U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Amendment No. 1 toFORM 10-QSB

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934       
|For the quarterly period ended: June 30, 2004                
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission File Number 000-50758

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VISTULA COMMUNICATIONS SERVICES, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                                           |  | 20-0734966(IRS Employer
Identification No.)
|---------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------
|40 Portman Square, 4th Floor
London W1H 6LT
United Kingdom
(Address of principal executive offices and zip code)
|+44 (0) 20 7486 4900(Registrant's telephone number, including area code)                                        

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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 o    No ý

As of August 20, 2004, there were 24,404,406 shares of common stock, $0.001 par value, of the registrant issued and outstanding.

Transitional
Small Business Disclosure Format (Check
one): Yes o    No ý



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VISTULA COMMUNICATIONS SERVICES, INC.  FORM 10-QSB  FOR THE THREE MONTHS ENDED JUNE 30, 2004

|                                     |                                                                        | Page                                                                                                                
|------------------------------------ | ---------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------
|Facing Page                          |                                                                        |                                                                                                                     
|Table of Contents                    |                                                                        | 1                                                                                                                   
|PART I.    FINANCIAL INFORMATION(*): |                                                                        |                                                                                                                     
|                                     | Item 1.    Financial Statements                                        |                                                                                                                     
|                                     |                                                                        | Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003                                   
|                                     |                                                                        | Consolidated Statements of Operations for the Three and Six Months ended June 30, 2004 and June 30, 2003 (unaudited)
|                                     |                                                                        | Consolidated Statements of Cash Flows for the Six Months ended June 30, 2004 and June 30, 2003 (unaudited)          
|                                     |                                                                        | Notes to Consolidated Financial Statements                                                                          
|                                     | Item 2.    Management's Discussion and Analysis or Plan of Operations  |                                                                                                                     
|                                     | Item 3.    Controls and Procedures                                     |                                                                                                                     
|PART II. OTHER INFORMATION           |                                                                        | 21                                                                                                                  
|                                     | Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds |                                                                                                                     
|                                     | Item 5.    Other Information                                           |                                                                                                                     
|                                     | Item 6.    Exhibits and Reports on 8-K                                 |                                                                                                                     
|SIGNATURES                           |                                                                        | 25                                                                                                                  

1

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

VISTULA COMMUNICATIONS SERVICES, INC.        Consolidated Balance Sheets        as of June 30, 2004 and December 31, 2003

|                                      |                                                                                                                                                                             | June 30,
2004 |                             | December 31,
2003 |  
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | --------------------------- | ----------------- | -
|
|ASSETS                                |                                                                                                                                                                             |               |                             |                   |  
|Current assets:                       |                                                                                                                                                                             |               |                             |                   |  
|                                      | Cash and cash equivalents                                                                                                                                                   |               | $                           | 54,698            |  
|                                      | Accounts receivable                                                                                                                                                         |               |                             | 595,911           |  
|                                      | Prepaid expenses and other current assets                                                                                                                                   |               |                             | 165,396           |  
|                                      |                                                                                                                                                                             |               |                             |                   |  
|                                      | Total current assets                                                                                                                                                        |               |                             | 816,005           |  
|                                      |                                                                                                                                                                             |               |                             |                   |  
|Property and equipment, net           |                                                                                                                                                                             |               | 2,012,733                   |                   |  
|                                      |                                                                                                                                                                             |               |                             |                   |  
|                                      |                                                                                                                                                                             | $             | 2,828,738                   |                   | $
|                                      |                                                                                                                                                                             |               |                             |                   |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT |                                                                                                                                                                             |               |                             |                   |  
|Current liabilities:                  |                                                                                                                                                                             |               |                             |                   |  
|                                      | Accounts payable                                                                                                                                                            |               | $                           | 814,195           |  
|                                      | Accrued expenses                                                                                                                                                            |               |                             | 882,920           |  
|                                      | Due to stockholder                                                                                                                                                          |               |                             | 38,541            |  
|                                      | Capital lease obligation                                                                                                                                                    |               |                             | 1,913,501         |  
|                                      |                                                                                                                                                                             |               |                             |                   |  
|                                      |                                                                                                                                                                             |               | Total current liabilities   |                   |  
|                                      |                                                                                                                                                                             |               |                             |                   |  
|Stockholders' deficit:                |                                                                                                                                                                             |               |                             |                   |  
|                                      | Common stock, $0.001 par value, 100,000,000 shares authorized, 24,404,406 and 23,885,000 and issued and outstanding as of June 30, 2004 and December 31, 2003, respectively |               |                             | 24,404            |  
|                                      | Additional paid-in capital                                                                                                                                                  |               |                             | 1,834,000         |  
|                                      | Deferred compensation                                                                                                                                                       |               |                             | (638,500          | )
|                                      | Accumulated deficit                                                                                                                                                         |               |                             | (2,028,049        | )
|                                      | Cumulative translation adjustment                                                                                                                                           |               |                             | (12,274           | )
|                                      |                                                                                                                                                                             |               |                             |                   |  
|                                      |                                                                                                                                                                             |               | Total stockholders' deficit |                   |  
|                                      |                                                                                                                                                                             |               |                             |                   |  
|                                      |                                                                                                                                                                             | $             | 2,828,738                   |                   | $
|                                      |                                                                                                                                                                             |               |                             |                   |  

See
accompanying notes to unaudited consolidated financial statements

2

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VISTULA COMMUNICATIONS SERVICES, INC.        Consolidated Statements of Operations        for the Three and Six Months ended June 30, 2004 and June 30, 2003

|                                          |                      | Three Months Ended
June 30,
(unaudited) |            | Six Months Ended
June 30,
(unaudited) |  
|----------------------------------------- | -------------------- | --------------------------------------- | ---------- | ------------------------------------- | -
|
|Net revenues                              |                      | $                                       | 829,382    |                                       | $
|Cost of revenues                          |                      |                                         | 748,841    |                                       |  
|                                          |                      |                                         |            |                                       |  
|                                          | Gross profit         |                                         |            | 80,541                                |  
|General and administrative expenses       |                      |                                         | 1,072,901  |                                       |  
|                                          |                      |                                         |            |                                       |  
|                                          | Loss from operations |                                         |            | (992,000                              | )
|Interest and other income (expense)       |                      |                                         | (28,833    | )                                     |  
|                                          |                      |                                         |            |                                       |  
|                                          | Net loss             |                                         | $          | (1,020,833                            | )
|                                          |                      |                                         |            |                                       |  
|Weighted-average basic shares outstanding |                      |                                         | 24,173,471 |                                       |  
|                                          |                      |                                         |            |                                       |  
|Net loss per common share                 |                      | $                                       | (0.04      | )                                     | $
|                                          |                      |                                         |            |                                       |  

See
accompanying notes to unaudited consolidated financial statements

3

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VISTULA COMMUNICATIONS SERVICES, INC.        Consolidated Statements of Cash Flows        for the Six Months ended June 30, 2004 and June 30, 2003

|                                                  |                                                                             | Six Months Ended June 30,                                           |                        
|------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------- | -----------------------
|
|Cash flows from operating activities:             |                                                                             |                                                                     |                        
|                                                  | Net loss                                                                    |                                                                     |                        
|                                                  | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                     |                        
|                                                  |                                                                             | Depreciation                                                        |                        
|                                                  |                                                                             | Services contributed by shareholders                                |                        
|                                                  |                                                                             | Company expenses paid by stockholder                                |                        
|                                                  |                                                                             | Company expenses paid by stockholder recorded as due to stockholder |                        
|                                                  |                                                                             | Services paid for by issuance of common stock                       |                        
|                                                  |                                                                             | Non cash compensation expense                                       |                        
|                                                  |                                                                             | Non cash interest expense                                           |                        
|                                                  |                                                                             | Changes in assets and liabilities:                                  |                        
|                                                  |                                                                             |                                                                     | (Increase) Decrease in:
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     | Increase in:           
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|Cash flows from investing activities:             |                                                                             |                                                                     |                        
|                                                  | Disposals of property and equipment                                         |                                                                     |                        
|                                                  | Purchases of property and equipment                                         |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|Cash flows from financing activities:             |                                                                             |                                                                     |                        
|                                                  | Payments or due to shareholder                                              |                                                                     |                        
|                                                  | Proceeds from issuance of common stock                                      |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|                                                  |                                                                             |                                                                     |                        
|Effect of exchange rates on cash                  |                                                                             |                                                                     | 928                    
|Net increase in cash and cash equivalents         |                                                                             |                                                                     | (33,946                
|Cash and cash equivalents, beginning of period    |                                                                             |                                                                     | 88,644                 
|                                                  |                                                                             |                                                                     |                        
|Cash and cash equivalents, end of period          |                                                                             | $                                                                   | 54,698                 
|                                                  |                                                                             |                                                                     |                        
|Supplemental disclosure of cash flow information: |                                                                             |                                                                     |                        
|                                                  | Cash paid for interest                                                      |                                                                     | $                      
|                                                  |                                                                             |                                                                     |                        
|                                                  | Cash paid for taxes                                                         |                                                                     | $                      
|                                                  |                                                                             |                                                                     |                        
|                                                  | Equipment acquired pursuant to capital lease obligation                     |                                                                     | $                      
|                                                  |                                                                             |                                                                     |                        

See
accompanying notes to unaudited consolidated financial statements

4

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Vistula Communications Services, Inc.        Notes to Unaudited Consolidated Financial Statements        June 30, 2004

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of Vistula Communications Services, Inc. (Vistula or the Company) have been prepared in
accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-QSB and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the results for the interim periods have been included. The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Interim results are not necessarily
indicative of results to be expected for the entire fiscal year ending December 31, 2004. These unaudited financial statements should be read in conjunction with the audited financial
statements and related notes thereto included in the Company's audited annual financial statements for the fiscal year ended December 31, 2003. Those audited financial statements are included
in the Company's registration statement on Form 10-SB, as amended which has been filed with the Securities and Exchange Commission (SEC).

The
Company has adopted the United States dollar as its reporting currency, although the British pound is the functional currency of its wholly-owned operating subsidiaries. For
reporting purposes, assets and liabilities of the Company's international operations are translated into U.S. dollars at exchange rates that are in effect on the balance sheet date and equity accounts
are translated at historical exchange rates. Income and expense items are translated at average exchange rates, which are in effect during the year. Translation adjustments are accumulated in other
comprehensive loss as a separate component of stockholders' deficit in the consolidated balance sheet. Transaction gains and
losses are included in other income, in the consolidated statements of operations. Transaction gains (losses) were immaterial for the three and six months ended June 30, 2004 and 2003.

(2) Stock-Based Compensation

Statement of Financial Accounting Standard (SFAS) No. 123,Accounting for Stock-Based Compensationrequires
the measurement of the fair value of stock options and warrants to be included in the statement of operations or disclosed in the notes to financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to
Employees,and elect the disclosure-only alternative under SFAS No. 123, as amended by Statement of Financial Accounting Standard (SFAS) No. 148, Accounting for Stock-Based
Compensation.

Common
stock options granted have been valued using the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions used for the six month
period ended June 30, 2004 are as follows:

Risk-free interest rate

3.95
%Expected dividend yield

0Expected lives

5 yearsExpected volatility

80
%


5

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The
following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.

6/30/04

6/30/03Net Loss: As Reported

$
(1,428,327
)
$
(111,368
)Stock compensation expense included in net loss


354,000


Stock compensation expense determined using fair value method for all awards


(437,626
)

Pro Forma

$
(1,511,953
)
$
(111,368
)Loss Per Share (Basic): as reported

$
(0.06
)
$
(0.01
)Pro Forma

$
(0.06
)
$
(0.01
)Loss Per Share (Diluted): as reported

$
(0.06
)
$
(0.01
)Pro Forma

$
(0.09
)
$
(0.01
)


In
accordance with Emerging Issues Task Force (EITF) 96-18,Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring,
or in Connection with Selling Goods or Services, the Company records compensation expense equal to the fair value of the options granted to non-employees over the
vesting period, which is generally the period of service.

(3) Property and Equipment

Property and equipment as of June 30, 2003 and December 31, 2003, consisted of the following:

June 30

December 31Telecommunications equipment

$
2,057,186

$
172,781Less-accumulated depreciation


44,453


22,841$
2,012,733

$
149,940


Depreciation
expense was $22,841 and $0 for the year ended December 31, 2003 and 2002, respectively. Depreciation expense was $20,570 and $5,811 for the year ended June 30,
2004 and 2003, respectively.

(4) Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under
SFAS No. 109, deferred tax assets or liabilities are computed based on the difference between the financial statements and income tax basis of assets and liabilities, and net operating loss
carryforwards, using the enacted tax rates. Deferred income tax expense or benefit is based on changes in the asset or liability from period to period. The Company did not record a provision for
Federal, state or foreign income taxes for the three and six months ended June 30, 2004 and 2003 because the Company has experienced losses since inception. The Company has not recorded a
benefit for deferred tax assets as their realizability is uncertain.

6

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(5) Balance Sheet Detail

June 30,
2004

December 31,
2003Accrued expenses at June 30, 2004 and December 31, 2003 consisted of the following:Accrued professional fees

$
463,252

$
106,842Deferred revenue





6,475VAT payable


38,727


Salary


60,000


Other


14,294


Call termination costs


306,647


$
882,920

$
113,317Prepaid expenses and other current assets at June 30, 2004 and December 31, 2003 consisted of the following:Prepaid call termination charges

$


$
101,449Equipment rent


48,591


33,555VAT receivable


3,196


Other receivables


113,609


35,008$
165,396

$
170,012


(6) Comprehensive Income (Loss)

For the three- and six-months ended June 30, 2004 and 2003, respectively, the components of other comprehensive loss consisted of foreign
currency translation adjustments. Comprehensive loss was $(1,046,021) and $(20,867) for the three months ended June 30, 2004 and 2003, respectively and $(1,500,601) and $(50,124), for the
six-months ended June 30, 2004 and 2003, respectively.

(7) Net Loss Per Share

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average number of common shares plus the dilutive effect of outstanding warrants. 2,850,000 outstanding stock options were
excluded from the calculation of diluted earnings per share for the six months ended June 30, 2004 because they were anti-dilutive. There were no stock options outstanding for any
other period presented.

(8) Stock Incentive Plan

In February 2004, the board of directors adopted the 2004 Stock Incentive Plan (the "Plan"). Under the Plan, the Company may grant incentive stock options,
non-statutory stock options and restricted stock which aggregate 6,000,000 shares of the Company's common stock. The Board has the authority to select the employees, officers, directors,
consultants and advisors to whom options are granted and determine the terms of each option, including (i) the number of shares of common stock subject to the option, (ii) when the
option becomes exercisable, (iii) the option exercise price, which, in

7

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the
case of incentive stock options, must be at least 100% (110% in the case of incentive stock options granted to a stockholder owning in excess of 10% of the Company's common stock) of the fair
market value of the common stock as of the date of grant and (iv) the duration of the option, which may be up to 10 years or provided that incentive stock options issued to a stockholder
owning in excess of 10% of the Company's common stock, may not have a term of more than five years.

Options
totaling 2,825,000 shares have been granted under the Stock Incentive Plan, none of which have been exercised at June 30, 2004. The Company has reflected
pre-tax charges to earnings in the three-month period ended June 30, 2004 and 2003 of $354,000 and $0, respectively, for the compensation value of the options granted. At June 30,
2004, an additional $638,500 of deferred compensation remain on the accompanying balance sheet, such amount will be amortized over future periods as the underlying stock options vest.

(9) Employment Agreements

In January, 2004, the Company entered into employment and non-competition agreements with three key individuals. The agreements were amended and
restated in May, 2004. These agreements have initial terms that begin on January 1, 2004 and end between March 2005 and June 2005 and may be renewed for successive annual terms if
both the Company and the employee agree in writing. The agreements provide for annual salaries totaling $300,000, as well as bonuses totaling $285,000 if certain Company performance goals are achieved
as defined in the agreement. As of June 30, 2004 no bonuses have been accrued as such goals have not been met. If the Company elects to terminate the employees without cause, the employees are
entitled to receive severance payments equal to six months of their salaries. The Company accrued $60,000 pursuant to these agreements for the period ended June 30, 2004. Two of the employees
resigned as of June 30, 2004. Based on new severance agreements with these employees, the Company has recorded an aggregate compensation charge of approximately $42,000 upon termination.

(10) Related Party Transactions

Contributed
Services

During
the year ended December 31, 2003 and for the period from inception (August 30, 2002) through December 31, 2002 certain stockholders contributed services to
the Company. Pursuant to Staff Accounting Bulletin Topic 5T (SAB.T.5T), the Company recorded compensation and a corresponding credit to additional paid in capital of approximately $110,000 for these
services during the period ended December 30, 2003. This charge was not recorded during the period from inception (August 30, 2002) through December 31, 2002 as the Company was
still in its earliest stages of development.

The
Company recorded compensation of $55,000 for the six months ended June 30, 2004 and 2003 and $27,500 for the three months ended June 20, 2004 and 2003 with
corresponding credits going to additional paid in capital.

Expenses
Paid By Stockholder

The
Chairman and another stockholder paid certain legal, accounting and operating expenses on behalf of the Company. Pursuant to SAB.T.5T, expenses not expected to be repaid of
approximately

8

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$311,000
were recorded as expense and charged to additional paid in capital for the year ended December 31, 2003. The Company recorded expenses related to legal, accounting and operating
expenses paid for by the Chairman and another stockholder of $103,112 and $155,405 for the three and six months ended June 30, 2004, respectively, and $16,996 and $34,143 for the three and six
months ended June 30, 2003, respectively. Expenses that are expected to be repaid of $38,541 and $64,602 are included in due to stockholder at June 30, 2004 and December 31, 2003,
respectively. The amounts due to stockholder do not bear interest expense.

Sale
of Common Stock

On
May 5, 2004, the Company sold 100,000 shares of common stock to a director at $0.05 per share for total proceeds of $5,000. The Company has recorded $40,000 as compensation
expense based on the difference between the fair market value of the Company's common stock ($0.45) and the $0.05 purchase price per share of these shares.

(11) Investment Banking Agreement

In
October 2003, the Company entered into a service agreement with an investment bank. Pursuant to the agreement, the Company issued 419,406 shares of common stock to the
investment bank in lieu of service fees in May 2004. The Company recorded $188,733 as administrative expense upon issuance of these shares in accordance with EITF No. 96-18, Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

(12) Asset Purchase

In January, 2004, the Company signed an agreement to purchase certain equipment from another entity in exchange for $2,000,000, less any fees, costs and expenses
incurred by the Company to re-certify or re-license such assets by June 30, 2004. The agreement was amended on May 5, 2004. As a result of the amendment, the
purchase price for the equipment is now $1,670,000 and 725,000 shares of common stock and the latest closing date has been extended to April 1, 2005. Under the agreement, the seller has the
right to use all or part of the cash portion of the purchase price for the equipment to purchase shares of the Company's common stock at a price per share equal to:



9

---





In
the event that the Company does not close on the purchase of the equipment by April 1, 2005, the Company will be required to pay a fee equal to $20,000 per month calculated
from May 5, 2004 through April 1, 2005.

The
Company has accounted for the agreement as a capital lease in accordance with SFAS No. 13Accounting for Leases.

As
of June 30, 2004, the Company has recorded the present value of the minimum lease payments as an asset of $1,855,835. The future minimum lease payments related to the capital lease is
$2,000,000 which includes $144,165 related to interest. The Company recorded $28,833 and $57,666 related to interest expense on the capital lease for the three month period ended June 30, 2004 and the
six month period ended June 30, 2004, respectively. The Company does not have any minimum sublease rental income related to the capital lease. There are no contingent rentals during the three months
ended June 30, 2004.

The
Company has deemed the amendment described above to be a refinancing of the existing capital lease arrangement. Pursuant to EITF Issue No. 96-19, Debtor's Accounting for a Modification or Exchange of Debt
Instrumentsthe Company did not record a gain or loss on the modification of the capital
lease obligation. The Company accounted for the new conversion feature associated with the capital lease obligation pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratiosas amended by EITF Issue
No. 00-27,Application of Issue No. 98-5 to Certain Convertible Instruments, whereby the company will measure the
beneficial conversion feature on the amendment date but not record any charge until the contingencies are resolved.

(13) Commitments and Contingencies

Since its inception, the Company has sustained its operations through funding provided by the Chairman, as well as contributed services by the Chairman and other
stockholders. The Chairman has made various advances to the Company from a $3,000,000 credit facility established in the name of the Chairman, as well as from other of the Chairman's personal assets.
The credit facility was established by the Chairman in February of 2003 and was first drawn upon by the Chairman in May of 2003. Under the credit facility, the lender may issue standby letters of
credit for the benefit of third parties at the request of the Chairman. The obligations of the Chairman under the credit facility are secured by certain property in which the Chairman has a beneficial
interest. As of August 27, 2004, the Chairman has drawn approximately $262,000 under this facility to pay expenses incurred and accrued by the Company and its affiliates. Five letters of credit
in the aggregate amount of $624,000 have been issued by the lender under the credit facility in favor of vendors to the Company and its affiliates at the request of the Chairman for the purpose of
obtaining credit with those vendors. As of August 27, 2004, the amount of approximately $273,000 was undrawn and available under the credit facility. The Company may obtain future advances from
the Chairman from both the credit facility and the Chairman's other personal assets in order to meet certain working capital needs. The Chairman may also cause the lender under the credit facility to
issue standby letters of credit in favor of one or more of the Company's vendors to secure the Company's obligations to such vendor or vendors. While the Chairman is not obligated to provide these
advances to the Company or to cause the lender to issue standby letters of credit in favor of the Company's vendors, the Company expects the Chairman to

10

---



continue
providing funds for operations in 2004 as and if needed, until such time that the Company raises external capital. In the absence of external capital, the Company will continue to be
dependent on the Chairman to fund existing operations and provide growth capital. There can be no assurances that the Company can raise such capital on acceptable terms, if at all.

The
credit facility is secured by certain property in which the Chairman has a beneficial interest. The credit facility is guaranteed by the Company's wholly owned subsidiary, Vistula
Limited. The lender under the credit facility requested that Vistula Limited provide the guarantee as a condition to providing the facility since it was anticipated that a portion of the drawings
under the facility would be advanced to, or used to pay expenses of, Vistula Limited. Vistula shall be required to perform its obligations under the guarantee in the event that the Chairman fails to
pay to the lender any amounts payable under the credit facility when due under the facility. The maximum amount of future payments the guarantor could be required to make under the guarantee is
$3,000,000, plus interest, fees, costs and expenses payable to the lender under the credit facility. The guarantee shall continue in effect until all of the obligations and liabilities of the Chairman
under the credit facility have been paid or satisfied in full. The Company has no recourse provisions that would enable them to recover monies from third parties with respect to amounts it is required
to pay under the guarantee. The Company does not have any collateral it could obtain to recover amounts paid under the guarantee. The facility was initiated in February 2003 and is payable on demand.
Interest will accrue at the bank's base rate plus 2% for the first $250,000 of borrowings and the bank's base rate plus 5% on all additional borrowings. The balance outstanding under the credit
facility on August 27, 2004 was $2,727,000. The Company evaluated the fair value of the guarantee in accordance with Financial Accounting Standards Board Interpretation
Number 45 (FIN 45) and determined the value to be immaterial to the financial statements and, as a result, no liability has been recorded.

(14) Subsequent Events

Issuance of Notes

On July 2, 2004, the Company entered into a note subscription agreement with the J. Rothschild Assurance Self Invested Personal Pension Plan No. 2, the
sole beneficiary of which is the Company's chairman, chief executive officer and president, Mr. Rupert Galliers-Pratt. The note subscription agreement was amended and restated on
August 11, 2004. Under the amended and restated note subscription agreement, the Company issued and sold to Mr. Galliers-Pratt's pension plan a convertible promissory note in the
principal amount of $125,000 on July 12, 2004 and the Company issued and sold to the pension plan a convertible promissory note in the principal amount of $50,000 on August 11, 2004.
Both convertible promissory notes have a one year term, accrue interest at the rate of 7% per annum and are convertible into shares of the Company's common stock at the price of $1.50 per share.

Distribution and Marketing Agreement

On August 11, 2004, the Company entered into a distribution and marketing agreement with NetYantra Inc. and NetYantra India Pvt. Ltd.
(collectively, "NetYantra") pursuant to which NetYantra grants to the Company the exclusive worldwide rights (other than in India where NetYantra is headquartered and subject to certain existing
distribution agreements) to market and distribute the Company's V-Cube IP-PBX software platform to Tier 1 carriers, telecommunications equipment

11

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manufacturers,
internet service providers, large corporations, SMEs and other business entities and individual retail customers. Under the distribution and marketing agreement, in consideration for
the marketing and distribution rights granted to the Company by NetYantra, the Company is required to:



In
addition, in the event that the Company's common stock is quoted or traded on a stock market on or before the first anniversary of the agreement, the Company must also issue to
NetYantra shares of the Company's common stock having a market value of $1,000,000 based on the opening price of the Company's common stock on the first day of trading (or, at the Company's option,
pay to NetYantra a cash payment of $1,000,000 instead of issuing such shares).

The
Agreement is for an initial term of five years. NetYantra may elect to terminate the exclusivity granted to the Company under the Agreement after a period of two years for any
reason.

Amendment to Certificate of Incorporation

On July 20, 2004, the Company filed an amendment to its Certificate of Incorporation to increase the number of authorized shares of the Company's common stock
from 40,000,000 shares to 100,000,000 shares and to authorize 10,000,000 shares of undesignated preferred stock.

12

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Item 2. Management's Discussion and Analysis or Plan of Operations.

Introduction

The following information should be read in conjunction with the financial statements and notes thereto in Part I, Item 1 of this Quarterly Report and with
Management's Discussion and Analysis and Results of Operations contained in our Registration Statement on Form 10-SB, File No. 000-50758, as amended.

Cautionary Statements

We do not provide forecasts of our future financial performance. However, from time to time, information provided by us or statements made by our employees may
contain "forward-looking" information that involves risks and uncertainties. In particular, statements contained in this Quarterly Report which are not historical facts constitute forward-looking
statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. You can
identify these statements by forward-looking words such as "may", "will", "expect", "anticipate", "believe", "estimate", "continue", and similar words. You should read forward-looking statements
carefully because they: (1) discuss our future expectations; (2) contain projections of our future operating results or financial condition; or (3) state other "forward-looking"
information. Various factors described below, as well as any other instances of cautionary language in this Quarterly Report, refer to or provide examples of risks, uncertainties and events that may
cause our actual results to be materially different than the expectations described in our forward-looking statements. You should be aware that the occurrence of any of the events or factors described
below and elsewhere in this Quarterly Report could materially and adversely affect our business. All forward-looking statements included in this Quarterly Report are based on information available to
us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Each
forward-looking statement should be read in conjunction with the financial statements and notes thereto in Part I, Item 1, of this Quarterly Report and with the information
contained in Item 2, together with Management's Discussion and Analysis and Results of Operations contained in our Registration Statement on Form 10-SB, File
No.000-50758, as amended, including but not limited to the section therein entitled "Factors Affecting Future Performance."

In
addition to the risks and uncertainties faced generally by participants in the telecommunication industry, we face the following risks and uncertainties:



13

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Because
of the foregoing and other factors, we may experience material fluctuations in our future operating results on a quarterly or annual basis which could materially adversely affect
our business, financial condition and operating results.

14

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Overview

Vistula Communications Services, Inc. ("VCS", the "Company" or "we") currently have three subsidiaries: Vistula Limited ("Vistula"), Vistula USA, Inc. ("Vistula
USA") and Cardlink Services Limited ("Cardlink"). Through Vistula and Vistula USA, we currently provide wholesale value-added telecommunications services (including direct and partner voice routing
services) to Tier 1 and Tier 2 telecommunication carriers and transit operators. Beginning in the fourth quarter of 2004, through Vistula and Vistula USA, we expect to market and distribute our
V-Cube Voice over Internet Protocol, or "VoIP", software platform to telecommunications carriers, Internet service providers, or "ISPs", large corporations and small and
medium enterprises, or "SMEs", throughout the world.

Through
our Cardlink subsidiary, which is currently inactive, we plan to market and distribute electronic top-up software, which enables prepayment for services provided by
mobile telephone operators, and associated services to Tier 1 and Tier 2 telecommunications carriers and transit network operators throughout the world. Cardlink has developed a software product suite
which enables mobile operators to electronically process prepayments from "pay-as-you-go" mobile phone customers.

Vistula and Vistula USA

Vistula and Vistula USA are aggregators of wholesale telecommunications services to Tier 1 and Tier 2 telecommunications carriers and transit network operators.
Vistula and Vistula USA are collectively referred to as the "Vistula Companies." The Vistula Companies have switching facilities in London and Los Angeles and interconnect agreements with suppliers
and customers in these locations. We believe that the Vistula Companies are especially well positioned to take advantage of the disruption and uncertainty in the telecommunications sector over the
past three years. The collapse of a significant number of competitive wholesale service providers has meant that profit margins have improved significantly and we believe the opportunity for well
managed and well financed wholesale carriers such as the Vistula Companies is significant. Neither of the Vistula Companies has any significant borrowings and, other than the equipment which we
currently lease from MRS Partners and which we
have agreed to purchase on or before April 1, 2005, each of the Vistula Companies owns all of its fixed equipment outright.

The
Vistula Companies expect to commence marketing and distribution of our V-Cube software platform to Tier 1 carriers, transit network operators, large
corporations, and SMEs in the fourth quarter of 2004. We expect this multiple feature VoIP platform, which will enable customers to convert their existing PBX phone systems to provide VoIP capability
without the need for significant investment in new hardware, will provide the Vistula Companies with a highly competitive VoIP solution.

Cardlink

Cardlink has been inactive since it was first acquired by Mr. Rupert Galliers- Pratt and certain members of his family in April 2003. Following the
acquisition of Cardlink by VCS through the share exchange completed in March 2004, VCS intends to reactivate and refocus the operations of Cardlink. Cardlink will offer an electronic
top-up, or "ETU", software product suite which will enable mobile operators to electronically process prepayments from "pay-as-you-go" customers.
Cardlink's products will allow these customers to "electronically top-up" their accounts with the mobile operator. We believe that the market for these prepayment services is expanding
both in the developed and in the underdeveloped regions in the world and we believe that Cardlink's ETU product will be of significant value as new mobile operators throughout the world seek to adopt
this technology.

We
believe that the potential for providing ETU services in markets where the adoption and use of mobile telephony is growing rapidly will create significant opportunities and
long-term growth potential for Cardlink. We intend that Cardlink will typically receive a percentage of the total mobile revenues transacted through the Cardlink system. As a result,
Cardlink will be a beneficiary of any

15

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increase
in mobile telephony revenues without any investment of capital in building infrastructure. We believe that Cardlink's ETU software will be one of the most robust and complete ETU systems in
the market.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at
the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the periods presented. Those estimates and judgments are based on management's historical experience, the terms of existing
agreements, our observance of trends in the industry, information that we obtain from our customers and outside sources, and on various other assumptions that management believes to be reasonable and
appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To
the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.

The
significant accounting policy that we believe is most critical in fully understanding and evaluating our reported financial results is our policy regarding revenue recognition which
is discussed in detail in our Registration Statement on Form 10-SB filed with the Securities and Exchange Commission. We have reviewed and determined that our revenue recognition
policy remains our critical accounting policy for the three months ended June 30, 2004. We did not make any changes to this policy during this period.

Results of Operations

Revenues for the three-month period ended June 30, 2004 increased by 132% over the comparable period in fiscal 2003 to $829,382. Revenues for the
six-month period ended June 30, 2004 increased by 260% over the comparable period in fiscal 2003 to $1,816,008. We attribute this directly to the addition of new Tier 1 and Tier 2
national and international carriers to our customer base as well as the increase in revenues from our historical customer base.

Cost
of revenues increased to $748,841, an 8% decrease as a percent of revenues for the three-month period ended June 30, 2004, as compared to the same period in fiscal 2003. The
increase in the total cost of revenues for the period reflects higher costs associated with our growing business including the purchase of additional minutes from our suppliers that we subsequently
sell to our customers. Gross margins increased to 9.7% during the period from 1.6% for the similar period a year ago. We experienced higher gross profit margins for the quarter as we began to modify
the pricing for our services to prices that are closer to industry averages for equivalent services. We anticipate that future gross profit margins should approximate 8% in accordance with industry
standards and norms. During the three months ended June 30, 2004, we added interconnect agreements with the following
international carriers: BMT America, Bon.net, IP4L, Ontus, Terraglobe, TotalX, United Access Communications, Wideworld Communications.

Cost
of revenues decreased .5%, as a percent of revenues, for the six-month period ended June 30, 2004, as compared to the same period in fiscal 2003. The increase in
the total cost of revenues for the period reflects higher costs associated with our growing business including the purchase of additional minutes from our suppliers that we subsequently sell to our
customers. For the six-month period ended June 30, 2004, our gross profit margin increased to 6.1% as compared to 5.6% for the same period in

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the
year ended December 31, 2003. We believe we can maintain a gross profit margin in excess of 8% while concentrating on our revenue growth.

General
and administrative costs increased by 1118% to $1,072,901 for the three-month period ended June 30, 2004, as compared to the same period in fiscal 2003. General and
administrative costs increased by 961% to $1,481,677 for the six-month period ended June 30, 2004, as compared to the same period in fiscal 2003. During the six month period ended
June 30, 2004, we incurred approximately $871,000 in non-cash expenses. These include among others $354,000 from the expensing of employee stock options granted under our Stock
Incentive Plan that have been granted and vested during the period under our Stock Incentive Plan, and $188,733 in non-cash expenses for the granting of restricted shares of common stock
for financial advisory services provided by an investment-banking firm. In addition, we incurred $155,405 in legal and accounting expenses that is directly related to the acquisition and integration
of Vistula and Cardlink into VCS in addition to the substantial expense we have incurred in fiscal 2004 in the form of legal, accounting and financial advisory services that can be directly associated
with our registration of our equity securities under the Securities Exchange Act. On May 12, 2004, we filed a registration statement on Form 10-SB with the Securities and
Exchange Commission. On July 12, 2004, our registration statement on Form 10-SB became effective. We continue to focus our efforts on reducing the monthly amount of cash
consumed by current operations while still investing to grow our business.

Depreciation
and amortization expenses were $9,828 for the three-month period ending June 30, 2004 and $20,570 for the six-month period ending the same date. Property
and equipment are carried at their cost. We own telecommunications equipment for which we paid $147,937. We provide for depreciation expense using the straight-line method over the
estimated useful lives of the equipment of 3 to 5 years.

During
the three and six months ending June 30, 2004 we recorded $28,284 and $56,568 of interest expense related to capital lease obligations.

The
charge for expensing non-cash employee compensation in the form of options was $354,000 for the three-month period ending June 30, 2004. Prior to this period, no
options awarded to key employees had vested.

For
the three months ending June 30, 2004, we incurred a loss of $1,020,833 or approximately $0.04 loss per common share, basic and diluted. For the six-month period
ending June 30, 2004, we incurred a loss of $1,428,327 or approximately $0.06 loss per common share, basic and diluted.

Liquidity And Capital Resources

As of June 30, 2004, we had cash and cash equivalents of approximately $55,000 and a working capital deficit of approximately $2,833,000. This represents
an increase of 98% and 220%, respectively over the same period one year ago. Since our inception through June 30, 2004, we generated losses from operating activities of approximately
$2,028,000. Accounts receivable were approximately $595,911 at June 30, 2004. Accounts receivable have grown 269% over the same period one year ago.

We
had capital expenditures from our inception until June 30, 2004 of $142,275. We used this capital to purchase the telecommunications equipment necessary to begin our business.

We
have agreed to purchase certain telecommunications equipment (including two Sonus Networks switches) from MRS Partners, LLC for $1,670,000 in cash and 725,000 shares of our common
stock. Pending the completion of this purchase, which must occur on or prior to April 1, 2005, we are leasing this equipment from MRS Partners.

We
expect to pay the $1,670,000 cash payment due to MRS Partners for purchase of the telecommunications equipment out of capital raised through the private placement of our equity

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securities
occurring before April 1, 2005. Under the asset purchase agreement with MRS Partners, the $1,670,000 payment is not due until the earlier to occur of the following:



Since
we expect that we will have raised at least $3,000,000 in capital prior to making the $1,670,000 cash payment to MRS Partners, we anticipate that the cash payment to MRS Partners
will not have an adverse impact on our future financial condition.

On
August 11, 2004, we entered into a distribution and marketing agreement with NetYantra Inc. and NetYantra India Pvt. Ltd. (collectively, "NetYantra") pursuant to
which NetYantra grants to VCS the exclusive worldwide rights (other than in India where NetYantra is headquartered and subject to certain existing distribution agreements) to market and distribute the
V-Cube IP-PBX software platform developed by NetYantra to Tier 1 carriers, telecommunications equipment manufacturers, internet service providers, large
corporations, SMEs and other business entities and individual retail customers. Under the distribution and marketing agreement, in consideration for the marketing and distribution rights granted to us
by NetYantra, we will be required in the future to, among other things:



In
addition, in the event that our common stock is quoted or traded on a stock market on or before the first anniversary of the agreement, we must also issue to NetYantra shares of our
common stock having a market value of $1,000,000 based on the opening price of our common stock on the first day
of trading (or, at our option, pay to NetYantra a cash payment of $1,000,000 instead of issuing such shares).

We
expect to pay the required payments under the NetYantra agreement, including the $1,000,000 payment (in the event we are required to issue shares of our common stock having a market
value of $1,000,000 to NetYantra and we elect to make this payment instead of issuing these shares), from revenues derived from the V-Cube platform, from future advances
provided by one of our stockholders as described more fully below and/or from the proceeds from one or more private placements of our equity or debt securities.

One
of our principal stockholders has made various advances to the company from a $3,000,000 credit facility established in the name of the stockholder and from other of the stockholders
personal assets. The credit facility was established by the stockholder in February of 2003 and first drawn upon by the shareholder in May of 2003. Under the credit facility, the lender may issue
standby letters of credit for the benefit of third parties at the request of the stockholder. The obligations of the stockholder under the credit facility are secured by certain property in which the
stockholder has a beneficial interest. As of August 27, 2004, the stockholder has drawn approximately $262,000 under this facility to pay expenses incurred and accrued by VCS and its affiliates,
including Vistula, and five

18

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letters
of credit in the aggregate amount of $624,000 have been issued by the lender under the credit facility in favor of vendors to VCS and its affiliates at the request of the stockholder. As of
August 27, 2004, the amount of approximately $273,000 was undrawn and available under the credit facility. We may obtain future advances from this stockholder from both the credit facility and
the stockholders' other personal assets in order to meet certain working capital needs. The stockholder may also cause the lender under the credit facility to issue standby letters of credit in favor
of one or more of our vendors to secure our obligations to such vendor or vendors. While the stockholder is not obligated to provide these advances to us or to cause the lender to issue standby
letters of credit in favor of our vendors, we expect the stockholder to continue providing funds for operations in 2004 as and if needed, until such time that we raise external capital.

We
believe that our available cash and cash equivalents, credit available from one of our stockholders and the proceeds of the sale of shares to new investors will be sufficient to meet
our working capital requirements, including operating losses, and capital expenditure requirements for at least the next fiscal year, assuming that our business plan is implemented successfully.
However, we intend to use capital and debt financing as needed to supplement the cash flows received through the successful operations of our business. Currently our primary sources of capital have
been the revenues generated from interconnect agreements with our customers and advances made by one of our principal stockholders from a credit facility established in the name of the stockholder.

In
addition, we believe that we will need to raise additional capital through the private placement of our equity securities within the next 12 to 18 months in order to support
the planned growth of our business. Additional financing may not be available when needed or, if available, such financing may
not be on terms satisfactory to us or completed in a timely manner. In the absence of external capital, we will continue to be dependent upon our principal stockholder to fund existing operations and
provide growth capital.

To
date, inflation has not had a material impact on our financial results. There can be no assurance, however, that inflation will not adversely affect our financial results in the
future.

As
discussed above, our plans for growth and expansion will require the need for additional capital. As a result, we may have to rely heavily upon the issuance of debt or equity
securities in order to continue to grow our business as well as to fund the negative cash flow we experienced to date and in the future as a result of these activities. If additional funds are raised
through the issuance of equity securities, our existing stockholders may experience significant dilution. In the absence of achieving profitable operations in future periods, obtaining additional
capital through asset sales, securing a revolving credit facility, debt or equity offerings, or a combination of the foregoing, we may encounter liquidity difficulties. No assurance can be given that
we will be able to raise additional capital when needed, or at all, or that such capital, if available, will be on acceptable terms.

Off-Balance Sheet Arrangements

One of our subsidiaries, Vistula has agreed to unconditionally guarantee the obligations of one of our principal stockholders under a $3,000,000 credit facility
established in the name of the stockholder which is described in more detail under the heading "Liquidity and Capital Resources" on page 17. Vistula has agreed to provide this guaranty since it is
anticipated that the stockholder will advance drawings under the credit facility to Vistula or its affiliates or that letters of credit will be issued under the facility in favor of vendors to Vistula
or its affiliates to secure obligations of those entities to their vendors. In light of the circumstances surrounding the guaranty, including the fact that the obligations of the stockholder under the
credit facility are secured by significant assets in which the stockholder has a beneficial interest, we believe that the potential liability and obligations of Vistula under this guaranty are not
reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.

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Item 3. Controls and Procedures.

As required under the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly Report. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we
record, process, summarize and report the information we must disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, within the time periods specified in the
SEC's rules and forms. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were reasonably effective.

During
the three month period ended June 30, 2004, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

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PART II. Other Information

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

On May 5, 2004, we granted a non-statutory option to purchase a total of 1,250,000 shares of our common stock to Mark Scully, the president of
Vistula USA and one of our named executive officers, in connection with his employment with Vistula USA. This option vests quarterly over a period of 15 months in five equal installments of
250,000 shares and has an exercise price of $0.10 per share. The first installment of 250,000 shares of common stock subject to the option vested on grant.

On
May 5, 2004, we also granted non-statutory options to purchase a total of 750,000 shares of our common stock to each of Eric Pomeroy and Edward DeMent, in
connection with their employment with Vistula USA. These options were to vest quarterly over a period of nine months in three equal installments of 250,000 shares and each had an exercise price of
$0.10 per share. On June 30, 2004, Mr. Pomeroy resigned from employment with Vistula USA and his non-statutory stock option to purchase 750,000 shares was terminated.
Effective June 30, 2004, Mr. DeMent also resigned from his employment with Vistula USA and his non-statutory stock option to purchase 750,000 shares was also terminated.
Pursuant to an amended and restated employment agreement with Mark Scully, our board of directors is obligated to grant to Mr. Scully a non-statutory stock option to purchase the
unvested shares under the non-statutory stock options previously granted to each of Messrs. Pomeroy and DeMent upon termination of Messrs Pomeroy's and DeMent's employment with
Vistula USA. The option shall have an exercise price of $0.10 per share and shall vest as if such option was granted by VCS on May 5, 2004 and was subject to the same vesting terms as the
options granted by us to Mr. Scully on that date.

Effective
as of June 30, 2004, Mr. Scully has agreed that the remaining vesting under his options (including any additional option to be granted to him upon termination of
the employment of Messrs. Pomeroy and DeMent) shall be deferred by one fiscal quarter.

On
May 5, 2004, we granted a non-statutory option to purchase a total of 75,000 shares of our common stock to Anthony Warrender, one of our directors, in connection
with his appointment to our board of directors. This option vests quarterly over a period of 15 months in five equal installments of 15,000 shares and has an exercise price of $0.05 per share.

On
May 5, 2004, we also sold 100,000 shares of our common stock to Mr. Warrender for a total consideration of $5,000. The proceeds from the sale of these shares were used for
working capital and other general corporate purposes.

On
May 13, 2004, we issued 419,406 shares of our common stock to Kevin Dann & Partners, LLC as compensation for financial advisory and investment banking services provided
to us.

The
securities issued in the foregoing transactions were offered and sold in reliance on exemptions from registration set forth in Section 4(2) of the Securities Act of 1933, as
amended, or regulations promulgated thereunder, relating to sales by an issuer not involving a public offering, or an exemption from registration under Rule 701 promulgated under the Securities
Act. No underwriters or placement agents were involved in the foregoing transactions.

Item 5. Other Information.

Entry into a Material Definitive Agreement.

On May 5, 2004, we entered into an Amendment and Indemnification Agreement with MRS Partners LLC which amended an Asset Purchase Agreement that we entered
into with MRS Partners LLC on January 5, 2004 and pursuant to which we have agreed to purchase certain telecommunications equipment (including two Sonus Networks switches) from MRS Partners for
$1,670,000 in cash and

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725,000
shares of our common stock. Pending the completion of this purchase, which must occur on or prior to April 1, 2005, we are leasing this equipment from MRS Partners.

On
August 11, 2004, we entered into a Distribution and Marketing Agreement with NetYantra Inc. and NetYantra India Pvt. Ltd. (collectively, "NetYantra") pursuant to
which NetYantra grants to the Company the exclusive worldwide rights (other than in India where NetYantra is headquartered and subject to certain existing distribution agreements) to market and
distribute our V-Cube IP-PBX software platform to Tier 1 carriers, telecommunications equipment manufacturers, internet service providers, large corporations, SMEs
and other business entities and individual retail customers. Under the distribution and marketing agreement, in consideration for the marketing and distribution rights granted to us by NetYantra, we
are required to:



In
addition, in the event that our common stock is quoted or traded on a stock market on or before the first anniversary of the agreement, we must also issue to NetYantra shares of our
common stock having a market value of $1,000,000 based on the opening price of our common stock on the first day of trading (or, at our option, pay to NetYantra a cash payment of $1,000,000 instead of
issuing such shares).

The
Agreement is for an initial term of five years. NetYantra may elect to terminate the exclusivity granted to VCS under the Agreement after a period of two years for any reason.

Issuance of Convertible Promissory Notes.

On July 2, 2004, we entered into a note subscription agreement with the J. Rothschild Assurance Self Invested Personal Pension Plan No.2, the sole
beneficiary of which is our chairman, chief executive officer and president, Mr. Rupert Galliers-Pratt. The note subscription agreement was amended and restated on August 11, 2004. Under
the amended and restated note subscription agreement, we issued and sold to Mr. Galliers-Pratt's pension plan a convertible promissory note in the principal amount of $125,000 on
July 12, 2004 and we issued and sold to the pension plan a convertible promissory note in the principal amount of $50,000 on August 11, 2004. Both convertible promissory notes have a one
year term, accrue interest at the rate of 7% per annum and are convertible into shares of our common stock
at the price of $1.50 per share. The proceeds from the issuance and sale of the sale of the convertible promisory notes were used by us for general working capital purposes.

Appointment of Principal Officer.

On June 30, 2004, our board of directors appointed George R. Vaughn as interim chief financial officer, assistant treasurer and secretary of the Company.
In 1995, Mr. Vaughn founded Vaughn & Associates, P.C., a professional services organization that provides interim and part-time chief financial officer, outsourced financial
management, and tax advisory services for emerging and established businesses. From 1990 to 1995, Mr. Vaughn was chief financial officer of XRL, Inc., a venture capital-backed
manufacturer of semiconductor capital equipment, which was sold in 1995. Mr. Vaughn is a certified public accountant and is a member of the American Institute of Certified Public Accountants
and the Massachusetts Society of Certified Public Accountants and has over twenty-five years of accounting experience. Mr. Vaughn holds a B.S. in Business Administration from
Stonehill College.

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Amendment to Certificate of Incorporation.

On July 20, 2004, we filed an amendment to our Certificate of Incorporation to increase the number of authorized shares of our common stock from 40,000,000
shares to 100,000,000 shares and to authorize 10,000,000 shares of our undesignated preferred stock. Pursuant to Section 228 of the General Corporation Law of the State of Delaware, we obtained
the written consent of our stockholders to the amendment following approval by our board of directors on June 30, 2004.

Item 6. Exhibits and Reports of Form 8-K.

(a) Exhibits.

|Exhibit
Number |  | Exhibit Description                                                                                                                                                                                                              
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 (1)        |  | Asset Purchase Agreement, dated as of January 5, 2004, by and between VCS, Inc. and MRS Partners LLC.                                                                                                                            
|2.2 (1)        |  | Amendment and Indemnification Agreement, dated as of May 5, 2004, by and between Vistula Communications Services, Inc., MRS Partners LLC and Manuel Vierra, Pepper Snyder, Steven Ziswasser, Seymour Ziswasser, and Kirk
Rossman.
|3.1 (1)        |  | Certificate of Incorporation filed with the Delaware Secretary of State on September 22, 2003.                                                                                                                                   
|3.2 (1)        |  | Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on January 23, 2004.                                                                                                         
|3.3 (1)        |  | Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on March 4, 2004.                                                                                                            
|3.4 (1)        |  | Bylaws adopted on September 22, 2003.                                                                                                                                                                                            
|3.5 (1)        |  | Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on July 20, 2004.                                                                                                            
|10.1 (1)       |  | Vistula Communications Services, Inc. 2004 Stock Incentive Plan.                                                                                                                                                                 
|10.2 (1)       |  | Amended and Restated Employment and Noncompetition Agreement, dated as of May 5, 2004, by and between Vistula Communications Services, Inc., Vistula USA, Inc. and Mark Scully.                                                  
|10.3 (1)       |  | Amended and Restated Employment and Noncompetition Agreement, dated as of May 5, 2004, by and between Vistula Communications Services, Inc., Vistula USA, Inc. and Eric Pomeroy.                                                 
|10.4 (1)       |  | Amended and Restated Employment and Noncompetition Agreement, dated as of May 5, 2004, by and between Vistula Communications Services, Inc., Vistula USA, Inc. and Edward DeMent.                                                
|10.5 (1)       |  | Non-Statutory Stock Option, dated as of May 5, 2004, by and between Vistula Communications Services, Inc. and Mark Scully.                                                                                                       
|10.6 (1)       |  | Non-Statutory Stock Option, dated as of May 5, 2004, by and between Vistula Communications Services, Inc. and Edward DeMent.                                                                                                     
|10.7 (1)       |  | Non-Statutory Stock Option, dated as of May 5, 2004, by and between Vistula Communications Services, Inc. and Eric Pomeroy.                                                                                                      
|10.8 (1)       |  | Reciprocal International Carrier Service Agreement, dated as of April 15, 2004, by and between Vistula Limited and KDDI America, Inc.                                                                                            
|               |  |                                                                                                                                                                                                                                  

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|10.9 (1)  |  | Distribution and Marketing Agreement, dated as of August 11, 2004, by and between NetYantra Inc., NetYantra India Pvt. Ltd. and Vistula Communications Services, Inc.                                                               
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10 (1) |  | Amended and Restated Note Subscription Agreement, dated as of August 11, 2004, by and between J. Rothschild Assurance Self Invested PPP#2 F/B/O Rupert Anthony Galliers-Pratt and Vistula Communications Services,
Inc.             
|10.11 (1) |  | Convertible Promissory Note, dated as of July 12, 2004, issued to J. Rothschild Assurance Self Invested PPP#2 F/B/O Rupert Anthony Galliers-Pratt in the principal amount of $125,000.                                              
|10.12 (1) |  | Convertible Promissory Note, dated as of August 11, 2004, issued to J. Rothschild Assurance Self Invested PPP#2 F/B/O Rupert Anthony Galliers-Pratt in the principal amount of $50,000.                                             
|31.1*     |  | Certification by Rupert Galliers-Pratt pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Vistula Communications Services, Inc.                            
|31.2*     |  | Certification by George R. Vaughn pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Vistula Communications Services, Inc.                                 
|32.1*     |  | Certification by Rupert Galliers-Pratt pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Vistula Communications
Services, Inc.
|32.2*     |  | Certification by George R. Vaughn pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Vistula Communications Services,
Inc.     

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SIGNATURES

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

|Date: November 22, 2004 |  | /s/GEORGE R. VAUGHNGeorge R. Vaughn
Chief Financial Officer, Treasurer and Secretary
|----------------------- |  | ------------------------------------------------------------------------------------

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