Forward-Looking Statements

The following discussion of our consolidated financial condition and results of operations should be read together with our consolidated financial statements and the related notes thereto included in another part of this Quarterly Report on Form 10-Q. This discussion contains certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. When used in this report the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance, or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risks associated with the integration of businesses following an acquisition, concentration of revenue from one source, competitors with broader product lines and greater resources, emergence into new markets, the termination of any of the Company's significant contracts or partnerships, the Company's inability to maintain working capital requirements to fund future operations or the Company's inability to attract and retain highly qualified management, technical and sales personnel, and other factors identified by us from time to time in our filings with the SEC. Historical operating results are not necessarily indicative of the trends in operating results for any future period. All forward-looking statements included in this document are made as of the date hereof, based on information available to us as of the date thereof, and we assume no obligation to update any forward-looking statements.

We seek to become a leading provider of Voice over Internet Protocol (VoIP) video and other advanced Internet services to, from, in, and between the developed markets of North America and Europe and emerging markets in Asia, the Middle East, Africa, Latin America, and the Caribbean. Our strategy is to provide a full suite of VoIP video and other Internet based services to consumers and corporations in the emerging markets and their communities of interest around the world. We seek to create local partnerships to facilitate distribution of our services within our target countries. We also seek to create global partnerships to facilitate broader distribution of our services. We have spent approximately $40 million on the development and maintenance of our infrastructure and service offerings, and believe that our VoIP network is one of the best, most advanced, next generation networks of any major telecommunications carrier. We currently market VoIP services to consumers, corporations, government entities, Internet service providers, and distribution partners and telecommunications carriers seeking to communicate internationally. We target markets that we believe have: (i) barriers to entry, (ii) substantial growth prospects, (iii) an increasing number of corporations operating within them, (iv) high cost of traditional telecommunications services, and (v) a substantial quantity of voice and data traffic between the United States and Europe and emerging countries within our target markets. We currently have operating agreements with over 200 carriers and provide services in over 100 countries.

The following table summarizes our results of operations for the periods indicated:

                               Three months ended                Nine months ended
                                  September 30,                    September 30,
                               2008          2007              2008              2007
                            (unaudited)   (unaudited)       (unaudited)       (unaudited)
Revenues                  $  14,515,430 $  13,356,679  $        37,446,087 $    40,306,842
Operating expenses:
Cost of revenues             13,608,525    12,355,657           34,970,112      37,193,178
Depreciation and
amortization                    470,582       437,920            1,394,780       1,248,737
Selling, general and
administrative                2,874,173     2,894,804            9,233,313       9,591,471
Advertising and marketing        35,549        36,472               83,973         142,257
Total operating expenses     16,988,829    15,724,853           45,682,178      48,175,643
Operating Loss              (2,473,399)   (2,368,174)          (8,236,091)     (7,868,801)

Other income (expenses):
Interest income                   7,659        17,180               10,175          68,251
Interest expense              (134,223)      (27,573)            (204,810)        (78,552)
Gain (loss) on sale /
disposal of fixed assets              -             -             (59,158)               -
Gain on settlement /
extinguishment of debt           25,000             -              659,991               -
Gain on sale of
investment in Estel                   -             -                    -         937,578
Loss from investment in
Estel                                 -             -                    -        (60,000)
Other                             3,230         7,579                1,210          21,076
Total other income
(expenses)                     (98,334)       (2,814)              407,408         888,353
Net loss                  $ (2,571,733) $ (2,370,988)  $       (7,828,683) $   (6,980,448)

The following table presents our historical operating results as a percentage of revenue for the periods indicated:

                                  Three months ended               Nine months ended
                                    September 30,                    September 30,
                                2008             2007            2008          2007
                             (unaudited)      (unaudited)     (unaudited)   (unaudited)
Revenues                             100.0 %         100.0 %        100.0 %       100.0 %
Operating expenses:
Cost of revenues                      93.8 %          92.5 %         93.4 %        92.3 %
Depreciation and
amortization                           3.2 %           3.3 %          3.7 %         3.1 %
Selling, general and
administrative                        19.8 %          21.7 %         24.7 %        23.8 %
Advertising and marketing              0.2 %           0.3 %          0.2 %         0.4 %
Total operating expenses             117.0 %         117.8 %        122.0 %       119.6 %
Operating Loss                     (17.0%)          (17.8) %       (22.0) %      (19.6) %
                                         -
Other income (expenses):
Interest income                        0.1 %           0.1 %          0.0 %         0.2 %
Interest expense                     (0.9) %         (0.3) %        (0.5) %       (0.2) %
Gain (loss) on sale /
disposal of fixed assets               0.0 %           0.0 %        (0.2) %         0.0 %
Gain on settlement /
extinguishment of debt                 0.2 %           0.0 %          1.8 %         0.0 %
Gain on sale of investment
in Estel                               0.0 %           0.0 %          0.0 %         2.3 %
Loss from investment in
Estel                                  0.0 %           0.0 %          0.0 %       (0.1) %
Other                                  0.0 %           0.1 %          0.0 %         0.1 %
Total other income
(expenses)                           (0.6) %         (0.1) %          1.1 %         2.3 %
Net loss                            (17.6) %        (17.8) %       (20.9) %      (17.3) %

Revenues

Historically, we have generated the majority of our revenues from voice traffic sold to other carriers, with a primary focus in the last several years on VoIP terminations to the emerging markets. We focus on growing our existing customer base, which is primarily US based, as well as the addition of new customers, and the establishment of direct VoIP terminating arrangements with telecommunication carriers in emerging markets and around the world. Although we believe that this business continues to be of value to our strategy, ongoing competitive and pricing pressures have caused us to increase our focus on higher margin, value-added services (primarily VoIP to consumers and corporations which includes VOIP video and other advanced internet services), and market them to, or in conjunction with, distribution partners on a direct, co-branded or private label basis.

In an effort to further increase margins, expand our retail customer base, and develop more stable revenue streams, we have begun to focus significant effort and resources to build our VoIP business to consumers and corporations. While this does not yet represent a significant portion of our revenue base, we expect to continue to increase our emphasis in this area. We believe that this will complement our carrier business with a higher margin and more stable customer base.

In 2002, we established Efonica F-Z, LLC, as a retail services Company marketing VoIP products to consumer and corporate customers in emerging markets. Beginning in the Middle East, Asia and Africa, and then extending into Latin America, Efonica's services are primarily sold through distribution channels on a pre-paid basis. Efonica's customers can place calls from anywhere in the world to any destination using a personal computer, Internet protocol telephone or regular telephone when accompanied by a hardware device that may be purchased through Efonica. We believe that the introduction of advanced features such as voicemail, call waiting, and call forwarding will enhance this value-added offering. In February 2005, we completed our acquisition of the 49.8% minority interest in Efonica, and following such acquisition, we own 100% of Efonica.

We manage our revenues by product and customer. We manage our costs by provider (vendor). We track total revenue at the customer level because our sales force has to manage the revenue generation at the customer level, and invoices are billed to and collected at the customer level. We also have to track the same revenues by product, because different products have different billing and payment terms, and individual customers may have multiple billing and payment terms if they purchase multiple products from us.

We manage our revenue segments based on gross margin, which is net revenues less cost of revenues, rather than on net profitability, due to the fact that our infrastructure is built to support all products, rather than individual products. This applies both to the capital investments made (such as switching and transmission equipment), and to selling, general and administrative resources. The majority of our sales and operations personnel support all product lines within their market segment, (i.e. Carrier), and are not separately hired to support individual product segments. For segment reporting purposes, all expenses below cost of revenues are allocated based on percentage of utilization of resources unless the items can be specifically identified to one of the product segments.

Operating Expenses

Our operating expenses are categorized as cost of revenues, depreciation and amortization, and selling, general, and administrative expenses.

Costs of revenues include costs incurred with the operation of our leased network facilities, and the purchase of voice termination and Internet protocol services from other telecommunications carriers and Internet service providers. We continue to work to lower the variable component of the cost of revenue through the use of least cost routing, and continual negotiation of usage-based and fixed costs with domestic and international service providers.

Depreciation and amortization includes depreciation of our communications network equipment, amortization of leasehold improvements of our switch locations and administrative facilities, and the depreciation of our office equipment and fixtures. It also includes amortization of the Efonica customer list.

Selling, general, and administrative expenses primarily include salaries and benefits, insurance, occupancy costs, marketing and advertising, professional fees, and other administrative expenses.

Advertising and marketing expense includes cost for promotional materials for the marketing of our retail products and services, as well as for public relations.

Company Highlights

The following summary of significant events during the nine months ended September 30, 2008 and 2007 highlight the accomplishments and events that have influenced our performance during the respective periods.

Nine Months Ended September 30, 2008

• $2.5 million raised in Common Stock equity financing.
• Gordon Hutchins Jr., promoted to President and Chief Operating Officer. Matthew D. Rosen remains Chief Executive Officer.
• A vendor debt was extinguished resulting in approximately $0.6 million of other income

Nine Months Ended September 30, 2007

• Efonica VoIP products at CeBIT - Showcasing Efonica VoIP services, including retail and corporate focused VoIP solution to CeBIT (the world's largest trade fair showcasing digital IT and telecommunications solutions for home and work environments).
• Efonica subscribers exceed 1,000,000 - Since launching our new Efonica VoIP service on June 19, 2006, we have registered more than one million subscribers.
• Consummation of Private Placement - In May 2007, the Company entered into subscription agreements with 28 individual investors for an offering of $3.375 million in consideration for 3,375 shares of Series A-2 Cumulative Convertible Preferred Stock, (the "Series A-2 Preferred Stock").
• Strategic Investment - A global communications service provider, DigitalFX International, Inc. has made a $700,000 strategic investment in the Company.
• Sale of its Equity Interest in Indian Joint Venture - The Company completed the sale of its 49% equity share of Estel Communications Pvt., LTD an Internet service provider in India.
• Interview with strategic investor- DigitalFX International, Inc.'s President Amy Black and President and CEO Matthew Rosen of Fusion interviewed in a live web cast on MN1, the world's premier web-based business news outlet to discuss their agreement and other current events.
• VoIP World Conference in Dubai- On June 18, 2007, CEO, Mathew Rosen, delivered a keynote address to VoIP World Middle East 2007 conference in Dubai, UAE; · Launches Efonica Mobilink Service in Jordan - the Company announced that it has already expanded its network capacity in Jordan to meet growing customer demand.
• Internet Café Solution - This new product targets a growing segment of the international calling marketplace, expanding Fusion's current reach into corporate, consumer and carrier markets worldwide.
• Acquires Telecommunications License in Dominican Republic - Initiates Plan to Launch Comprehensive Suite of Voice and Video Solutions.

Three Months Ended September 30, 2008 Compared With Three Months Ended September 30, 2007.

The information in our period - to - period comparisons below represents only our results from continuing operations.

Revenues

Consolidated revenues was $ 14.5 million during the three months ended September 30, 2008, compared to $13.4 million during the three months ended September 30, 2007, a decrease of $1.1 million or 8.7%.

Revenues for Voice to Carriers increased $1.3 million or 9.8%, to $14.2 million during the three months ended September 30, 2008 from $12.9 million during the three months ended September 30, 2007. The increased revenues were the result of an increase in the number of minutes; partially offsetting this increase was a decrease in the blended rate per minute, which was went from $0.0625 to $0.0612, this decrease in the blended rate on the quarter ended September 30, 2008 was significantly lower to the decrease experienced YTD. Based on the peaks and valleys of the carrier segment, we cannot predict what impact competitor-pricing pressure may have on future periods.

Revenues for Consumers, Corporations and Other during the three months ended September 30, 2008 was $ 0.3 million, compared to $ 0.4 million during the three months ended September 30, 2007, a decrease of $ 0.1 million, or 24.9%. The technical difficulties encountered in prior periods and the sale of the Indian Joint Venture in the second quarter of 2006 contributed to the decrease in the revenue for consumers; partially offsetting this decrease is an increase in the revenue for corporations as the Company continues gaining customers in this area.

Cost of Revenues

Consolidated cost of revenues was $ 13.6 million during the three months ended September 30, 2008, compared to $12.4 million during the three months ended September 30, 2007, an increase of $1.2 million or 10.1%.

Cost of revenue for Carriers was $13.4 million during the three months ended September 30, 2008, compared to $12.0 million during the three months ended September 30, 2007; an increase of 1.4 million or 11.3% as a result of an increase in the number of minutes; partially offsetting this increase was a decrease in the blended rate per minute, consistent with the increase in revenues.

Cost of revenues for Consumers, Corporations and Other during the three months ended September 30, 2008 were $0.3 million compared to $0.4 million during the three months ended September 30, 2007, a decrease of $0.1 million or 29.4%. This decrease was also consistent with the revenue variance.

Operating Expenses

Depreciation and Amortization: Depreciation and amortization increased $0.03 million or 7.5% to $0.47 million during the three months ended September 30, 2008, from $0.44 million during the three months ended September 30, 2007. Our depreciation expense increased as more assets were placed into service during the third quarter of 2008 compared to the same period of 2007.

Selling, General, and Administrative: Selling, general, and administrative expenses during the three months ended September 30, 2008, were consistent with the three months ended September 30, 2007.

Advertising and Marketing Advertising and marketing expenses for the quarter ended September 30, 2008 were consistent with the same period of 2007.

Operating Loss: Our operating loss increased $0.1 million or 4.4% to a loss of $2.5 million during the three months ended September 30, 2008, from a loss of $2.4 million during the three months ended September 30, 2007. The decrease in operating loss was primarily attributable to the decline in revenues.

Other Income (Expenses): Total other income (expense) increased $0.096 million from a loss of $0.003 million to a loss of $0.093 million during the three months ended September 30, 2008. This increase was partially attributable to higher amounts of financing interests being paid to a non-related party and the debt settlement with a vendor.

Net Loss: Net loss increased $0.2 million, or 8.5% to $2.6 million during the three months ended September 30, 2008, from $2.4 million during the three months ended September 30, 2007. The primary factor contributing to this increase were the increased

interest expenses and the decreased gross margin during the three months ended September 30, 2008.

Nine Months Ended September 30, 2008 Compared With Nine Months Ended September 30, 2007.

Revenues

Consolidated revenues was $37.4 million during the nine months ended September 30, 2008, compared to $40.3 million during the nine months ended September 30, 2007 a decrease of $2.9 million or 7.1%.

Revenues for Voice to Carriers decreased $2.7 million or 7.0%, to $36.3 million during the nine months ended September 30, 2008 from $39.0 million during the nine months ended September 30, 2007. Contributing to this decrease was a decrease in the blended average rate per minute, which went from $0.0686 in 2007 to $0.0568 in 2008; this decrease was partially offset by an increase in the number of minutes.

Revenues for Consumers, Corporations and Other during the nine months ended September 30, 2008 was $1.1 million, compared to $1.3 million during the nine months ended September 30, 2007, a decrease of $0.2 million, or 10.7 %. Revenues for Consumers decreased as a result of the technical difficulties encountered in prior periods and the sale of the Indian Joint Venture in the second quarter of 2007, this decrease was partially offset by an increase in Revenue for Corporations as a result of an increase in the number of customers.

Cost of Revenues

Consolidated cost of revenues was $35.0 million during the nine months ended September 30, 2008, compared to $37.2 million during the nine months ended September 30, 2007, a decrease of $2.2 million or 6.0 %.

Cost of Revenues for Carriers was $34.2 million during the nine months ended September 30, 2008, compared to $36.2 million during the nine months ended September 30, 2007. A decrease of $2.0 million or 5.5 % as a result a decrease in the blended rate per minute; partially offsetting this decrease was an increase in the number of minutes.

Cost of revenues for Consumers, Corporations and Other during the nine months ended September 30, 2008 was $0.8 million compared to $ 1 million during the nine months ended September 30, 2007, a decrease of $ 0.2 million or 24.1% consistent with the revenue variance.

Operating Expenses

Depreciation and Amortization: Depreciation and amortization increased by $0.1 million or 11.7% to $1.4 million during the nine months ended September 30, 2008, from $1.3 million during the nine months ended September 30, 2007. Our depreciation expense increased as more assets were placed into service during 2008 and the end of 2007.

Selling, General, and Administrative: Selling, general, and administrative expenses decreased $0.4 million or 3.7% to $9.2 million during the nine months ended September 30, 2008, from $9.6 million during the nine months ended September 30, 2007. Salaries, benefits, and other personnel related expenses decreased approximately $0.3 million as a result of several senior management and other positions being eliminated during 2007. Consulting expenses and software licenses and maintenance decreased approximately $0.4 million as better rates were negotiated or expenses were no longer needed. Partially offsetting this decrease was an increase of $0.3 million in our communication expenses.

Advertising and Marketing: Advertising and marketing expenses decreased $0.058 million or 41.0% to $0.084 million during the nine months ended September 30, 2008, from $0.142 million during the nine months ended September 30, 2007 as the advertising and marketing campaign of our Efonica product was more aggressive during the first nine months of 2007.

Operating Loss: Our operating loss increased $0.3 million or 4.7% to $8.2 million during the nine months ended September 30, 2008, from a loss of $7.9 million during the nine months ended September 30, 2007. The decrease in operating loss was primarily attributable to the decline in revenues.

Other Income (Expenses): Total other income (expense) went from other income of $0.9 million during the nine months ended September 30, 2007 to other income of $0.4 during the nine months ended September 30, 2008, a decrease of $0.5 million, or 53.3%. During the second quarter of 2007, the company sold its equity ownership of Estel and recorded a gain of $0.9 million and during the first quarter of 2008, the company recorded a gain of $0.6 million on the extinguishment of debt. Also contributing to this decrease in other income during the nine months ended September 30, 2008 were losses on assets disposal, the debt settlement with a vendor and increased interests expenses as a result of additional financing incurred during this period.

Net Loss: Net loss increased $0.9 million, or 12.5% for the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007. The increase in net loss is attributable to the decreased sales during the first nine months of 2008.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating and net losses. In addition, we are not generating positive cash flow from operations. As of September 30, 2008, we had Stockholders' equity of approximately $1.8 million as compared to $6.7 million at December 31, 2007, and a working capital deficit of approximately $8.4 million as compared to $4.2 million at December 31, 2007. During the nine months ended September 30, 2008, we raised approximately $ 2.5 million from the sale of our securities through private placement financing (See Note 6 to the consolidated financial statements contained in this quarterly report on Form 10-Q). The proceeds have been and will continue to be used for working capital and general corporate purposes, international deployment, and to fund the development of our retail service offerings.

Below is a summary of our cash flow for the periods indicated. These cash flow results are consistent with prior years, in that we continued to use significant cash in connection with our operating and investing activities and had significant cash provided by financing activities.

A summary of our cash flows for the periods indicated is as follows:

                                             Nine Months Ended September 30, 2008
                                                  2008                  2007
                                              (unaudited)           (unaudited)
Cash used in operating activities        $        (2,697,814)  $        (5,154,720)
Cash used in investing activities                   (321,729)              (13,909)
Cash provided by (used in) financing
activities                                          3,381,799             3,891,186
Increase in cash                                      362,256           (1,277,443)
Cash and cash equivalents, beginning of
period                                                114,817             2,743,155
Cash and cash equivalents, end of period $            477,073  $          1,465,712

Sources of Liquidity

As of September 30, 2008, we had cash and cash equivalents of approximately $0.5 million. In addition, as of September 30, 2008, we had approximately $0.4 million of cash restricted from withdrawal and held by banks as certificates of deposits securing letters of credit (equal to the amount of the certificates of deposit).

From our inception through September 30, 2008, we financed our operations from cash provided from financing activities. These activities were primarily through net proceeds of approximately $23.3 million from our initial public offering (IPO), and the private placement of approximately $63.0 million of equity securities, $1.6 million from the exercise of Stock options and Warrants, and $23.2 million from the issuance of notes. In addition, since inception we have financed the acquisition of $8.2 million of fixed assets through capital leases.

Our long-term liquidity is dependent on our ability to attain future profitable operations and/or additional financing. We cannot predict if and when we will be able to attain future profitability, or obtain the necessary financing to support our continued operations and expansion strategy. We are from time to time engaged in discussions regarding financing as opportunities arise, however, as of this date have no specific commitments.

Uses of Liquidity

Our short-term and long-term liquidity needs arise primarily from principal and interest payments related to our capital lease/equipment financing obligations, capital expenditures, and working capital requirements as may be needed to support the growth of our business, and any additional funds that may be required for business expansion opportunities.

Our cash capital expenditures were approximately $0.4 million and $0.7 million for the nine months ended September 30, 2008 and 2007, respectively. We expect our cash capital expenditures to be approximately $0.2 million for the next three months ending December 31, 2008. The 2008 estimated capital expenditures primarily consist of additional retail infrastructure development, purchase of additional software for expanded product offerings, and international deployment.

. . .