UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended: September 30, 2008

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT

For The Transition Period from                      to                     .

Commission file number: 0-52830

IPTIMIZE, INC.

(Name of small business issuer in its charter)

Delaware	84-1471798
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1720 Bellaire Street, Suite 200, Denver, CO 80222

(Address of principal executive offices, including zip code)

(303) 268-3600

(Issuer’s telephone number)

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

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨            Accelerated filer  ¨            Non-accelerated filer  ¨            Smaller Reporting Company  x

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

Applicable only to corporate issuers:

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

As of November 5, 2008, there were 18,204,358 shares of the issuer’s common stock, $.001 par value, outstanding.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION		3
Item 1	Consolidated Financial Statements	3
Consolidated Balance Sheets at December 31, 2007 and September 30, 2008		3
Consolidated Statements of Operations for the Three Months Ended and Nine Months Ended September  30, 2007 and September 30, 2008		4
Consolidated Statements of Stockholders’ Deficit for the Nine Months Ended, September 30, 2008		5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and September  30, 2008		6
Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	23
Item 4	Controls and Procedures	23
PART II - OTHER INFORMATION		24
Item 1.	Legal Proceedings	24
Item 1A	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Submission of Matters to a Vote of Security Holders	24
Item 5.	Other Information	24
Item 6.	Exhibits	24
SIGNATURES		25

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

IPtimize, Inc.

Consolidated Balance Sheets

	December 31, 2007			Unaudited September 30, 2008
Assets
Current Assets
Cash in bank	$	26,224		$	118,579
Accounts receivable, net of allowance for doubtful accounts		66,630			191,996
Prepaid expenses		112,470			203,987
Total current assets		205,324			514,562
Fixed Assets
Furniture, fixtures, equipment and software		265,892			1,568,231
Less: Accumulated depreciation		(163,509	)		(244,199	)
Total fixed assets, net of depreciation		102,383			1,324,032
Other Assets
Prepaid marketing and service costs		2,104,587			1,444,516
Covenant note to compete, net		—			47,222
Customer list, net		—			65,897
Loan fees, net		—			126,887
Deferred offering costs		—			133,535
Deposits		16,289			34,844
Total other assets		2,120,876			1,852,901
Total Assets	$	2,428,583		$	3,691,495
Liabilities and Stockholders’ (Deficit)
Current Liabilities
Accounts payable and accrued expenses	$	1,594,550		$	658,881
Accrued interest		260,346			399,391
Notes payable – current portion		446,885			774,171
Bridge notes payable – current		925,000			2,387,340
Working capital convertible note		—			600,000
Leases payable – current		22,951			6,789
Deferred revenue		12,592			12,321
Due to related parties		760,847			—
Total current liabilities		4,023,171			4,838,893
Long Term Liabilities
Leases payable		2,445			—
Notes payable long-term portion		—			664,607
Debenture notes payable		—			1,924,820
Bridge notes payable		325,000			356,590
Preferred dividend payable		105,000			154,350
Total long term liabilities		432,445			3,100,367
Total liabilities		4 ,455,616			7,939,260
Redeemable Preferred Stock
Preferred stock, $.001 par value, 30,000,000 shares authorized
Series A - 1,104,236 (2007) & 1,010,486 (2008) shares issued and outstanding		883,389			808,389
Series B - 435,000 (2007 & 2008) shares issued and outstanding		435,000			435,000
Total Redeemable Preferred Stock		1,318,389			1,243,389
Stockholders’ (Deficit)
Common stock, $.001 par value, 70,000,000 shares authorized, 12,942,247 (2007) and 15,884,217 (2008) shares issued and outstanding		12,942			15,884
Additional paid in capital		9,412,795			10,705,052
Accumulated (deficit)		(12,771,159	)		(16,212,090	)
Total stockholders’ (deficit)		(3,345,422	)		(5,491,154	)
Total Liabilities and Stockholders’ (Deficit)	$	2,428,583		$	3,691,495

See the accompanying notes to the financial statements.

3

IPtimize, Inc.

Consolidated Statements of Operations

	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
	2007			2008			2007			2008
Revenues	$	302,406		$	453,604		$	736,350		$	1,023,817
Cost of Sales		207,354			226,123			525,454			668,660
		95,052			227,481			210,896			355,157
General & Administrative Expenses
Salaries and wages		513,024			449,033			1,137,847			1,057,840
Consulting		241,183			300,331			365,604			978,799
Other General & Administrative
Rent		16,777			25,639			40,805			78,235
Legal & Professional		94,986			52,627			196,897			109,019
Marketing		28,549			188,929			75,188			541,277
Other		39,776			234,130			149,239			709,700
Depreciation & amortization		12,417			85,730			35,344			106,023
Total general & administrative expenses		946,712			1,336,419			2,000,924			3,580,893
Net Operating (Loss)		(851,660	)		(1,108,938	)		(1,790,028	)		(3,225,736	)
Other income (expenses)
Interest expense		(143,896	)		(165,206	)		(236,443	)		(502,676	)
Interest income		—			265			—			5,559
Loss on disposal of assets		(18,313	)		—			(18,813	)		—
Gain on settlement of debt		4,959			129,724			37,672			366,072
Total Other Income (expenses)		(157,250	)		(35,217	)		(217,084	)		(131,045	)
Net (loss)		(1,008,910	)		(1,144,155	)		(2,007,112	)		(3,356,781	)
Preferred stock dividends		(27,450	)		(28,050	)		(82,350	)		(84,150	)
Net (loss) applicable to common shareholders	$	(1,036,360	)	$	(1,172,205	)	$	(2,089,462	)	$	(3,440,931	)
(Loss) per share:	$	(0.09	)	$	(0.07	)	$	(0.18	)	$	(0.23	)
Weighted Average Shares Outstanding
Basic and Diluted		11,560,556			15,356,651			11,099,994			14,397,025
Net (Loss) per Common Share
Basic and Diluted	$	(0.09	)	$	(0.08	)	$	(0.19	)	$	(0.24	)

See the accompanying notes to the financial statements

4

IPtimize, Inc.

Consolidated Statement of Stockholders’ (Deficit)

For the Nine Months Ended September 30, 2008

Unaudited

	Common Stock			Additional Paid-in Capital		Accumulated (Deficit)			Total Stockholders’ (Deficit)
	Shares	Amount
Balance at December 31, 2007	12,942,247	$	12,942	$	9,412,795	$	(12,771,159	)	$	(3,345,422	)
Stock issued for conversion of Preferred A	31,250		31		74,969		—			75,010
Stock issued for settlement of debt	385,743		385		190,739		—			191,124
Stock issued for services	1,691,223		1,692		646,694		—			648,386
Stock issued for interest	25,000		25		11,725		—			11,750
Stock issued for conversion of notes	808,754		809		368,130		—			368,939
Preferred stock dividend	—		—		—		(84,150	)		(84,150	)
Net (loss)	—		—		—		(3,356,781	)		(3,356,781	)
Balance at September 30, 2008	15,884,217	$	15,884	$	10,705,052	$	(16,212,090	)	$	(5,491,154	)

See the accompanying notes to the financial statements.

5

IPtimize, Inc.

Consolidated Statements of Cash Flows

Unaudited

	For the Nine Months Ended September 30,
	2007			2008
Cash Flow from Operating Activities
Net (loss)	$	(2,089,462	)	$	(3,440,931	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Amortization of compensation for marketing and services		778,926			853,241
Depreciation		35,344			80,690
Changes in:
Inventory		18,313			—
Accounts receivable		(21,400	)		(125,366	)
Prepaid		(15,000	)		(78,146	)
Deposits		9,089			(18,555	)
Accounts payable and accrued expenses		350,480			(569,600	)
Accrued interest		12,316			139,045
Deferred revenue		(3,899	)		(270	)
Leases payable		9,286			(18,607	)
Net cash (used in) operating activities		(816,007	)		(3,178,499	)
Cash Flow from Investing Activities
Covenant not to compete		—			(50,000	)
Purchase of customer list		—			(69,773	)
Purchase of fixed assets		(38,401	)		(1,302,339	)
Net cash (used in) investing activities		(38,401	)		(1,422,112	)
Cash Flow from Financing Activities
Payment of loan fees		—			(9,200	)
Proceeds from bridge loans		325,000			1,650,000
Proceeds from working capital		—			600,000
Bank overdraft		(7,565	)		—
Proceeds from debenture notes payable		676,406			2,062,529
Payments on notes payable		(58,262	)		(119,830	)
Payment of related party debt		(78,650	)		(551,383	)
Cash received for issuance of preferred stock		20,000			—
Preferred stock dividend		—			(39,150	)
Issuance of common stock		32,922			—
Proceeds on notes payable		—			1,100,000
Net cash provided by investing activities		909,851			4,692,966
Net increase (decrease) in cash		55,443			92,355
Cash - beginning of period		—			26,224
Cash - end of period	$	55,443		$	118,579
Supplemental Disclosure
Interest paid	$	124,127		$	363,631
Income taxes paid	$	—		$	—

See the accompanying notes to the financial statements.

6

IPtimize, Inc.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Organization

The Company was incorporated under the laws of the State of Minnesota in 1983 as Simmetech Inc. (“Simmetech”). The Company was essentially dormant until November 2005, when it entered into a business combination with a Colorado corporation, IPtimize, Inc. (“IPtimize Colorado”). The Company was the legal survivor of the transaction. Following the transaction, the name of the Company was changed to IPtimize, Inc.

The business combination between Simmetech and IPtimize Colorado has been treated as a “reverse merger” for accounting purposes. Since the amount of stock issued by Simmetech in the merger exceeded the amount of stock outstanding before the merger, the transaction is treated as if IPtimize Colorado acquired Simmetech and IPtimize Colorado was the accounting survivor of the transaction. IPtimize Colorado was thus recapitalized to account for the transaction with Simmetech and an additional 400,811 common shares were issued in the transaction. Simmetech had no assets or liabilities at the time of the transaction. As a result, the historical financial statements of IPtimize survive for accounting purposes.

The Company has been engaged in the business of managed voice-over-internet services for businesses since that date. In September 2007, the Company changed its domicile to the State of Delaware through a merger with its wholly-owned subsidiary.

Basis of Presentation

The accompanying financial statements have been prepared by the Company, without audit. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for fair presentation of the financial position as of December 31, 2007 and September 30, 2008, and the results of operations and cash flows for the periods ended September 30, 2007 and 2008.

The financial statements included herein have been prepared in accordance with the rules of the Securities and Exchange Commission for Form 10-QSB and accordingly do not include all footnote disclosures that would normally be included in financial statements prepared in accordance with generally accepted accounting principles, although the Company believes that the disclosures presented are adequate to make the information presented not misleading. The unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007.

The Company utilizes a December 31 fiscal year, and references herein to “fiscal 2007” relate to the year ended December 31, 2007, and references to the “first”, “second”, “third”, and “fourth” quarter of a fiscal year relate to the quarters ended March 31, June 30, September 30 and December 31, respectively, of the related year.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiary IP Solutions, Inc. All significant inter-company balances and transactions are eliminated in the consolidation. The Company is reporting its consolidated operations under the guidance of ARB 51, as amended by FASB 94 for consolidated companies.

Reclassifications

Certain amounts in the Three Months Ended September 30, 2007 and Nine Months Ended September 30, 2007 or as of September 30, 2007 have been reclassified to conform to current year’s presentation.

Revenue Recognition

The Company recognizes revenue from services at the time the services are completed and revenue from the sale of products at the time that title passes to the buyer.

7

Cash and Cash Equivalents

For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment, which consists of computers, software, office furniture and equipment, is stated at cost and is being depreciated using the straight-line method over their estimated economic lives of three to five years.

Accounts Receivable

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectibility, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances. At September 30, 2007 the allowance for doubtful accounts was $47,345 with bad debt expense for the nine months ended of $14,575, and at September 30, 2008 the allowance for doubtful accounts was $7,013 with bad debt expense for the nine months ended of $18,115.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, “Earnings per Share.” Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.

Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti dilutive.

Income Taxes

The Company follows SFAS 109 “Accounting for Income Taxes” for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2008. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, leases payable, line of credit and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature, their carrying amounts approximate fair values, or they are receivable or payable on demand. The carrying value of the Company’s long-term debt approximated its fair value based on the current market conditions for similar debt instruments.

8

Impairment of Long-Lived Assets

The Company periodically reviews the carrying amount of long-lived assets to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets and accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell. As of September 30, 2008 and December 31, 2007, management believes that there is no impairment on long-lived assets

Segment Reporting

The Company follows SFAS 131, “Disclosure about Segments of an Enterprise and Related Information”. The Company operates in one industry segment consisting of communications consulting and will evaluate additional segment disclosure requirements as it expands operations.

Stock-based Compensation

The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.

Effective January 1, 2006, the Company implemented the provisions of SFAS 123(R), “Share Based Payment,” requiring the Company to provide compensation costs for the Company’s stock option plans determined in accordance with the fair value based method prescribed in SFAS 123, as revised. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option.

Note 2. Fixed Assets

As of December 31, 2007 and September 30, 2008, the Company owns or has capitalized the following assets under financing leases:

	2007			2008
Furniture and fixtures	$	31,475		$	31,475
Equipment and software		234,417			1,536,755
		265,892			1,568,231
Less accumulated depreciation		(163,509	)		(244,199	)
	$	102,383		$	1,324,022

Depreciation expense charged to operations was $35,344 and $80,689 for nine months ended September 30, 2007 and 2008, respectively.

9

Note 3. Notes Payable

At December 31, 2007 and September 30, 2008 notes payable consist of the following:

	2007		2008
Note payable with a vendor as settlement of an outstanding account payable. The note does not bear interest and is due on demand	$	7,473	$	—
Note payable with a vendor as settlement of an outstanding account payable. The note does not bear interest and is due on demand		3,274		—
Note payable to a trust dated September 22, 2008 due October 22, 2008, renewed until November 28, 2008 payable 12.99% interest only, unsecured		—		50,000
Note payable with a company dated August 13, 2008 payable at 12% interest at $17,796 per month payable and interest, due August 2012, secured by the switching equipment purchased in IP Solutions, (wholly owned subsidiary)		—		790,095
Note payable with an individual dated July 18, 2008 payable 12.99% interest only due July 18, 2009, secured by server equipment		—		250,000
Note payable with a vendor as settlement of an outstanding account payable. The note does not bear interest and is due on demand		23,958		23,958
Note payable with another vendor as settlement of an outstanding account payable. Payments of $74,087 and $21,100 were made in 2007 and 2008 respectively. The note does not bear interest and is due on demand		36,925		—
Notes assumed in connection with an acquisition. No payments were made 2007 and was paid-in full in May 2008		73,000		—
$330,000 Line of Credit Agreement dated July 2, 2007 for working capital financing. The Line of Credit is secured by all of the Company’s un-pledged and unencumbered tangible and intangible assets. In consideration for the Line of Credit, the Company executed a 11.45% Promissory Note and issued an aggregate of 600,000 restricted shares of Common Stock.		302,225		324,725
Total		446,885		1,438,778
Less Current Portion		—		774,171
Long-term Portion	$	446,885	$	664,607

Note 4. Bridge Notes Payable

During 2005, all but one note holder converted their debt from previous years to equity; at September 30, 2008, the remaining note is for $50,000, with interest accruing at 10%.

During 2006, the Company entered into $875,000 of Convertible Bridge Notes with fourteen individual lenders. Principle and interest is due twelve months from the date of each agreement. As of September 30, 2008, no payments have been made to the lenders and all Notes are currently in default. The Company is negotiating with each individual lender to covert their Bridge Note to Common Stock. As of September 30, 2008, three lenders have agreed to convert a total of $185,000 of Bridge Notes and accrued interest to 1,409,875 shares of Common Stock. In addition, six lenders have agreed to extend the term of the Note and negotiations are on-going with the remaining five lenders.

In March 2007, the Company sold an aggregate of $325,000 of convertible bridge notes. The notes, which are due in six months and were extended for an additional year. The notes are convertible into shares of our Common Stock at $1.50 per share. As additional consideration, each lender was granted a five year warrant to purchase two shares of Common Stock at $1.50 per share for each dollar loaned to the Company. The warrants were valued at $4,104 using the Black-Scholes option pricing methodology.

Note 5. Warrants and options

	Analysis of Stock Options
	2007					2008
	Shares			Weighted Average Exercise Prices		Shares		Weighted Average Exercise Prices
Outstanding, beginning of year		—			—		1,926,666
Granted		2,235,833		$	.24-.28		500,000	$	.45
Exercised		—			—		—		—
Canceled		(309,167	)		—		—		—
Expired		—			—		—		—
Outstanding and exercisable, end of period		1,926,666		$	.24 - .28		2,426,666	$	.24 - .45
Weighted average fair value of Options granted during year	$	466,400				$	935,200
Weighted average fair value of Options exercised during year	$	—				$	—

10

Stock options outstanding and exercisable at September 30, 2008, are as follows:

Exercise Price Range		Number	Remaining Contractual Life (In Years)	Weighted Average Exercise Price
$	0.24	1,826,666	4	$	0.24
$	0.28	100,000	4	$	0.28
$	0.45	500,000	5	$	0.45
		2,426,666		$	0.28

	Analysis of Stock Warrants
	2007					2008
	Shares			Weighted Average Exercise Prices		Shares		Weighted Average Exercise Prices
Outstanding, beginning of year		1,140,405		$	.80 - 1.00		2,602,596	$	.75 - 1.00
Granted		1,571,666		$	.50-.75		1,833,333		.45
Exercised		—			—		—		—
Canceled		—			—		—		—
Expired		(109,375	)		.80		—		.80
Outstanding and exercisable, end of period		2,602,596		$	.75 -1.00		4,435,929	$	.45 -1.00
Weighted average fair value of Warrants granted during year	$	2,498,492				$	2,040,527
Weighted average fair value of Warrants exercised during year	$	—				$	—

11

Stock warrants outstanding and exercisable at September 30, 2008, are as follows:

Exercise Price Range	Number	Remaining Contractual Life (In Years)	Weighted Average Exercise Price
$1.00	166,667	1	$	1.00
$0.80	21,875	1	$	0.80
$1.00	12,667	1	$	1.00
$0.75	649,167	1	$	0.75
$0.50	83,333	2	$	0.75
$0.75	97,221	1	$	0.50
$0.24	1,323,568	8	$	0.75
$0.45	248,098	4	$	0.24
$0.45	250,000	5	$	0.45
$0.50	262,058	5	$	0.45
	3,114,654		$	0.47

Note 6. Commitments

The Company has entered into two capital leases relating to computers and network equipment. The leases have terms up to 48 months, expiring in 2008 and monthly payments with interest rates ranging from 14.2 –14.6%. The future minimum lease payments for the year ending December 31, 2008 are $ 12,657

During 2006, the Company entered into a building lease, expiring in 2008. The lease has a term of two years with one, two-year renewal option. Future minimum lease payments for the year ending December 31, 2008 are $45,830. As of August 15, 2008 the Company moved out of this lease space at the expiration of the lease and assumed a lease that expires in March 2010. The future minimum lease payment for the balance of this year ended December 31, 2008 is $38,475.

On February 22, 2008, we entered into a three-year employment agreement with Mr. Ron Pitcock as our the Chief Executive Officer. Pursuant to the agreement, and in addition to a base salary of $150,000 and customary health and hospitalization, vacation, confidentiality, and non-competition provisions, the agreement: (i) settled our $125,000 accrued monthly consulting obligation for an aggregate of 277,777 shares of our Common Stock valued at $0.45 per share; (ii) granted Mr. Pitcock an Incentive Stock Option under our 2007 Stock Option Plan to purchase an aggregate of 250,000 shares of our Common Stock at $0.45 per share all of which vested upon the execution of the employment agreement; and (iii) granted Mr. Pitcock the right to have all of his option shares registered under the Securities Act in the first registration statement filed by us under the Securities Act following the date of the agreement.

On February 22, 2008, we entered into a second amendment to the Advisory Agreement with FCBD. Pursuant to the second amendment, we agreed to a bonus for FCBD’s performance of services in excess of those required of it in the Advisory Agreement, and simultaneously with the execution of the second agreement, we agreed to issue 317,777 restricted (i.e. unregistered) shares of our Common Stock (the “Bonus Shares”) to FCBD and further agreed to include the same in the first registration statement filed by us under the Securities Act. On April 24, 2008 the Company entered into a Termination and Settlement Agreement and agreed to the following: 1) $147,926 in cash reimbursement of fees paid by FCBD, and five year common stock purchase warrants for 262,038 shares exercisable at $0.50 per share; 2) FCBD will receive instead of its $369,000 obligation owed to it that includes the following: its right to a $70,000 acquisition success fee and 8% business combination success fee, FCBD will receive a sum of $159,000 in cash and 311,111 shares of Common Stock valued at $0.45 per share.

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Note 7. Bridge Loan Payable 2008

On February 22, 2008, we consummated Bridge Loan Agreements with a group of investors (the “Bridge Loan”). Investors were issued convertible promissory notes of $1,650,000 bearing interest at 12.99% per annum and convertible into 3,666,667 shares of our Common Stock at $0.45 per share (the “Bridge Note”). In addition to the usual representations and warranties, the Bridge Loan Agreement granted us the right to prepay the Loan Amount on 45 days prior written notice at any time after the closing bid price for our Common Stock for 20 consecutive trading days is $1.35 or greater and the minimum average daily trading volume during such 20 day trading period shall have been 50,000 shares. The investors were also issued five year warrants (the “Bridge Warrants”) to purchase an aggregate of 1,833,333 restricted shares of our Common Stock at $0.45 per share (the “Bridge Warrant Shares”). We agreed to register the Bridge Warrant Shares in the first registration statement we file under the Securities Act of 1933, as amended.

Note 8. Common Stock

In January 2008, the Company issued 513,848 shares of Company’s common stock upon the conversion of three Secured Promissory Notes from the 2006 Debt Offering. The holders accepted restricted shares of common stock and converted the principal loan amount and the accrued interest at the price of $0.45 per share. The principal loan amounts totaled $185,000 and the accrued interest totaled $44,231.

On February 14, 2008, we entered into a Settlement and Release Agreement with one of our vendors as settlement of a long-standing dispute concerning services delivered by the party to the Company. The Company issued 25,000 shares of restricted common stock for the acceptance of the settlement.

In February, the Company issued a total of 25,000 shares of Common Stock to three of its shareholders as compensation for extending to the Company a temporary interest free loan to meet temporary cash needs over a thirty-day period. The Company repaid the loans in full out of the proceeds of the Bridge Loan Agreement.

On April 5, 2008 the Company closed on the $5,000,000 Debenture offering above the minimum offering of $1,500,000 with $2,063,780 in debentures. The terms of the notes are 10% due in five years, interest paid quarterly, and convertible into Common Stock at $0.45 per share.

On April 24, 2008, we entered into a Termination and Settlement Agreement with FCBD related to the Advisory Agreement, pursuant to which we agreed to pay FCBD $159,000 and issue to FCBD an aggregate of 311,111 shares of our stock in full settlement of all of our monetary obligation to FCBD under the Advisory Agreement. We agreed to register the shares of stock issued to FCBD in the first registration statement filed by us under the Securities Act. (See Note 6)

On April 21, 2008, the Company entered into a Waiver and Release Agreement with Clay Storer to release one another including obligations, duties or liabilities arising from Storer’s employment by the Company. The sole consideration for Storer’s agreement was the issuance of 49,632 shares of the Company’s Common Stock for a value of $16,875. The number of shares was calculated by dividing the $16,875 by the closing price of the Company’s Common Stock in the Pink Sheets Market on the date of the agreement, April 21, 2008. Was this accrued in 2007 as he was terminated in 2007.

Note 9. Debenture Notes Payable

On April 5, 2008 the Company closed on the $5,000,000 Debenture offering above the minimum offering of $1,500,000 with $2,063,780 in debentures. The terms of the notes are 10% due in five years, interest paid quarterly, and convertible into Common Stock at $0.45 per share. As if September 30, 2008, $368,939 of the debentures have been converted into 808,754 shares of Common Stock at $0.45 per share and the outstanding balance at September 30, 2008 is $1,924,821.

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Note 10. Working Capital Convertible Note

On September 20, 2008 the Company entered into a working capital convertible loan agreement with five current investors in the Company. The terms of the note are as follows: 1) Interest paid at a rate of twelve and 99/100 (12.99%) percent per annum on an actual day/360 day basis and payable on the 18^th day of each month beginning on October 18, 2008; 2) All principal, unpaid interest and other costs incurred in connection with this Note shall be due and payable to the Holder on the on the earlier of: (i) six months from the date of this Working Capital Loan Agreement. (the “Due Date”) and (ii) have the option of the Lender to extend for one (1) additional year (total of 18 months) or (iii) at the option of the lender to receive $50,000 per month plus interest after the Due Date. Both options are at the Leaders discretion and upon 60 days notice. The terms of the note are governed by a “Working Capital Loan Agreement”. In addition, the loan is convertible at $0.30 per share of Common Stock at the option of the Lender and the Lender received Common Stock purchase warrants for a 1,000,000 shares at $0.45 per share of common stock expiring in five years. The balance of the loan at September 30, 2008 was $600,000.

Note 11. Acquisition of Assets

On August 16, 2008 the Company signed an agreement to purchase the broadband access, hosted VoIP telephone services business, and the related commercial VoIP business assets from American Fiber Systems, Inc. (AFS) for $1,000,000. Based in Boise, Idaho, the commercial VoIP business assets acquired by the Company serve small business and enterprise customers in four metropolitan areas: Boise, Idaho and its surrounding areas, Reno and Las Vegas, Nevada and Salt Lake City, Utah. The acquisition more than doubles the number of IP endpoints served by the Company and adds both expanded geographic reach and an established commercial customer base to the growing VoIP business for the Company. The transaction was completed on August 18, 2008 and included a financing for $800,000 from an unrelated third party. The assets were purchased by IP Solutions, Inc. a wholly owned subsidiary of Iptimize, the customers will be serviced and operations of the business will by handled by the Company.

Note 12. Subsequent Events

The Company on October 31, 2008 entered into an agreement to purchase the 100% of the membership units NextGen Holdings, LLC in exchange for 1,666,667 shares of the Company’s restricted Common stock. The transaction is expected to be completed in early November 2008. NextGen Holdings is a strategic business development resource for companies looking to expand sales distribution to global broadband service providers, offering ongoing relationship building and networking strategies, and advising clients on effective product and service positioning for the Global broadband marketplace. The acquisition extends the company’s reach further into North America, Latin America and Asia, and enhances the company’s managed IP services to include sales consulting and business relationship management.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion summarizes the significant factors affecting the Company’s consolidated operating results, financial condition, liquidity and capital resources during the three months period and nine months ended September 30, 2008 and 2007 and should be read in conjunction with the financial statements appearing elsewhere herein. In addition, in conjunction with this report the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007 filed with the Securities and Exchange Commission (“SEC”) on June 27, 2008.

Forward-looking information

This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (the “Exchange Act”) that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may”, “will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

The following discussion contains trend analysis and other forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Quarterly Report on Form 10-QSB that are not statements of historical facts are forward-looking statements. These forward looking statements made herein are based on our current expectations, involve a number of risks and uncertainties and should not be considered as guarantees of future performance. The factors that could cause actual results to differ materially include without limitation:

• Dependence on key management personnel;

• Competitors with greater financial resources;

• The impact of competitive pricing;

• The ability of management to execute acquisition and expansion plans and motivate personnel in the execution of such plans;

• Interruptions or cancellation of existing contracts;

• Adverse publicity related to the company, or the industry.

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• An inability to arrange additional debt or equity financing;

• Adverse claims relating to our use of trademarks and/or trade names;

• The adoption of new, or changes in, accounting principles;

• The costs inherent with complying with new statutes and regulations applicable to public reporting companies, such as the Sarbanes-Oxley Act of 2002.

• Economic downturn.

Actual results may differ materially from those set forth in such forward-looking statements as a result of factors set forth elsewhere in this Annual Report on Form 10-KSB, including under “Risk Factors.” More information about factors that potentially could affect the Company’s financial results is included in our filings with the Securities and Exchange Commission. The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

General

It is our desire to provide all parties who may read this MD&A an understanding of the Company’s past performance, its financial condition and its prospects of going forward in the future. Accordingly, we will discuss and provide our analysis of the following:

• Overview of the business;

• Critical accounting policies;

• Results of operations;

• Overview of business segments;

• Liquidity, capital resources and outlook for 2008;

• New accounting pronouncements.

In November 2005, we merged with IPtimize Colorado in a transaction in which we were the legal survivor. We issued 15,452,750, presplit (1for3), shares of common stock and 750,000 shares of Series A Preferred Stock to the former stockholders of IPtimize Colorado in connection with that transaction. Since the amount of stock issued by us in the merger exceeded the amount of stock outstanding before the transaction, the transaction as been treated as a reverse merger for accounting purposes, as if IPtimize Colorado acquired us and survived the transaction. IPtimize Colorado was recapitalized as a result of the merger and an additional 400,811, presplit (1for3), shares of common stock were issued in the transaction. As a result, the financial statements of IPtimize Colorado survive for purposes of our financial reporting.

We are a broadband voice and data service provider which means that we utilize high speed data network access (including the Internet) to furnish a suite of voice and data communications services to cable operators and small and medium sized businesses. We are often referred to as a hosted service provider because we provide the technology and service components used to furnish Internet Protocol (or “IP”) based communication services to our customers and thereby serve as a single point of contact. Our customers use their broadband connection to the Internet to reach our Voice over IP (“VoIP”) gateway servers (used to manage and route calls) which servers direct their call to a national broadband network thereby enabling our customers to connect to any phone at any destination in the world. Our voice and network services reduce our customers communications costs, decrease complexity, and increase productivity.

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In September 2007, we executed a Master Service Agreement (the MSA”) with Level 3 Communications, Inc. (NASDAQ: LVLT). In November 2007, we signed a Reseller Agreement (the “Reseller Agreement”) with Broadband Management Solutions, LLC, a wholly owned subsidiary of C-COR Incorporated, (NASDAQ: CCBL) and a global provider of inter-operable network solutions for cable broadband networks that simplify the transition to on-demand networks. As a result of the confluence of MSA, the Reseller Agreement, the election of Ron Pitcock as our new Chief Executive Officer and his 20 plus years of cable industry knowledge, experience and contacts, we have become principally engaged in concentrating on opportunities within the $8.0 billion cable industry VoIP market.

VoIP is a protocol used for the transmission of phone calls over privately managed broadband networks (such as our network) and/or the Internet. It converts voice into a digital package of data which is then reassembled at the other end. Unlike traditional telephone networks, VoIP does not use dedicated circuits for each telephone call; rather, the same network can be shared by multiple users for voice, data, and video simultaneously. This network is more efficient than a dedicated circuit network because the data network is not restricted by the one call, one line limitation of a traditional telephone network. This improved efficiency creates potential cost savings that can be passed on to consumers in the form of lower rates or retained by the provider as revenue. Significant cost savings are also possible for international telephone calls because VoIP calls bypass the international settlement process, which represents a significant portion of the international long distance tariffs. VoIP has been used over the past decade by the major phone companies to transport calls over fiber optic lines to make long distance calls. Through recent technological advances, VoIP calls can now be made directly by a caller.

Actual results may differ materially from those set forth in such forward-looking statements as a result of factors set forth elsewhere in this Quarterly Report on Form 10-QSB, including under “Risk Factors.” More information about factors that potentially could affect the Company’s financial results is included in our filings with the SEC. The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

Critical Accounting Policies

The following discussion and analysis of the results of operations and financial condition are based on the Company’s financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 2 of Notes to the Financial Statements included in our Annual Report on Form 10-KSB for the year ended December 31, 2007. However, certain accounting policies and estimates are particularly important to the understanding of the our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Actual results may differ from these estimates. Those critical accounting policies are discussed in Management’s Discussion and Analysis of Financial Position and Results of Operations – Critical Accounting Policies in our Annual report on Form 10-KSB for the year ended December 31, 2007.

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Results of Operations – Third Quarter ended September 30, 2007 Compared to September 30, 2008

Results of Continuing Operations

The following sets forth a comparison of the components of the results of our continuing operations for the nine months ended September 30, 2007 and 2008:

	Nine months ended September 30,				Percentage change
	2007		2008
Revenues	736,350		1,023,817		39.0	%
Cost of sales	525,454		668,660		27.3	%
	210,896		355,157		40.6	%
Operating Expenses
Salaries and wages	1,137,847		1,057,840		(7.0	)%
Consulting	365,604		978,799		*	%
Other general and administrative
Rent	40,805		78,235		91.7	%
Legal and professional	196,897		109,019		*	%
Marketing	75,188		541,277		619.9	%
Other	149,239		709,700		375.5	%
Depreciation & amortization	35,344		106,023		200.0	%
Total expenses	2,000,924		3,580,893		79.0	%
Net operating (loss)	(1,790,028	)	(3,225,736	)	80.2	%
Other income (expenses)
Interest expense	(236,443	)	(502,676	)	112.6	%
Loss on disposal of assets	(18,313	)	—
Interest income	—		5,559		*
Gain on settlement of liabilities	37,672		366,072		*	%
Total Other Income (Expenses)	(217,084	)	(131,045	)	(39.6	)%
Net (Loss)	(2,007,112	)	(3,356,781	)	67.2	%

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Results of Continuing Operations

The following sets forth a comparison of the components of the results of our continuing operations for the three months ended September 30, 2007 and 2008.

	Three months ended September 30,				Percentage change
	2007		2008
Revenues	302,406		453,604		50.0	%
Cost of sales	207,354		226,123		9.1	%
	95,052		227,481		58.2	%
Operating Expenses
Salaries and wages	513,024		449,033		(12.5	)%
Consulting	241,183		300,331		*	%
Other general and administrative
Rent	16,777		25,639		52.8	%
Legal and professional	94,986		52,627		*	%
Marketing	28,549		188,929		561.8	%
Other	39,776		234,130		488.6	%
Depreciation & amortization	12,417		85,730		590.4	%
Total expenses	946,712		1,336,419		41.2	%
Net operating (loss)	(851,660	)	(1,108,938	)	30.2	%
Other income (expenses)
Interest expense	(143,896	)	(165,206	)	14.8	%
Loss on disposal of assets	(18,313	)	—
Interest income	—		265
Gain on settlement of liabilities	4,959		129,724		*	%
Total Other Income (Expenses)	(157,250	)	(35,217	)	(77.6	)%
Net (Loss)	(1,008,910	)	(1,144,155	)	13.4	%

Revenues

Our total revenue for the nine months ended September 30, 2008 was $1,023,817 compared to $736,350 for the nine months ended September 30, 2007. Our total revenue for the three months ended September 30, 2008 was $453,604 compared to $302,406 for the three months ended September 30, 2007. Our revenue increased $287,467, or 37.0% due primarily to a focus on growth of our managed IP services, primarily VoicePilot, VoiceConnect and the beginning of the launch into cable industries.

Our recurring managed IP service revenue increased approximately $365,000 or 243% in 2008 versus 2007. Recurring service revenue represented 86.5% of the total revenue for the nine month period 2008 versus 71.2% in the same period 2007. IP endpoints under management represents the number of IP addresses which we bill monthly recurring service fees on. As the number of IP endpoints increases, we see a corresponding increase in our monthly recurring revenues. IP endpoints under management increased from approximately 2,100 to 6,342 from September 30, 2007 to September 30, 2008.

Cost of Goods Sold

Our cost of sales for the nine months ended September 30, 2008 was $668,660 compared to $525,454 for the nine months ended September 30, 2007. Our cost of sales for the three months ended September 30, 2008 was $226,123 compared to $207,354 for the three months ended September 30, 2007. Costs increased $143,206, or 40.6%, due primarily as a result of the increased sales of hosted VoIP Services.

Our gross profit margin for the nine month ended September 30, 2008 of 34.7% was 6.1%, up from 28.6% for the same period of 2007. This reflects the change in our focus from one-time equipment sales to a recurring revenue business model based on managed services. Despite the decreased margin, we believe that the revenue from our current model is more sustainable and will benefit us in the long term. In addition the purchasing of the above described will allow us to provide more of the services internally and not have to purchase the use of these services from an outside vendor for a higher cost.

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General and Administrative Nine months ended September 30, 2008 and September 30, 2007

Our General and Administrative expenses for the nine months ended September 30, 2008 were $3,580,893 compared to $2,000,924 for the nine months ended September 30, 2007 representing an increase of $1,579,969 or 79 percent. Listed below is analysis of the major items included in general and administrative expenses.

Salaries, Wages& Consulting

Salaries, wages and consulting combined, increased $533,188 to $2,063,639 for the nine months ended September 30, 2008, from $1,503,451 for the nine months ended September 30, 2007. The increase in salaries, wages, and consulting is a result of a increase in the workforce, from 12 on September 30, 2007 to 37 on September 30, 2008, in addition Part of the consulting was a need for the services rendered by the consultants in the IT and financial areas and the amortization of a prepaid three year consulting agreement with a financial consultant.

Other General and Administrative Expenses

Rent increased to $78,235 for the nine months ended September 30, 2008 from $40,805 for the nine months ended September 30, 2007, a 91.7% increase. This increase is due to the expiration of an office lease and the move to new offices. Legal and accounting was $109,019 for the nine months ended September 30, 2008 as compared to $196,897 for the nine months ended September 30, 2007. The decrease in legal and accounting was the result of becoming public in 2007. The marketing expense for the nine months ended September 30, 2008 was $541,277 as compared to $75,188 for the nine months ended September 30, 2007. The increase was $616,465 and was due to the change in focus of the business customer attempt to increase this business as explained above and the amortization of a two year prepaid marketing program. The other general and administrative expenses increased to $475,570 for the nine months ended September 30, 2008 from $149,239 for the nine months ended September 30, 2007, an increase of $560,461 or 375.5%.

Depreciation and Amortization

The depreciation and amortization increased by $70,679 or 200% for the nine months ended September 30, 2008 as compared to the same period in 2007. This decrease is directly related to the purchase of assets, purchase of the Broadsoft switches and related software in 2008.

Interest Expense

Interest expense increased by $266,233 or 112.6% during the nine months ended September 30, 2008 as compared to the same period in 2007. The increase is due to the fund raised in the development of the business.

Net Loss

As a result of the factors discussed above, net loss increased to $3,356,781 for the nine months ended September 30, 2008 as compared with $2,007,112 for the same period in 2007.

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Net Loss Applicable to Common Shareholders and Loss Per Share

For the nine months ended September 30, 2008, we paid or accrued dividends of $84,150, on the outstanding shares of our Series A & B Preferred Stock. Those dividends resulted in a net loss applicable to common shareholders to $3,440,931 for the nine months ended September 30, 2008. For the nine months ended September 30, 2007, we paid or accrued dividends of $82,350, on the outstanding shares of our Series A & B Preferred Stock. Those dividends resulted in a net loss applicable to common shareholders to $2,089,462 for the nine months ended June 30, 2007.

General and Administrative Three months ended September 30, 2008 and September 30, 2007

Our General and Administrative expenses for the three months ended September 30, 2008 were $1,336,419 compared to $946,712 for the three months ended September 30, 2007 representing an increase of $389,707 or 46.2 percent. Listed below is analysis of the major items included in general and administrative expenses.

Salaries, Wages& Consulting

Salaries, wages and consulting combined, decreased $4,843 to $749,364 for the three months ended September 30, 2008, from $754,207 for the three ended September 30, 2007.

Other General and Administrative Expenses

Rent increased to $25,639 for the three months ended September 30, 2008 from $16,777 for the three months ended September 30, 2007, a 52.8% increase. Legal and accounting was $52,627 for the three months ended September 30, 2008 as compared to $94,986 for the three months ended September 30, 2007. The decrease in legal and accounting was the result of costs of being incurred to become public during the second quarter 2007. The marketing expense for the three months ended September 30, 2008 was $188,929 as compared to $28,549 for the three months ended September 30, 2007. The increase was $160,330 and was due to the change in focus of the business customer attempt to increase this business as explained above and the amortization of a two year prepaid marketing program. The other general and administrative expenses increased to $234,130 for the three months ended September 30, 2008 from $39,776 for the three months ended September 30, 2007, an increase of $194,354 or 488.6% as a result of the ramp up of the new business plan.

Depreciation and Amortization

The depreciation and amortization increased by $73,313 or 590.4% for the three months ended September 30, 2008 as compared to the same period in 2007. This increase was affected by a number of assets being fully depreciation prior to 2008 and the purchase of new assets in the second and third quarter of 2008.

Interest Expense

Interest expense increased by $21,310 or 14.8% during the three months ended September 30, 2008 as compared to the same period in 2007. The increase is due to the fund raised in the development of the business.

Net Loss

As a result of the factors discussed above, net loss increased to $1,144,155 for the three months ended September 30, 2008 as compared with $1,008,910 for the same period in 2007.

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Net Loss Applicable to Common Shareholders and Loss Per Share

For the three months ended September 30, 2008, we paid or accrued dividends of $28,050, on the outstanding shares of our Series A & B Preferred Stock. Those dividends resulted in a net loss applicable to common shareholders to $1,172,205 for the three months ended September 30, 2008. For the three months ended September 30, 2007, we paid or accrued dividends of $24,450, on the outstanding shares of our Series A & B Preferred Stock. Those dividends resulted in a net loss applicable to common shareholders to $1,036,360 for the three months ended September 30, 2007.

Liquidity and Capital Resources

We completed three debt offerings. 1) We borrowed $1,650,000 from eleven individual investors. The terms of the offering were 12.99% interest, due in one year, convertible into Common Stock at $0.45 per share. The debt includes 50% warrant coverage at $0.45 per share, put option after six months at $0.45 per share or a call option if the Common stock trades at $1.35 per share for twenty connective trading days. 2) We offered a debenture with interest rate of 10% convertible at $0.45 per share. The offering was for $5,000,000 with a minimum of $1,500,000. We closed the offering on April 5, 2008 with $1,838,780 from 75 individual investors. 3) We borrowed on a working capital convertible note of $600,000, with an interest rate of 12.99%. The note is convertible at $0.30 per share and is due in six months with the following renewable options; at the option of the Lender to extend for one (1) additional year (total of 18 months) or (iii) at the option of the lender to receive $50,000 per month plus interest after the Due Date. Both options are at the Leaders discretion and upon 60 days notice. The terms of the note are governed by a “Working Capital Loan Agreement”. The Lender received Common Stock purchase warrants for a 1,000,000 shares at $0.45 per share of common stock expiring in five years.

We have a federal withholding tax obligation of approximately $400,000 due to the Internal Revenue Service. We paid all of the federal tax obligation in March 2008 and are in the process of negotiating the penalties and interest that have been assessed.

We currently assessing our capital needs for the future and have enough capital to operate the balance of 2008 and have negotiated the funds to complete the acquisition slated to close August 15, 2008. We are in the process negotiating additional short-term capital until we are positioned for long-term funding. We believe that the process of this funding will begin late 2008.

Working Capital

At September 30, 2008 and December 31, 2007, the Company had cash and cash equivalents of $118,579 and $26,224 and total current assets of $514,562 and $205,324, respectively. Our current liabilities exceeded our current assets by $4,324,331 at September 30, 2008 as compared to $3,817,847 at December 31, 2007.

Capital Resources

We had stockholders’ deficit of $5,491,154 as of September 30, 2008 and $3,345,422 at December 31, 2007. The change is the result of the loss during the first nine months ended September 30, 2008, preferred stock dividend, conversions of notes into Common Stock, and payment of and settlement of debt and expenses with Common Stock.

The net cash used by operating activities was $3,178,499 for the nine months ended September 30, 2008 and $816,007 for the nine months ended September 30, 2007. The increase in the cash flow used by operations was due to the increase in our net loss for the period, to decrease accounts payables, accrued expenses, and increase of accrued interest expense.

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The net cash used by investing activities for the nine months ended September 30, 2008 was $1,422,112, resulting from the purchase equipment and the switch equipment and software. The net cash used by investing activities for the nine months ended September 30, 2007 was $29,492, resulting from the purchase of $38,401 of fixed assets.

Cash provided by financing activities for the nine months ended September 30, 2008 was $5,412,529. We used $719,563 to pay preferred stock dividends, $9,200 for payment of loan fees, $119,830 reduction of notes, $719,563 payment of related party debt. We received $1,650,000 from the 2008 bridge notes, $2,062,529 in financing from debenture notes, $600,000 working capital convertible note, and $1,100,000 cash received from notes payable. The net cash inflow from financing activities for the nine months ended September 30, 2007 were $1,046,763 resulted from $1,001,406 from the issuance of new debt, $20,000 for the issuance of preferred stock, and $32,922 for the issuance of common stock. We used cash from financing activities for the nine months ended September 30, 2007 of $136,942 for the payment of debt and $7,565 bank overdraft reduction.

Off Balance Sheet Arrangements

We do not currently have any off balance sheet arrangements falling within the definition of Item 303(c) of Regulation S-B.

Inflation

To date inflation has not had a material impact on our operations.

Item 3. Quantitative and Qualitative Disclosure About Market Risks

N/A

Item 4. Controls and Procedures

As of September 30, 2008, our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act, and the rules and regulations promulgated thereunder.

Further, there were no changes in our internal control over financial reporting during the first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

N/A

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

None

Item 3. Default Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.	Exhibit
10.32	Termination and Settlement Agreement
10.33	Settlement Agreement
31.1	Certification of Ron Pitcock, Chairman of the Board and Chief Executive Officer of IPtimize, Inc., pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
31.2	Certification of Donald W Prosser, Chief Financial and Accounting Officer of IPtimize, Inc., pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1	Certification Statement of Ron Pitcock, Chairman of the Board and Chief Executive Officer of IPtimize, Inc., pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
32.2	Certification Statement of Donald W Prosser, Chief Financial and Accounting Officer of IPtimize, Inc., pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

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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.

	IPtimize, Inc.
	(Registrant)
Date: November 12, 2008	By:	/s/ Ron Pitcock
		Ron Pitcock, Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
Date: November 12, 2008	By:	/s/ Donald W. Prosser
		Donald W. Prosser, Chief Financial and Accounting Officer (Principal Accounting Officer)

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