounting Policies and Estimates**

 

*Basis of Consolidation.*The consolidated financial statements include the accounts of i2Telecom (DE) and SuperCaller Community, Inc. (“SuperCaller”), both of which are, directly or indirectly, wholly-owned subsidiaries of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. 

 

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

 

*Revenue Recognition.*The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”), as amended by SAB No. 101A and SAB No. 101B. SAB No. 101 requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence            of an arrangement exists; (ii) delivery has occurred or services rendered; (iii) the fee is fixed and determinable; and (iv) collectability 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 collectability 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* 

 

|   | A. | Nature of Operations – The parent Company was incorporated under the laws of the State of Washington on October 17, 1988, and the operating subsidiary was incorporated on February 28, 2002. The Company, headquartered in Atlanta, Georgia, is a telecommunications service provider of Voice over Internet Protocol (“VoIP”) technology. The                            Company has proprietary patent pending technology that allows transmission of VoIP, connection to long distance public-switched telephone network (“PSTN”), and other enhanced communications services through an Internet Access Device (“IAD”). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The Company has targeted specific markets that are connected to the Internet. Customers are supplied an i2 Telecom “IAD” micro gateway, which will enable them to: 1) make, at no cost other than the initial cost of micro gateway and the subscription fee, unlimited calls to other i2 Telecom subscribers – anywhere in the world using the customer’s existing phone            (no new or special IP phone required); 2) make long distance calls to people who use a normal telephone line using the i2 Telecom least cost routing network that provides competitive long distance rates; and 3) use either a broadband (DSL, Cable, etc.) or dial up service.

 

|   | B. | Basis of Consolidation – The consolidated financial statements include the accounts of SuperCaller Community, Inc., a wholly owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | C. | Revenues - The Company recognizes revenue from sale of its i2 Telecom “IAD” micro gateway at time of shipment. Revenues from per-minute charges and user fees are recognized as incurred by its customers. Revenues from the monetization or license fees generated by our Intellectual property are recognized upon completion of the earnings                            cycle.. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | D. | For purposes of the statement of cash flows, the Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | F. | Inventories - Inventories consisting of purchased components available for resale are stated at lower of cost or market. Cost is determined on the first-in, first-out (FIFO) basis. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | H. | Costs associated with obtaining loans have been capitalized and are being amortized on a straight-line basis over the life of the loan. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

 

|   | I. | Property, Equipment and Related Depreciation - Property and equipment are recorded at cost. Depreciation is computed using the straight-line method for financial and tax reporting purposes. Estimated lives range from five to ten years. When properties are disposed of, the related costs and accumulated depreciation are removed from the respective                            accounts and any gain or loss on disposition is recognized at that time. Maintenance and repairs which do not improve or extend the lives of assets are expensed as incurred. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | H. | Intangible Assets – The Company has capitalized certain costs related to registering trademarks and patent pending technology. In accordance with SFAS No. 142, intangible assets with an indefinite life are not amortized but are tested for impairment at least annually or whenever changes circumstances indicate that the carrying value may not be                            recoverable. The Company amortizes its intangible assets with a finite life over 10 years on a straight-line basis. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | I. | In accordance with SFAS No. 144, the Company reviews its long-lived assets, including property and equipment, goodwill and other identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the                            Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value. The Company had no impairment of assets during the years ended December 31, 2007 and 2006. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | J. | Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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                            revenues and expenses during the reporting period. Actual results could differ from those estimates. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | K. | Income Taxes - The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements or tax returns. Under                            this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | L. | Research and Development Expenses – The Company expenses research and development expenses as incurred. Amounts payable to third parties under product development agreements are recorded at the earlier of the milestone achievement, or when payments become contractually due. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | M. | Earnings (loss) per share - Basic earnings (loss) per share represents income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as                            any adjustment to income that would result from the assumed issuance. Options on shares of common stock and certain bonds convertible into common shares were not included in the computing of diluted earnings per share because their effects were anti-dilutive. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | N. | New Accounting Pronouncements |
|--------|----|-------------------------------|

 

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified            election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15. 2007. Management is currently evaluating the effect that adoption of this statement will have on the Company’s consolidated financial position and results of operations.

 

On January 1, 2007, we adopted FASB Interpretation No. 48 (“FIN No. 48”), “*Accounting for Uncertainty in Income Taxes,*” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain income tax positions that the            Company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The adoption of FIN No. 48 on 

 

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January 1, 2007 has not resulted in a cumulative-effect adjustment or have an effect on our consolidated financial statements. 

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal            years beginning after November 15, 2007 and interim periods within those years. Two FASB Staff Positions on SFAS No. 157 were subsequently issued. On February 12, 2007, FSP No. 157-2 delayed the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. This FSP is effective for fiscal years beginning after November 15, 2008. On            February 14, 2007, FSP No. 157-1 excluded FASB No. 13 *Accounting for Leases*and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under FASB No. 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141,            *Business**Combinations*or FASB No. 141R, *Business Combinations.*This FSP is effective upon initial adoption of SFAS No. 157. We are assessing the impact that SFAS No. 157 will have on our consolidated financial statements. 

 

In September 2006, the FASB ratified the consensus on EITF Issue No. 06-3, “*How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement*” (“EITF No. 06-3”). The scope of EITF No. 06-3 includes any tax assessed by a governmental authority            that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, USF contributions and excise taxes. The Task Force concluded that entities should present these taxes in the income statement on either a gross or net basis, based on their accounting policy, which should be disclosed pursuant to APB Opinion No. 22, “Disclosure of Accounting Policies.” If such taxes are            significant and are presented on a gross basis, the amount of those taxes should be disclosed. The consensus on EITF No. 06-3 was effective for interim and annual reporting periods beginning after December 15, 2006. We currently record sales, use and excise taxes on a net basis in our consolidated financial statements whereas USF contributions are recorded on a gross basis in our consolidated financial statements. The adoption of EITF No. 06-3 did not have an effect            on our consolidated results of operations. 

 

**Results of Operations**

 

*Comparison of Three Months Ended March 31, 2009 and 2008*

 

|                                |   | For the Three Months Ended |
|-------------------------------------|--------|----------------------------|
|                                |   | March 31,                  |
|                                |   | 2009                       |   | 2008 |   | Variance |   | Percentage |
| Revenue                             | $      | 132,142                    | $ | 157,456 |   | (25,314) |   | -16.0% |
| Cost of Revenue                     |   | 126,051                    |   | 182,237 |   | (56,186) |   | 30.8% |
| Gross Profit (Loss)                 |   | 6,091                      |   | (24,781 | ) | 30,872 |   | 124.6% |
| Operating Expenses:                 |   |                       |   |   |   |   |   |   |
| General and Administrative Expenses |   | 1,597,556                  |   | 1,051,960 |   | 545,596 |   | 51.9% |
| Other Income (Expense) Net          |   | (114,294)                  |   | (120,653) |   | 6,359 |   | 5.27% |
| Net Profit (Loss)                   | $      |  

(1,705,759)        | $ | (1,197,394) |   | (508,365) |   | -42.5% |

 

 

Revenues decreased to $132,142 for the three months ended March 31, 2009 from $157,456 for the three months ended March 31, 2008. The decrease in revenues was due to lower customer volume due to the focus of development toward a new product line getting ready to launch. Additionally, we expanded fraud control procedures and stricter customer acceptance methods.

 

Cost of revenues decreased to $126,051 for the three months ended March 31, 2009 from $182,237 for the three months ended March 31, 2008. The decrease in cost of revenues was due to continuing efforts in negotiating lower carrier rates, combined with lower sales volume.

 

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Gross loss decreased from a loss of $24,781 for the three months ended March 31, 2008 to a gain of $6,091 for the three months ended March 31, 2009. 

 

Total selling, general and administrative expenses for the three months ended March 31, 2009 was $1,597,556 compared to $1,051,960 for the three months ended March 31, 2008. The increase was due to higher business development & marketing costs, combined with higher salaries & accounting fees in connection with Sarbanes Oxley compliance and Intellectual Property valuations            during the first quarter of 2009.

 

Net loss for the three months ended March 31, 2009 was $1,705,759 as compared to a net loss of $1,197,394 for the three months ended March 31, 2008. The increase in net loss is primarily a result of expanded business development and marketing efforts. 

 

**Liquidity and Capital Resources**

 

On March 31, 2009, we had a working capital deficit of approximately $6,600,000 compared to a working capital deficit of approximately $7,014,000 on March 31, 2008. The decrease in working capital deficit was primarily due to increased cash resources from the sale of intellectual property, which in turn served to payoff current liabilities. Net cash used in operating activities was            approximately $1,244,000 for the three months ended March 31, 2009 as compared to net cash used in operating activities of approximately $600,000 for the three months ended March 31, 2008 . The increase in net cash used by operating activities between these periods is attributable to expanded business development and marketing efforts.

 

Net cash used in investing activities was approximately $7,000 for the three months ended March 31, 2009 as compared to net cash used in investing activities of $98,000 for the same period in 2008. The decrease in net cash used investing activities is attributable to fewer purchases of network system equipment.

 

Net cash provided by financing activities was approximately $1,217,000 for the three months ended March 31, 2009 as compared to net cash provided of $536,000 for the same period in 2008. The increase in net cash provided by financing activities is attributable to fewer pay downs of promissory note debt, and purchase of services with stock warrants. 

 

**Off-Balance Sheet Arrangements**

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent            interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

**Contractual Obligations**

 

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.

 

We have no current commitments or obligations for future capital expenditures. A summary of our debt and lease obligations at March 31, 2009 are as follows: 

 

 

|   |   | Obligations payable in |   |      |
|--------|--------|------------------------|--------|-----------|
|   |   | Less than 1 year       |   | 1-3 years |   | Total |
| Debt   | $      | 4,190,262              | $      | 0         | $ | 4,190,262 |
|   |   |                   |   |      |   |   |
| Leases | $      | 0                      | $      | 0         | $ | 0 |

 

 

| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|-------------|----------------------------------------------------------------|

 

|   | Not applicable. |
|--------|-----------------|

 

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| **ITEM 4.** | ******CONTROLS AND PROCEDURES****.****** |
|-------------|------------------------------------------|

 

**Disclosure Controls and Procedures**

 

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision of, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities            Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to enable us to record, process, summarize and report information required to be included in our reports that we file or submit under the Exchange Act within the time periods required.            

 

**Changes in Internal Control over Financial Reporting**

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

 

| ******ITEM 1.****** **** | ******LEGAL PROCEEDING****S****** |
|-------------------------------|-----------------------------------|

 

On December 22, 2003, former stockholders of SuperCaller Community, Inc., a Delaware corporation acquired by the Company in September 2002 (“SuperCaller”), filed a lawsuit against the Company in the United States District Court for the Northern District of California, San Francisco Division. The plaintiffs alleged that i2Telecom (DE) and certain of its affiliates and            representatives deceived the plaintiffs into selling SuperCaller to the Company, among other things. On March 27, 2006,  all federal claims against the Company and related parties in the United States District Court in San Francisco were “dismissed with prejudice” by Judge Vaughn Walker.  In addition, the court declined to exercise supplemental jurisdiction over the remaining state law claims which were all “dismissed” as well.  Therefore, no            loss or liability has been recorded in the Company’s financial statements. In March 2008, the federal claims against the Company and related parties in the United States District Appellate Court in San Francisco were “dismissed with prejudice”.

The Company was named a defendant in a lawsuit regarding a disputed amount due for patent preparation and filings by the same attorney representing the plaintiffs in the above matter. In January 2008, the claims against the Company and related parties in the United States District Appellate Court in San Francisco were “dismissed with prejudice”. In April 2008, the same            attorney representing the plaintiffs in the above matter filed an action against the Company in the Superior Court of California, County of Santa Clara (the Superior Court”). The plaintiffs alleged that i2Telecom (DE) and certain of its affiliates and representatives deceived the plaintiffs into selling SuperCaller to the Company, among other things. A demurrer has been filed by the Company and sustained by the Superior Court with leave to amend. The Company will continue to            vigorously defend these claims and believes this litigation to be unsubstantiated and without merit.

On May 11, 2009, the Company commenced litigation against defendants MagicJack, LP; SJ Labs, Inc.; YMAX Corporation, and Daniel Borislow, the (“Defendants”); In The United States District Court Northern District of Ohio, amongst other claims, for misappropriation and use of the Company’s intellectual property.  The Company alleges that the Defendants:            (i)  acquired the Company’s intellectual property pursuant to contracts preserving its confidentiality; (ii)  have improperly used the Company’s intellectual property in violation of their contractual commitments, as well as statutory and common law; and  (iii)  in combination with one another, agreed to conspire to use, convert, or misappropriate the Company’s trade secrets for their own benefit.  As a result, the Company alleges that the            Defendants are jointly and severally liable for actual, consequential, special, exemplary and punitive damages.  The Company is also seeking a permanent injunction to prevent Defendants from directly or indirectly using or misappropriating any of the Company's trade secrets.

 

| ******ITEM 1A.****** | ******RISK FACTOR****S****** |
|----------------------|------------------------------|

 

*You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this offering that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could*

 

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*cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.*

 

**Current economic conditions may adversely affect our industry, business and results of operations.**

The United States economy is currently undergoing a period of slowdown and very high volatility and the future economic environment may continue to be less favorable than that of recent years. A substantial portion of our revenues comes from residential and small business customers whose spending patterns may be affected by prevailing economic conditions. While we believe that the            weakening economy had a modest effect on our net subscriber additions during recent months, if these economic conditions continue to deteriorate, the growth of our business and results of operations may be affected. Reduced consumer spending may drive us and our competitors to offer certain services at promotional prices, which could have a negative impact on our operating results. 

 

**We have a history of losses and negative cash flows from operations and we may not be profitable in the future.**

 

We had a net loss of $1,705,759 for the three months ended March 31, 2009 and a net loss of $1,197,384 for the three months ended March 31, 2008. We had a net loss for the year ended December 31, 2008, and a net loss of $9,088,752 for the fiscal year ended December 31, 2007, and a loss of $5,800,177 for the fiscal year ended December 31, 2006. The improvement of the net loss between            years ending 2008 and 2007 was largely attributable to a gain in the second quarter of 2008 in the amount of $5,193,620 from the sale of technology. We had an accumulated deficit at March 31, 2009 of $41,958,406. Our ability to generate positive cash flows from operations and net income is dependent, among other things, on the acceptance of our products in the marketplace, market conditions, cost control, and our ability to raise capital on acceptable terms. The financial statements            included elsewhere in this prospectus do not include any adjustments that might result from the outcome of these uncertainties. Furthermore, developing and expanding our business will require significant additional capital and other expenditures. Accordingly, if we are not able to increase our revenue, then we may never achieve or sustain profitability. Recent economic events cast a doubt of uncertainty as to the possible decline of consumer spending in the future.

 

We have been able to meet our operating requirements since January 1, 2009 by raising approximately $1,000,000 of short term loans and approximately $500,000 of equity related financing. We will need to receive additional capital to continue our operations. The recent credit crisis may cause a prolonged strain on the capital markets which would create even a greater difficulty in            obtaining proper financing into the Company.

 

Financing may not be available to us on commercially reasonable terms, if at all. There is no assurance that we will be successful in raising additional capital or that the proceeds of any future financings will be sufficient to meet our future capital needs. It is not likely that we will be able to continue our business without additional financing. Currently, we have no commitments            for additional financing. The recent credit crisis may cause a prolonged strain on the capital markets which would create even a greater difficulty in obtaining proper financing into the Company.

 

**The price of our Common Stock has been volatile in the past and may continue to be volatile.**

 

The stock market in general, and the market for technology companies in particular, has been experiencing recent extreme volatility that has often been unrelated to the operating performance of particular companies. From January 1, 2004 to March 31, 2009, the per share closing price of our Common Stock on the Over-the-Counter Bulletin Board fluctuated from a high of $3.35 to a low of            $.03. We believe that the volatility of the price of our Common Stock does not solely relate to our performance and is broadly consistent with volatility experienced in our industry. Fluctuations may result from, among other reasons, responses to operating results, announcements by competitors, regulatory changes, economic changes, market valuation of technology firms and general market conditions. 

 

In addition, in order to respond to competitive developments, we may from time to time make pricing, service or marketing decisions that could harm our business. Also, our Company’s operating results in one or more future quarters may fall below the expectations of securities analysts and investors. In either case, the trading price of our Common Stock would likely decline.            

 

The trading price of our Common Stock could continue to be subject to wide fluctuations in response to these or other factors, many of which are beyond our control. If the market price of our Common Stock decreases, then shareholders may not be able to sell their shares of our Common Stock at a profit. 

 

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Our common shares are thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

 

Our common shares are sporadically or "thinly-traded" on the OTCBB, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company and we are relatively unknown to stock analysts, stock            brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or            non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained. 

 

The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly-traded public float and limited operating history. The price at which you purchase our common shares may not be indicative of the price that will prevail in the trading market. You may be unable to sell your common shares at or above your purchase            price, which may result in substantial losses to you.

 

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically or thinly traded.            As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price.            Secondly, we are a speculative or “risky” investment due to our limited operating history, lack of profits to date, and lack of capital to execute our business plan. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock            of a seasoned issuer. The following factors may add to the volatility in the price of our common shares: actual or anticipated variations in our quarterly or annual operating results, government regulations, announcements of significant acquisitions, strategic partnerships or joint ventures, our capital commitments, and additions or departures of our key personnel. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our            operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect, if any, that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price. 

 

**Volatility in our common share price may subject us to securities litigation.**

 

As discussed in the preceding risk factor, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following            periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources. The application of the “penny stock” rules could adversely affect the market price of our common shares and increase your transaction costs to sell those shares.

 

As long as the trading price of our common shares is below $5 per share, the open-market trading of our common shares will be subject to the “penny stock” rules. The “penny stock” rules impose additional sales practice requirements on 

broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). 

 

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule            prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly 

 

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statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell the common shares, and may result in decreased liquidity for our common shares and increased transaction costs for sales and purchases of our common shares as compared to other            securities.

 

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and            sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent            investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. 

 

**The Company may not be able to successfully manage its growth**.

 

The Company’s liability to manage its growth will require that the Company continue to improve its operational, financial and management information systems, and to motivate and effectively manage its employees. If the Company’s management is unable to manage such growth effectively, then the quality of the Company’s services, its ability to retain key personnel and            its business, financial condition and results of operations could be materially adversely affected.

 

**The Company may be unable to fund future growth**.

 

The Company’s business strategy calls for the Company to grow and expand its business both internally and otherwise. Significant funds will be required to implement this strategy, funding for additional personnel, capital expenditures and other expenses, as well as for working capital purposes. Financing may not be available to the Company on favorable terms or at all. If            adequate funds are not available on acceptable terms, then the Company may not be able to meet its business objectives for expansion. This, in turn, could harm the Company’s business, results of operations and financial condition. In addition, if the Company raises additional funds through the issuance of equity or convertible debt securities, then the percentage ownership of the Company’s shareholders will be reduced, and any new securities could have rights,            preferences and privileges senior to those of the Common Stock. Furthermore, if the Company raises capital or acquires businesses by incurring indebtedness, then the Company will become subject to the risks associated with indebtedness, including interest rate fluctuations and any financial or other covenants that the Company’s lender may require. Furthermore, the recent credit crisis may cause a prolonged strain on the capital markets which would create even a greater            difficulty in obtaining proper financing into the Company.

 

**Our executive officers have been employed for a relatively short period of time, and may not be able to implement our business strategy. The failure to effectively implement our business strategy will have a material, adverse effect on our business, financial condition and results of operations.**

 

Our management team consists of 3 executive officers who have been employed by us for over three years. There can be no assurance that they will function successfully as a management team to implement our business strategy. If they are unable to do so, then our business, financial condition and results of operations could be materially adversely affected.

 

**Our performance could be adversely affected if we are unable to attract and retain qualified personnel in the fields of engineering, marketing and finance.**

 

Our performance is dependent on the services of our management as well as on our ability to recruit, retain and motivate other key employees in the fields of engineering, marketing and finance. Competition for qualified personnel is intense and there is a limited number of persons with knowledge of and experience with VoIP. We cannot assure you that we will be able to attract and            retain key personnel, and the failure to do so could hinder our ability to implement our business strategy and could cause harm to our business. 

 

**The general condition of the telecommunications market will affect our business. Continued pricing declines may result in a decline in our operating results.**

 

28

 

 

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We are subject to market conditions in the telecommunications industry. Our operations could be adversely affected if pricing continues to decline as it has in the past few years. If pricing declines continue, then we may experience adverse operating results.

 

**The VoIP telephony market is subject to rapid technological change. Newer technology may render our technology obsolete which would have a material, adverse impact on our business and results of operations.**

 

VoIP telephony is an emerging market that is characterized by rapid changes in customer requirements, frequent introductions of new and enhanced products, and continuing and rapid technological advancement. To compete successfully in this emerging market, we must continue to design, develop, manufacture, and sell new and enhanced VoIP telephony software products and services that            provide increasingly higher levels of performance and reliability at lower cost. Our success in designing, developing, manufacturing, and selling such products and services will depend on a variety of factors, including:

 

|   | **•** | the identification of market demand for new products; |
|--------|------------|-------------------------------------------------------|

 

|   | **•** | the scalability of our VoIP telephony software products; |
|--------|------------|----------------------------------------------------------|

 

|   | **•** | product and feature selection; |
|--------|------------|--------------------------------|

 

|   | **•** | timely implementation of product design and development; |
|--------|------------|----------------------------------------------------------|

 

|   | **•** | product performance; |
|--------|------------|----------------------|

 

|   | **•** | cost-effectiveness of current products and services and products under development; |
|--------|------------|-------------------------------------------------------------------------------------|

 

|   | **•** | our ability to successfully implement service features mandated by federal and state law; |
|--------|------------|-------------------------------------------------------------------------------------------|

 

|   | **•** | effective manufacturing processes; and |
|--------|------------|----------------------------------------|

 

|   | **•** | effectiveness of promotional efforts. |
|--------|------------|---------------------------------------|

 

Additionally, we may also be required to collaborate with third parties to develop our products and may not be able to do so on a timely and cost-effective basis, if at all. We have in the past experienced delays in the development of new products and the enhancement of existing products, and such delays will likely occur in the future. If we are unable, due to resource constraints or technological or            other reasons, to develop and introduce new or enhanced products in a timely manner, if such new or enhanced products do not achieve sufficient market acceptance, or if such new product introductions decrease demand for existing products, our operating results would decline and our business would not grow.

 

**The continued growth of the Internet as a medium for telephone services is uncertain. If this growth does not continue, our business and financial condition could be materially adversely affected.**

 

The continued market acceptance of the Internet as a medium for telephone services is subject to a high level of uncertainty. Our future success will depend on our ability to significantly increase revenues, which will require widespread acceptance of the Internet as a medium for telephone communications. There can be no assurance that the number of consumers using the Internet for            telephone communications will grow. If use of the Internet for telephone communications does not continue to grow, our business and financial condition could be materially adversely affected.

 

**Our business faces security risks. Our failure to adequately address these risks could have an adverse effect on our business and reputation.**

 

A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our VoIP operations. We may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Consumer concern over Internet security has been, and could continue            to be, a barrier to commercial activities requiring consumers to send their credit card information over the Internet. Computer viruses, break-ins, or other security problems could lead to misappropriation of proprietary information and interruptions, delays, or cessation in service to our customers. Moreover, until more comprehensive security technologies 

 

29

 

 

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are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet as a merchandising medium. Our failure to adequately address these risks could have an adverse effect on our business and reputation.

 

**The Company’s ability to do business depends, in part, on the Company’s ability to license certain technology from third parties.**

 

The Company relies on certain technology licensed from third parties, and there can be no assurance that these third party technology licenses will be available to the Company on acceptable commercial terms or at all. If the Company cannot license the technology it needs on acceptable commercial terms, then its business, financial condition and results of operations will be materially            and adversely affected.

 

**Products and services like the ones we offer change rapidly, therefore, we must continually improve them. However, our need to invest in research and development may prevent us from ever being profitable.**

 

Products and services like the ones we offer are continually upgraded in an effort to make them work faster, be easier to us and provide more options. Our industry is characterized by the need for continued investment in research and development. If we fail to invest sufficiently in research and development, then our products could become less attractive to potential customers, which            could have a material adverse effect on our results of operations and financial condition. However, any investment in research and development and technological innovation will cause our operating costs to increase. This could prevent us from ever achieving profitability.

 

**We sell a service that allows our customers to make land-line or mobile telephone calls over the Internet. Intellectual property infringement claims brought against us, even without merit, could require us to enter into costly licenses or deprive us of the technology we need.**

 

The service we sell allows our users to make land-line or mobile telephone calls over the Internet. Third parties may claim that the technology we develop or license infringes their proprietary rights. Any claims against us may affect our business, results of operations and financial conditions. Any infringement claims, even those without merit, could require that we pay damages or            settlement amounts or could require us to develop non-infringing technology or enter into costly royalty or licensing agreements to avoid service implementation delays. Any litigation or potential litigation could result in product delays, increased costs or both. In addition, the cost of litigation and the resulting distraction of our management resources could have a material adverse effect on our results of operations and financial condition. If successful, a claim of product            infringement could completely deprive us of the technology we need.

 

**We have developed our underlying software and we try to protect it from being used by others in our industry. Failure to protect our intellectual property rights could have a material adverse effect on our business.**

 

We rely on copyright, trade secret and patent laws to protect our content and proprietary technologies and information, including the software that underlies our products and services. Additionally, we have taken steps that we believe will be adequate to establish, protect and enforce our intellectual property rights. There can be no assurance that such laws and steps will provide            sufficient protection to our intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain rights to use our products or technologies.

 

We have pending several patent applications related to embedded software technology and methods of use. There can be no assurance that these patents will be issued. On February 28, 2008, the Company was awarded Patent #7,336,654 and on December 2, 2008 Patent #7,460,480 “Dynamically Adapting The Transmission Rate of Packets in Real-Time VoIP Communications to the Available            Bandwidth” from the United States Patent Trademark Office. Even if the balance of patents pending are issued, the limited legal protection afforded by patent, trademark, trade secret and copyright laws may not be sufficient to protect our proprietary rights to the intellectual property covered by these patents.

 

Furthermore, the laws of many foreign countries in which we do business do not protect intellectual property rights to the same extent or in the same manner as do the laws of the United States. Although we have implemented and will continue to implement protective measures in those countries, these efforts may also not be successful. Additionally, even if our domestic and            international efforts are successful, our competitors may independently develop non-infringing technologies that are substantially similar or superior to our technologies.

 

**If our products contain defects, then our sales would be likely to suffer, and we may even be exposed to legal claims. Defects in our products could have a material adverse impact on our business and operating results.**

 

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Our business strategy calls for the development of new products and product enhancements which may from time to time contain defects or result in failures that we did not detect or anticipate when introducing such products or enhancements to the market. In addition, the markets in which our products are used are characterized by a wide variety of standard and non-standard            configurations and by errors, failures and bugs in third-party platforms that can impede proper operation of our products. Despite product testing, defects may still be discovered in some new products or enhancements after the products or enhancements are delivered to customers. The occurrence of these defects could result in product returns, adverse publicity, loss of or delays in market acceptance of our products, delays or cessation of service to our customers or legal claims by            customers against us. Any of these occurrences could have a material adverse impact on our business and operating results.

 

**Sales to customers based outside the United States have recently accounted for a significant portion of the Company’s operating revenues, which exposes the Company to risks inherent in international operations**. 

 

International sales represented approximately 30% of the Company’s recurring revenues for the quarter ended March 31, 2009. One of our goals is to increase our foreign sales in order to increase our revenues. However, international sales are subject to a number of risks, including changes in foreign government regulations, laws, and communications standards; export license            requirements; currency fluctuations, tariffs and taxes; other trade barriers; difficulty in collecting accounts receivable; longer accounts receivable collection cycles; difficulty in managing across disparate geographic areas; difficulties associated with enforcing agreements and collecting receivables through foreign legal systems; expenses associated with localizing products for foreign markets; and political and economic instability, including disruptions of cash flow and normal            business operations that may result from terrorist attacks or armed conflict.

 

If the relative value of the U.S. dollar in comparison to the currency of our foreign customers should increase, as it has in the last few months then the resulting effective price increase of our products to these foreign customers could result in decreased sales. In addition, to the extent that general economic downturns impact our customers, the ability of these customers to            purchase our products could be adversely affected. Payment cycles for international customers are typically longer than those for customers in the United States. 

 

If we are able to increase our foreign sales significantly, the occurrence of any of the foregoing could have a material adverse impact on our results of operations.

 

**Doing business over the Internet may become subject to governmental regulation. If these regulations substantially increase the cost of doing business, they could have a material adverse effect on our business, results of operations and financial condition.**

 

We are not currently subject to direct federal, state, or local regulation, and laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet and other VoIP services, it is possible that a number of laws and regulations may be adopted with respect to            the Internet or other VoIP services covering issues such as user privacy, “indecent” materials, freedom of expression, pricing content and quality of products and services, taxation, advertising, intellectual property rights and information security. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for our products and services or increase the cost of doing business or in some            other manner have a material adverse effect on our business, results of operations, and financial condition. Although it is too early to gauge the impact of the most recent election, the change in administration could ultimately impact existing laws and regulations relating to our business sector.

 

**The Company may become subject to litigation.**

 

The Company may be subject to claims involving how the Company conducts its business or the market for or issuance of the Common Stock or other securities. Any such claims against the Company may affect its business, results of operations and financial conditions. Such claims, including those without merit, could require the Company to pay damages or settlement amounts and would            require a substantial amount of time and attention from the Company’s senior management as well as considerable legal expenses. Although the Company does not anticipate that its activities would warrant such claims, there can be no assurances that such claims will not be made.

 

**We depend on third-party vendors for key Internet operations including broadband connectivity, termination capability and different operating systems. The loss of any of our vendors could have a material adverse effect on our business, results of operations and financial condition.**

 

31

 

 

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We rely on our relationships with third party vendors of Internet development tools and technologies including providers of switches, network termination and operational and billing specialized operations. There can be no assurance that the necessary cooperation from third parties will be available on acceptable commercial terms or at all. Although there are a number of providers of            these services, if we are unable to develop and maintain satisfactory relationships with such third parties on acceptable commercial terms, or if our competitors are better able to leverage such relationships, then our business, results of operations and financial condition will be materially adversely affected. 

 

**We may not be able to successfully compete with current or future competitors.**

 

The market for VoIP service providers and business solutions providers is highly competitive, and rapidly changing. Since the Internet’s commercialization in the early 1990’s, the number of websites on the Internet competing for the attention and spending of consumers and businesses has proliferated. With no substantial barriers to entry, we expect that competition will            continue to intensify. In addition to intense competition from VoIP services providers, we also face competition from traditional telephone systems integrators and providers.

 

Some of our competitors, such as Vonage and Skype, have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and larger existing customer bases than we have. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and to devote greater resources to the            development, promotion, and sale of their products or services than we can. There can be no assurance that we will be able to compete successfully against current or future competitors. If we cannot do so, then our business, financial condition and results of operations will be materially and adversely affected.

 

**We may not be able to comply with the FCC’s requirements to provide 911 service to our customers. Our inability to comply with these requirements could have an adverse effect on our business and results of operations.**

 

On June 3, 2005 the Federal Communications Commission (“FCC”) issued the VoIP 911 Order adopting rules that require interconnected VoIP providers to provide their new and existing subscribers with 911 service no later than November 28, 2005. On November 5, 2005, the FCC issued a public notice stating that VoIP providers who failed to comply with the VoIP 911 Order by            November 28, 2005 would not be required to discontinue the provision of interconnected VoIP service to any existing customers, but would be required to discontinue marketing VoIP service and accepting new customers for VoIP service in all areas where the providers are not transmitting 911 calls to the appropriate PSAP (public safety answering point) in full compliance with the FCC’s rules. Because we have not fully complied with the VoIP 911 Order, we are subject to this            restriction. We cannot be certain that we will be able to fully comply with this VoIP 911 Order. Because it would prevent us from marketing and accepting new customers in certain areas, our inability to comply with the VoIP 911 Order may have an adverse effect on our business and results of operations. Although it is too early to gauge the impact of the most recent election, the change in administration could ultimately impact existing FCC laws and regulations relating to our            business sector.

 

| ******ITEM 2.****** **** | ******UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEED****S****** |
|-------------------------------|-----------------------------------------------------------------------------|

 

In January 2009, we issued to an institution and an individual, warrants to purchase an aggregate of 20,000,000 shares of Common Stock at an exercise price of $0.08 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the execution of a promissory note extension in the aggregate amount of $1,000,000            made to us. One of our directors made the loan of which half was guaranteed by an officer and director of ours. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things. However, these shares are entitled to            “piggyback registration” rights upon filing by us of a registration statement.

 

Also in January 2009, we issued to one institution and four individuals, warrants to purchase an aggregate of 5,000,000 shares of Common Stock at an exercise price of $0.08 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the execution of extensions for promissory notes in the aggregate amount of            $400,000 made to us. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things. However, these shares are entitled to “piggyback registration” rights upon filing by us of a registration            statement.

 

Also in January 2009, we issued a total of 2,535,782 shares of Common Stock an individual in lieu of $131,789 of debt owed by us to three consultants for services perform for us. The shares were issued without registration under the 

 

32

 

 

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Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things. 

 

Also in January 2009, we issued to three individuals, warrants to purchase an aggregate of 2,021,272 shares of Common Stock at an exercise price of $0.05 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the settlement of a debt owed by us to three consultants for services performed for us. The            warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things.

 

In February 2009, we issued to four individuals and an institution, warrants to purchase an aggregate of 7,375,000 shares of Common Stock at an exercise price of $0.08 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the execution of promissory notes in the aggregate amount of $625,000 made to us.            The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things. However, these shares are entitled to “piggyback registration” rights upon filing by us of a registration statement.

 

Also in February 2009, we issued to an institution, warrants to purchase an aggregate of 1,125,000 shares of Common Stock at an exercise price of $0.01 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the settlement of a debt owed by us to a consultant for services performed for us. The warrants            were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things.

 

Also in February 2009, we issued a total of 300,000 shares of Common Stock to two individuals in lieu of $24,000 of debt owed by us to these consultants for services perform for us. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual            representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things. 

 

In March 2009, we issued a total of 8,000,000 shares of our Common Stock in exchange for the exercise of 40,000,000 warrants to one individual and one institution. Of the total amount of shares issued, 8,000,000 shares of Common Stock were issued in exchange for 40,000,000 cashless warrants from one individual who is one of our directors and another individual who is an officer and            director of ours. These shares of our Common Stock shall be issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the shares to us regarding their investment interest and sophistication, among other things.

 

Also in March 2009, we issued to one institution and two individuals, warrants to purchase an aggregate of 5,000,000 shares of Common Stock at an exercise price of $0.08 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the execution of extensions for promissory notes in the aggregate amount of            $400,000 made to us. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things. However, these shares are entitled to “piggyback registration” rights upon filing by us of a registration            statement.

 

Also in March 2009, we issued to one institution, warrants to purchase an aggregate of 1,125,000 shares of Common Stock at an exercise price of $0.01 per share, vested immediately upon the date of grant with a five-year expiration period. The warrants were issued in connection with the settlement of a debt owed by us to a consultant for services performed for us. The warrants were            issued without registration under the Securities Act in reliance upon the exemptions from registration set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things.

 

Also in March 2009, we issued to two institution, warrants to purchase an aggregate of 4,000,000 shares of Common Stock at an exercise price of $0.08 per share, and one individual, warrants to purchase an aggregate of 200,000 shares of Common Stock at an exercise price of $0.10 per share vested immediately upon the date of grant with a three-year expiration period. The warrants            were issued in connection with the settlement of a debt owed by us to a consultant for services performed for us. The warrants were issued without registration under the Securities Act in reliance upon the exemptions from registration 

 

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set forth in Section 4(2) and Regulation D. We based such reliance upon factual representations by the recipients of the warrants to us regarding their investment interest and sophistication, among other things.

 

The Company believes that the foregoing transactions with its officers and directors were on terms no less favorable than could have been obtained from independent third parties. 

 

| ******ITEM 3.****** **** | ******DEFAULTS UPON SENIOR SECURITIE****S****** |
|-------------------------------|-------------------------------------------------|

 

None. 

 

| ******ITEM 4.****** **** | ******SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER****S****** |
|-------------------------------|---------------------------------------------------------------------|

 

None. 

 

| ******ITEM 5.****** **** | ******OTHER INFORMATIO****N****** |
|-------------------------------|-----------------------------------|

 

| (a)  | None.                                                                                                               |
|-----------|---------------------------------------------------------------------------------------------------------------------|
| (b)  | There were no changes to the procedures by which security holders may recommend nominees to our board of directors. |

 

| **ITEM 6.** | **EXHIBITS**  |
|-------------|--------------------|

 

| **Exhibit No.** |         | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                            |         | **Method of Filing**                                                                                                                                             |
|-----------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                             |
| 2.1             |    | Agreement and Plan of Merger dated as of January 30, 2004, among the Company, DDN Acquisition Corp. and i2 Telecom International, Inc. (The schedules to the Agreement and Plan of Merger have been omitted from this Report pursuant to Item 601(b)(2) of Regulation S-B, and the Company agrees to furnish copies of such omitted schedules supplementally to the Securities and Exchange Commission upon request.). |    | Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 2, 2004.                                            |
| 2.2             |         | Asset Purchase Agreement dated as of January 30, 2004, between the Company and InTransit Media, Inc.                                                                                                                                                                                                                                                                                                                   |         | Incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on February 2, 2004.                                            |
| 2.3             |         | First Amendment to Asset Purchase Agreement, dated February 26, 2004, between the Company and InTransit Media, Inc.                                                                                                                                                                                                                                                                                                    |         | Incorporated by reference to Exhibit 2.3 to the Schedule 13D filed by Paul R. Arena on March 8, 2004 with respect to ownership of the Company’s securities |
| 3.1             |         | Articles of Incorporation, as amended (including Certificates of Designations of Rights and Preferences of Series A-1, A-2, B and C Preferred Stock)                                                                                                                                                                                                                                                                   |    | Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003.                               |
| 3.2             |         | Bylaws, as amended.                                                                                                                                                                                                                                                                                                                                                                                                    |    | Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003.                               |
| 3.3             |         | Certificate of Designations of Rights and Preferences of Preferred Stock Series D                                                                                                                                                                                                                                                                                                                                      |    | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 13, 2004.                                                |
| 3.4             |         | Amendment to the Articles of Incorporation filed June 3, 2004.                                                                                                                                                                                                                                                                                                                                                         |    | Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004.                             |
| 3.5             |         | Certificate of Designation of Rights and Preferences of Preferred Stock Series E                                                                                                                                                                                                                                                                                                                                       |         | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 22, 2005.                                              |

 

 

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| 3.6  |   | Articles of Correction to the Articles of Incorporation filed April 17, 2006.                                                                                                        |         | Incorporated by reference to Exhibit 3.1.8 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006. |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 4.01 |   | Form of Warrant issued by the Company to each buyer in connection with the 2004 Private Placement.                                                                                   |    | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed August 13, 2004.                       |
| 4.02 |   | Form of Additional Investment Right issued by the Company to each buyer in connection with the 2004 Private Placement.                                                               |    | Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed August 13, 2004.                       |
| 4.03 |   | Registration Rights Agreement among the Company and the buyers signatory thereto entered into in connection with the 2004 Private Placement.                                         |    | Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed August 13, 2004.                       |
| 4.04 |   | Form of Warrant issued by i2 Telecom International, Inc., a Delaware corporation, and converted in the Merger, exercisable until February 27, 2007, at an exercise price of $0.9031. |         | Incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form SB-2 (No. 333-119254).                   |
| 4.05 |   | Warrant dated April 19, 2005 to purchase 52,083 shares of 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 April 25, 2005.                        |
| 4.06 |   | 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 April 25, 2005.                        |
| 4.07 |   | Warrant dated April 25, 2005 to purchase 156,249 shares of 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 April 25, 2005.                        |
| 4.08 |   | 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 April 25, 2005.                        |
| 4.09 |   | 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 July 5, 2005.                          |
| 4.10 |   | 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 July 5, 2005.                          |
| 4.11 |   | 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 July 12, 2005.                         |
| 4.12 |   | 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 July 12, 2005.                         |
| 4.13 |   | 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 July 12, 2005.                         |
| 4.14 |   | 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 July 12, 2005.                         |
| 4.15 |   | Warrant dated August 30, 2005 to purchase 25,000 shares of the Company’s common stock granted to Aubrey L. Braswell.                                                           |         | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed September 6, 2005.                     |
| 4.16 |   | Registration Rights Agreement dated September 7, 2005 among the Company, Troon & Co., Gregory P. McGraw and Jordan E. Glazov.                                                    |         | Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed September 13, 2005.                   |
| 4.17 |   | Stock Option Agreement dated as of September 12, 2005 between the Company and Louis Libin.                                                                                           |         | Incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K filed September 14, 2005.                   |

 

 

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| 4.18 |   | Stock Option Agreement dated as of September 12, 2005 between the Company and Aubrey L. Braswell.                                  |   | Incorporated by reference to Exhibit 99.10 to the Company’s Current Report on Form 8-K filed September 14, 2005.                  |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 4.19 |   | Form of Warrant dated July 12, 2005 by and amongst the Company and the purchasers of the Company’s Series E Preferred Stock. |   | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed November 22, 2005.                     |
| 4.20 |   | Warrant dated November 3, 2005 by and between the Company and Braswell Enterprises, LP.                                            |   | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed December 07, 2005.                     |
| 4.21 |   | Warrant dated November 18, 2005 by and between the Company and Mena Investment.                                                    |   | Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed December 07, 2005.                     |
| 4.22 |   | Warrant dated November 18, 2005 by and between the Company and Dr. Angela Ranzini.                                                 |   | Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed December 07, 2005.                     |
| 4.23 |   | Warrant dated November 23, 2005 by and 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 December 07, 2005.                     |
| 4.24 |   | Registration Rights Agreement dated November 3, 2005 by and between the Company and Braswell Enterprises, LP.                      |   | Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed December 07, 2005.                    |
| 4.25 |   | Registration Rights Agreement dated November 18, 2005 by and between the Company and Dr. Angela Ranzini.                           |   | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed December 07, 2005.                    |
| 4.26 |   | Registration Rights Agreement dated November 18, 2005 by and between the Company and Mena Investment.                              |   | Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed December 07, 2005.                    |
| 4.27 |   | Registration Rights Agreement dated November 23, 2005 by and between the Company and Vestal Venture Capital.                       |   | Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed December 07, 2005.                    |
| 4.28 |   | Warrant, dated as of January 9, 2006, between the Company and Cornell Capital Partners, LP.                                        |   | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed January 12, 2006.                     |
| 4.29 |   | Investor Registration Rights Agreement, dated as of January 9, 2006, between the Company and Cornell Capital Partners, LP.         |   | Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed January 12, 2006.                     |
| 4.30 |   | Warrant dated January 30, 2006 by and between the Company and Richardson & Patel, LLP.                                         |   | Incorporated by reference to Exhibit 4.35 to the Company’s Annual Report on Form 10-KSB filed April 4, 2006.                      |
| 4.31 |   | Warrant dated January 30, 2006 by and between the Company and Peter Hogan.                                                         |   | Incorporated by reference to Exhibit 4.36 to the Company’s Annual Report on Form 10-KSB filed April 4, 2006.                      |
| 4.32 |   | Warrant Agreement dated March 11, 2003, granted to Robert F. Hussey to purchase 65,000 shares of the Company’s common stock. |   | Incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004. |
| 4.33 |   | Warrant dated February 28, 2006 between the Company and Phillip Rapp, Jr.                                                          |   | Incorporated by reference to Exhibit 4.38 to the Company’s Annual Report on Form 10-KSB filed April 4, 2006.                      |
| 4.34 |   | Warrant dated March 17, 2006 between the Company and Phillip Rapp, Jr.                                                             |   | Incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-KSB filed April 4, 2006.                        |
| 4.35 |   | Form of Warrant.                                                                                                                   |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 5, 2007.                      |
| 4.36 |   | Form of Registration Rights Agreement.                                                                                             |   | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 5, 2007.                      |

 

 

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| 4.37 |   | Form of Registration Rights Agreement dated February 28, 2007 for $2 million financing                                              |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 1, 2007.                  |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| 4.38 |   | Form of Warrant dated February 28, 2007 for $2 million financing                                                                    |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 1, 2007.                  |
| 4.39 |   | Registration Rights Agreement dated May 2007 by and between the Company and Vestal Venture Capital.                                 |   | Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-QSB filed May 17, 2007.               |
| 4.40 |   | Warrant dated May 2007 by and between the Company and Vestal Venture Capital.                                                       |   | Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-QSB filed May 17, 2007.               |
| 4.41 |   | Warrant dated July 9, 2007 for the benefit of Vestal Venture Capital.

                                                        |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 13, 2007.                  |
| 4.42 |   | Registration Rights Agreement dated July 9, 2007, by and between i2 Telecom International, Inc. and Vestal Venture Capital.

  |   | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 13, 2007.                  |
| 4.43 |   | Form of Warrant by and between the Company and Vestal Venture Capital

                                                        |   | Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 4.44 |   | Form of Registration Rights Agreement by and between the Company and Vestal Venture Capital

                                  |   | Incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 4.45 |   | Form of Warrant by and between the Company and Braswell Enterprises, LP

                                                      |   | Incorporated by reference to Exhibit 4.7 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 4.46 |   | Form of Registration Rights Agreement by and between the Company and Braswell Enterprises, LP

                                |   | Incorporated by reference to Exhibit 4.8 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 4.47 |   | Form of Warrant by and between the Company and Paul Arena

                                                                    |   | Incorporated by reference to Exhibit 4.11 to the Company’s Amendment to Current Report on Form 8-K/A filed October 5, 2007. |
| 4.48 |   | Form of Registration Rights Agreement by and between the Company and Paul Arena

                                              |   | Incorporated by reference to Exhibit 4.12 to the Company’s Amendment to Current Report on Form 8-K/A filed October 5, 2007. |
| 4.49 |   | Warrant dated August 06, 2007 for the benefit of Vestal Venture Capital.                                                            |   | Incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 4.50 |   | Registration Rights Agreement by and between the Company and Vestal Venture Capital dated September 28, 2007.

                |   | Incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 4.51 |   | Warrant dated August 31, 2007 for the benefit of Phipps.

                                                                     |   | Incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 4.52 |   | Registration Rights Agreement by and between the Company and Phipps dated August 31, 2007.

                                   |   | Incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 4.53 |   | Warrant dated November 04, 2007 for the benefit of Vestal Venture Capital.

                                                   |   | Incorporated by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 4.54 |   | Warrant dated November 09, 2007 for the benefit of Vestal Venture Capital.

                                                   |   | Incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |

 

 

37

 

 

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| 4.55  |   | Form of Warrant.

                                                                                                                                                              |         | Incorporated by reference to Exhibit 10.33 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.             |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------|
| 4.56  |   | Form of Registration Rights Agreement.

                                                                                                                                        |         | Incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.             |
| 4.57  |   | Form of Warrant.

                                                                                                                                                              |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 7, 2008.                     |
| 4.58  |   | Form of Registration Rights Agreement.

                                                                                                                                        |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed January 7, 2008.                     |
| 4.59  |   | Form of Warrant.

                                                                                                                                                              |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 14, 2008.                      |
| 4.60  |   | Form of Registration Rights Agreement.

                                                                                                                                        |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 14, 2008.                      |
| 4.61  |   | Form of Warrant.

                                                                                                                                                              |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 28, 2008.                      |
| 4.62  |   | Form of Warrant.

                                                                                                                                                              |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed May 30, 2008.                        |
| 4.63  |   | Form of Registration Rights Agreement

.

                                                                                                                                      |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed May 30, 2008.                        |
| 4.64  |   | Form of Warrant

                                                                                                                                                               |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed October 3, 2008.                     |
| 4.65  |   | Form of Registration Rights Agreement

 

                                                                                                                                 |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed October 3, 2008.                     |
| 4.66  |   | Form of Warrant

                                                                                                                                                               |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 10, 2009.                      |
| 4.67  |   | Form of Registration Rights Agreement

                                                                                                                                         |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 10, 2009.                      |
| 4.68  |   | Certificate of Designations of Rights and Preferences of Series F Convertible Preferred Stock.

                                                                                |         | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 30, 2009.                       |
| 4.69  |   | Form of Warrant                                                                                                                                                                      |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed May 4, 2009.                         |
| 4.70  |   | Form of Registration Rights Agreement.                                                                                                                                               |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed May 4, 2009.                         |
| 4.71  |   | Form of Warrant                                                                                                                                                                      |         | Incorporated by reference to Exhibit 4.60 to the Company’s Current Report on Form 8-K filed May 8, 2009.                         |
| 10.01 |   | Employment Agreement between Paul R. Arena and i2 Telecom International, Inc., a Delaware corporation, dated June 1, 2002. Represents an executive compensation plan or arrangement. |    | Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004. |

 

 

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| 10.02 |   | Amendment to Employment Agreement between i2 Telecom International, Inc., a Delaware corporation, and Paul Arena dated August 24, 2004. Represents an executive compensation plan or arrangement. |    | Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed September 9, 2004. |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------|
| 10.03 |   | I2 Telecom International, Inc. 2004 Stock Incentive Plan.                                                                                                                                         |         | Incorporated by reference to Appendix C to the Company Schedule 14A Proxy Statement filed May 10, 2004.              |
| 10.04 |   | Employment Agreement dated as of April 6, 2005, between the Company and James Rose. Represents an executive compensation 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. |
| 10.05 |   | Form of Note Purchase.                                                                                                                                                                            |         | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 5, 2007.   |
| 10.06 |   | Term Loan Agreement between the Company and the Loan Guarantors dated January 4, 2007.                                                                                                            |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed January 5, 2007.   |
| 10.07 |   | Promissory Note Agreement between the Loan Guarantors and the Lender dated January 4, 2007.                                                                                                       |         | Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed January 5, 2007.   |
| 10.08 |   | Security Agreement between the Company and the Lender dated January 4, 2007.                                                                                                                      |         | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed January 5, 2007.   |
| 10.09 |   | Loan Repayment Agreement among the Company, the Lender and the Loan Guarantors.                                                                                                                   |         | Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed January 5, 2007.   |
| 10.10 |   | Form of Note Purchase Agreement dated February 28, 2007 for $2 million financing                                                                                                                  |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 1, 2007.     |
| 10.11 |   | Promissory Note dated May 2007 by and between the Company and Vestal Venture Capital.

                                                                                                      |         | Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed May 17, 2007. |
| 10.12 |   | Term Loan Agreement dated May 2007 by and between the Company and Vestal Venture Capital.

                                                                                                  |         | Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB filed May 17, 2007. |
| 10.13 |   | Pledge Agreement dated May 2007 by and between the Company and Vestal Venture Capital.

                                                                                                     |         | Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-QSB filed May 17, 2007. |
| 10.14 |   | Loan Subordination Agreement dated May 2, 2007 by and between the Company and University Bank.

                                                                                             |         | Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-QSB filed May 17, 2007. |
| 10.15 |   | Term Loan Agreement dated July 9, 2007, by and between i2 Telecom International, Inc. and Vestal Venture Capital.

                                                                          |         | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 13, 2007.     |
| 10.16 |   | Loan Subordination Agreement dated July 9, 2007, by and between i2 Telecom International, Inc. and University Bank.

                                                                        |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed July 13, 2007.     |
| 10.17 |   | Pledge Agreement dated July 9, 2007, by and between i2 Telecom International, Inc. and Vestal Venture Capital.

                                                                             |         | Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed July 13, 2007.     |
| 10.18 |   | Guaranty dated July 9, 2007, by and between Paul Arena and Vestal Venture Capital.

                                                                                                         |         | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed July 13, 2007.     |

 

 

39

 

 

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| 10.19 |   | Promissory Note dated July 9, 2007 by and between i2 Telecom International, Inc. and Vestal Venture Capital.

                                                          |   | Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.              |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| 10.20 |   | Form of Term Loan Agreement by and between the Company and Vestal Venture Capital

                                                                                     |   | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 10.21 |   | Form of Non-Negotiable Secured Promissory Note by and between the Company and Vestal Venture Capital

                                                                  |   | Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 10.22 |   | Form of Term Loan Agreement by and between the Company and Braswell Enterprises, LP

                                                                                   |   | Incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 10.23 |   | Form of Non-Negotiable Secured Promissory Note by and between the Company and Braswell Enterprises, LP

                                                                |   | Incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.               |
| 10.24 |   | Form of Guaranty by and between the Company and Vestal Venture Capital

                                                                                                |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.              |
| 10.25 |   | Form of Pledge Agreement by and between the Company and Vestal Venture Capital

                                                                                        |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed October 5, 2007.              |
| 10.26 |   | Form of Term Loan Agreement by and between the Company and Paul Arena

                                                                                                 |   | Incorporated by reference to Exhibit 4.9 to the Company’s Amendment to Current Report on Form 8-K/A filed October 5, 2007.  |
| 10.27 |   | Form of Non-Negotiable Secured Promissory Note by and between the Company and Paul Arena

                                                                              |   | Incorporated by reference to Exhibit 4.10 to the Company’s Amendment to Current Report on Form 8-K/A filed October 5, 2007. |
| 10.28 |   | Employment Agreement dated October 11, 2007 by and between i2 Telecom International, Inc. and Mark Hewitt. Represents an executive compensation plan or arrangement.

  |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 17, 2007.               |
| 10.29 |   | Non-Negotiable Secured Promissory Note for the benefit of Vestal Venture Capital dated September 28, 2007.                                                                   |   | Incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.         |
| 10.30 |   | Guaranty by and between Vestal Venture Capital and Paul Arena dated September 28, 2007.                                                                                      |   | Incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 10.31 |   | Term Loan Agreement by and between the Company and Vestal Venture Capital dated September 28, 2007.

                                                                   |   | Incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 10.32 |   | Pledge Agreement by and between the Company and Vestal Venture Capital dated September 28, 2007.

                                                                      |   | Incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 10.33 |   | Note Modification Agreement for the benefit of Phipps dated August 31, 2007.

                                                                                          |   | Incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 10.34 |   | Form of Non-Negotiable Secured Promissory Note.

                                                                                                                       |   | Incorporated by reference to Exhibit 10.31 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |
| 10.35 |   | Form of Term Loan Agreement.

                                                                                                                                          |   | Incorporated by reference to Exhibit 10.32 to the Company’s Quarterly Report on Form 10-QSB filed November 14, 2007.        |

 

 

40

 

 

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| 10.36 |   | Resignation Letter.

                                                                                                                                                                                                 |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007. |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|
| 10.37 |   | Form of Non-Negotiable Secured Promissory Note.

                                                                                                                                                                     |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 7, 2008.   |
| 10.38 |   | Form of Term Loan Agreement.

                                                                                                                                                                                        |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 7, 2008.   |
| 10.39 |   | Form of Non-Negotiable Secured Promissory Note.

                                                                                                                                                                     |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 14, 2008.    |
| 10.40 |   | Form of Term Loan Agreement.

                                                                                                                                                                                        |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 14, 2008.    |
| 10.41 |   | Form of Non-Negotiable Secured Promissory Note

                                                                                                                                                                      |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 28, 2008.    |
| 10.42 |   | Form of Term Loan Agreement

                                                                                                                                                                                         |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 28, 2008.    |
| 10.43 |   | Form of Guaranty

                                                                                                                                                                                                    |   | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 28, 2008.    |
| 10.44 |   | Form of Non-Negotiable Secured Promissory Note.                                                                                                                                                                            |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 30, 2008.      |
| 10.45 |   | Form of Term Loan Agreement.

                                                                                                                                                                                        |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 30, 2008.      |
| 10.46 |   | Employment Agreement, dated August 5, 2008 and effective August 18, 2008, by and between i2 Telecom International, Inc. and Christopher R. Miltenberger. Represents an executive compensation plan or arrangement.

  |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 14, 2008.   |
| 10.47 |   | Form of Non-Negotiable Secured Promissory Note 

 

                                                                                                                                                             |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 3, 2008.   |
| 10.48 |   | Form of Term Loan Agreement                                                                                                                                                                                                |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 3, 2008.   |
| 10.49 |   | Form of Non-Negotiable Secured Promissory Note.                                                                                                                                                                            |   | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 10, 2009.    |
| 10.50 |   | Form of Term Loan Agreement                                                                                                                                                                                                |   | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 10, 2009.    |
| 10.51 |   | 12% Non-Negotiable Secured Promissory Note issued by the Registrant to Vestal Venture Capital, dated January 30, 2009.                                                                                                     |   | Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed March 10, 2009.    |
| 10.52 |   | Term Loan Agreement between the Registrant and Vestal Venture Capital, dated January 30, 2009.                                                                                                                             |   | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed March 10, 2009.    |
| 10.53 |   | Pledge Agreement between the Registrant and Vestal Venture Capital, dated January 30, 2009.                                                                                                                                |   | Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed March 10, 2009.    |

 

 

41

 

 

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| 10.54 |         | Employment Agreement, dated April 20, 2009, by and between the Company and Andrew L. Berman. Represents an executive compensation plan or arrangement.

             |         | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 24, 2009. |
|-------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------|
| 10.55 |         | Employment Agreement, dated April 20, 2009, by and between the Company and Paul R. Arena. Represents an executive compensation plan or arrangement.

                |         | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 24, 2009. |
| 10.56 |         | Employment Agreement, dated April 20, 2009, by and between the Company and Christopher R. Miltenberger. Represents an executive compensation plan or arrangement.

  |         | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed April 24, 2009. |
| 10.57 |         | Employment Agreement, dated April 20, 2009, by and between the Company and Douglas F. Bender. Represents an executive compensation plan or arrangement.

            |         | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed April 24, 2009. |
| 10.58 |         | Form of Non-Negotiable Secured Promissory Note.

 

                                                                                                            |         | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 4, 2009.    |
| 10.59 |         | Form of Term Loan Agreement.

 

                                                                                                                               |         | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 4, 2009.    |
| 10.60 |         | Form of Subscription Agreement

 

                                                                                                                             |         | Incorporated by reference to Exhibit 10.66 to the Company’s Current Report on Form 8-K filed May 8, 2009.   |
| 14.1  |         | Code of Ethics and Conduct.                                                                                                                                               |         | Incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-KSB filed April 4, 2006.  |
| 21.1  |    | Subsidiaries of the Company.                                                                                                                                              |    | Incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-KSB filed April 4, 2006.  |
| 31.1  |    | Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Executive Officer.                                                                                    |    | Filed herewith.                                                                                                   |
| 31.2  |         | Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Financial Officer.                                                                                    |         | Filed herewith.                                                                                                   |
| 32.1  |    | Section 1350 Certification of the Company’s Chief Executive Officer and Principal Financial Officer.                                                                |    | Filed herewith.                                                                                                   |
| 32.2  |    | Section 1350 Certification of the Company’s Principal Financial Officer.                                                                                            |    | Filed herewith.                                                                                                   |

 

 

 

 

 

 

 

 

42

 

 

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

|               | ******i2 TELECOM INTERNATIONAL, INC.****** |
|--------------------|--------------------------------------------|
|               | (Registrant)                               |
|               |                                       |
| Date: May 15, 2009 | By:                                        | /s/ Andrew L. Berman |
|               |                                       | Andrew L. Berman |
|               |                                       | Chief Executive Officer 

 

  |

 

 

43

 

 

----

 **Exhibit 31.1**

**CERTIFICATION**

 

I, Andrew L. Berman, certify that:

 

| 1. | I have reviewed this quarterly report on Form 10-Q of i2 Telecom International, Inc.; |
|----|---------------------------------------------------------------------------------------|

 

| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

| Date: | May 15, 2009 | /s/ Andrew L. Berman______________________ |
|-------|--------------|--------------------------------------------|

Andrew L, Berman

Chief Executive Officer (Principal Executive Officer)

 

 

 

44

 

 

----

**Exhibit 31.2**

**CERTIFICATION**

 

I, Paul R. Arena, certify that:

 

| 1. | I have reviewed this quarterly report on Form 10-Q of i2 Telecom International, Inc.; |
|----|---------------------------------------------------------------------------------------|

 

| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| Date: | May15, 2009 | /s/ Paul R. Arena______________________ |
|-------|-------------|-----------------------------------------|

Paul R. Arena

Chief Financial Officer (Principal Financial 

and Accounting Officer)

 

 

 

45

 

 

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**Exhibit 32.1**

 

**CERTIFICATION**

 

In connection with the periodic report of i2 Telecom International, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2009 as filed with the Securities and Exchange Commission (the “Report”), I, Andrew L. Berman, Chief Executive Officer (Principal Executive Officer) of the Company, hereby certify as of the date hereof, solely for purposes of            Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(1)      The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and 

 

(2)      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. 

 

|   | Date: | May15, 2009 | /s/ Andrew L. Berman______________________ |
|--------|-------|-------------|--------------------------------------------|

Andrew L. Berman

Chief Executive Officer (Principal Executive Officer)

 

 

 

46

 

 

----

**Exhibit 32.2**

 

**CERTIFICATION**

 

In connection with the periodic report of i2 Telecom International, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2009 as filed with the Securities and Exchange Commission (the “Report”), I, Paul R. Arena, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for            purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(1)      The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and 

 

(2)      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. 

 

|   | Date: | May 15, 2009 | /s/ Paul R. Arena______________________ |
|--------|-------|--------------|-----------------------------------------|

Paul R. Arena

Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

47