FORWARD-LOOKING STATEMENTS

With the exception of historical information, the matters discussed in this quarterly Report on Form 10-Q include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by the use of such terms as "expects", "should", "will", "anticipates", "estimates", "believes," "plans" and words of similar meaning. These forward-looking statements relate to business plans, programs, trends, results of future operations, satisfaction of future cash requirements, funding of future growth, acquisition plans and other matters. In light of the risks and uncertainties inherent in all such projected matters, the inclusion of forward-looking statements in this Form 10-Q should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved or that operating expectations will be realized. Revenues and results of operations are difficult to forecast and could differ materially from those projects in forward-looking statements contained herein, including without limitation statements regarding the Company's belief of the sufficiency of capital resources and its ability to compete in the telecommunications industry. Actual results could differ from those projected in any forward-looking statements for, among others, the following reasons: (a) increased competition from existing and new competitors using Voice over Internet Protocol ("VoIP") to provide telecommunications services, (b) the relatively low barriers to entry for start-up companies using VoIP to provide telecommunications services, (c) the price-sensitive nature of consumer demand, (d) the Company's dependence upon favorable pricing from its suppliers to compete in the telecommunications industry, (e) increased consolidation in the telecommunication industry, which may result in larger competitors being able to compete more effectively, (f) the failure to attract or retain key employees, (g) continuing changes in governmental regulations affecting the telecommunications industry and the Internet, (h) changing consumer demand, technological development and industry standards that characterize the industry, and (i) the "Certain Business Factors" identified in the Company's Annual Report on Form 10-K for the year ended October 31, 2000. In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by the Company or anyone else that we will achieve our objectives and plans. The Company does not undertake to update any forward-looking statements contained herein. Readers are cautioned not to place undue reliance on the forward-looking statements made in, or incorporated by reference into, this Quarterly Report on Form 10-Q or in any document or statement referring to this Quarterly Report on Form 10-Q.

GENERAL

Dial-Thru International Corporation is a facilities-based, global Internet Protocol (IP) communications company providing connectivity to international markets experiencing significant demand for IP enabled services. The Company provides a variety of international telecommunications services targeted to small and medium sized enterprises (SME's) that include the transmission of voice and data traffic and the provision of Web-based and other communications products and services. The Company utilizes Voice over Internet Protocol (VoIP) packetized voice technology (and other compression techniques) to improve both cost and efficiencies of telecommunication transmission mechanisms, and is developing a private IP Telephony network.

IP Telephony, or Voice over Internet Protocol (VoIP), is voice communication that has been converted into digital packets and is then addressed, prioritized, and transmitted over any form of broadband network, utilizing the same technology that makes the Internet possible. These technologies allow the Company to transport voice communications with the same high- density compression as networks initially designed for data transmission, and at the same time utilize a common network for providing customers with enhanced Web-based products and services.

The Company's primary focus is in niche markets where competition is not as keen, thereby giving it opportunities for greater profit margin and market share. These markets include regions of the world where deregulation of telecommunications services has begun, or is in early development. The Company also targets smaller markets that have not attracted large multi- national providers. Africa, Asia, and parts of South America offer the greatest abundance of these target markets.

Cooperating with overseas carriers and the incumbent operator, usually government owned telephone companies, gives the Company a high degree of leverage to engage in co-branding of jointly marketed products, including IP based enhancements that it has developed, rather than simply basing a strategy on pricing arbitrage. As a result, the Company is proactively invited to participate rather than reactively prevented from entering these new markets.

Unlike many other wholesale VoIP carriers in the market, the Company is focused on retail telecommunications sales to business customers which allows the Company to provide a complete package of communication services, not just wholesale voice traffic. A portfolio of enhanced offerings provides the Company with the opportunity for higher profit margins and better customer loyalty, thus making the Company less susceptible to competitive forces and market churn.

In tandem with overseas partners, the Company is deploying a "book-end" strategy targeting markets at both ends of international circuits. As an example, while cooperating with partners to target the SME market in a selected foreign region, the Company also targets corresponding expatriates and foreign owned businesses back in the U.S. By providing these services in cooperation with the carrier that will ultimately terminate the calls in the caller's "home" country, the Company enjoys reduced facilities costs, increased economies of scale, lower customer acquisition costs, and higher customer retention.

Focusing on cooperation in emerging markets also gives the Company added benefit of being able to develop and exploit labor cost advantages not found in industrial markets. For example, the Company plans to develop new and extremely low-cost call center applications that will tie into and enhance its new Web and VoIP applications. By relying on VoIP and IP, rather than traditional voice technology, the Company ensures that its network infrastructure is extremely cost-effective and state-of-the-art. These are assets that not only help to build the Company's business, but also make the Company more attractive as a potential partner to overseas carriers and incumbent telephone companies.

The following discussion should be read in conjunction with the Company's Form 10-K and the consolidated financial statements for the years ended October 31, 2000, 1999, and 1998; the Company's Form 10-Q for the quarter ending January 31, 2000; and the consolidated financial statements and related notes for the quarter ended January 31, 2001 found elsewhere in this report.

RESULTS OF OPERATIONS

REVENUES

Revenues were $891,000 for the quarter ended January 31,2001, compared to $3,807,000 for the quarter ended January 31, 2000, representing a decrease of 77% from the prior period. The decrease in revenues for this quarter compared to the prior year resulted primarily from the Company's change in business focus away from the prepaid long distance market and toward providing international communication services for small to medium-size businesses. Costs associated with the discontinuation of certain distribution channels have prevented the Company from fully marketing according to its plans for the redirected business. Now that these costs have been eliminated and new markets have been opened, the company anticipates enjoying substantial revenue growth in future periods.

EXPENSES

Costs of revenues were $667,000, or 75% of revenues, for the quarter ended January 31, 2001, compared to $4,364,000, or 115% of revenues, for the quarter ended July 31, 2000. By focusing its business on providing international communication services the Company has been able to demonstrate the ability to produce positive margins on sales across its product line.

Settlements with two major carriers over charges in prior periods amounted to a savings of $1,700,000 to the Company. This is reflected as a credit to Costs and Expenses on the Consolidated Statements of Operations for the period.

Sales and marketing costs were $203,000, or 23% of revenues for the quarter ended January 31, 2001, compared to $508,000, or 13% of revenues, for the quarter ended January 31, 2000. This represents a 60% decrease in such costs from the prior period. Sales and marketing costs incurred during the prior period were primarily associated with the operation of the distribution channel for the prepaid products. The change in the focus of the Company's operations has reduced its sales and marketing costs in absolute terms, as the prepaid calling card business required a large sales and marketing staff. In the short term, while the Company is opening a number of new international markets just beginning to produce revenues, sales and marketing costs as a percentage of revenues have increased. In the long term, however, when these markets are fully developed, the Company expects that sales and marketing costs will decline as a percentage of revenue.

General and administrative costs were $607,000, or 68% of revenue, for the quarter ended January 31, 2001, compared to $940,000, or 25% of revenue, for the quarter ended January 31, 2000. However this represents in dollar terms a 35% decrease from the prior period. The change in the focus of the Company's business has resulted in an overall drop of its general and administrative expenses, and the Company anticipates a reduction of these costs as a percentage of revenue in future periods.

During the quarter ended January 31, 2001, the Company reported net interest expense of $324,000, compared with a net interest income of $37,000 for the quarter ended January 31, 2000.

As a result of the foregoing, the Company incurred a net loss from continuing operations of $734,000, or $0.07 per share, for the quarter ended January 31, 2001, as compared to a net loss from continuing operations of $2,083,000, or $0.26 per share, for the quarter ended January 31, 2000. After adjustments, the Company had a net income of $641,000, or $0.06 per share, for the quarter ended January 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

At January 31, 2001, the Company had cash and cash equivalents of $92,000, an increase of $18,000 from the balance at October 31, 2000.

During the three months ended January 31, 2001, net cash used in operating activities was $256,000, compared to net cash used in operating activities of $736,000 for the three months ended January 31, 2000.

Cash used in investing activities was $21,000 for the three months ended January 31, 2001, compared to cash provided by investing activities of $258,000 for the three months ended January 31, 2000 primarily attributable to $300,000 from payment on a note receivable.

Cash provided by financing activities for the three months ended January 31, 2001 totaled $295,000, compared to cash used in financing activities of $89,000 for the three months ended January 31, 2000. The change in cash provided by financing activities was due primarily to the proceeds of $300,000 received from a shareholder in the period ending January 31, 2001 versus payment of %54,000 to a shareholder in the same period in the prior year.

The Company has recently suffered from liquidity and cash flow constraints. As of January 31, 2001, the Company had a working capital deficit of $4,042,000, compared to a working capital deficit of $1,528,000 at January 31, 2000. As of January 31, 2001, the Company's current assets of $1,077,000 include $440,000 of gross trade accounts receivable and an investment in securities of $446,000.

To address its cash flow needs, the Company consummated a private placement of $1,000,000 in principal amount of non-interest bearing convertible notes in February 2000. The notes were payable on the earlier of one year from the date of issuance or the closing of equity financing in excess of $5 million. Following the completion of the first quarter, the notes have become converted into shares of the Company's common stock at a conversion price of $2.50 per share. The holders of the notes were also issued warrants to acquire an aggregate of 250,000 shares of the Company's common stock at an exercise price of one half at $3.00 per share and one half at $2.75 per share. As a condition of the conversion of the notes into common stock, the exercise price of these warrants were repriced to $0.01, and an additional 125,000 warrants were issued with an exercise price of $3.00.

The Company's growth models for its business are scaleable, but the rate of growth is dependent on the availability of future financing for capital resources. The Company plans to commit approximately $1.0 million for capital investments for fiscal 2001, and plans to finance additional infrastructure development externally through debt and/or equity offerings and internally through operations. The Company believes that, with sufficient capital, it can significantly accelerate its growth plan. At its current and anticipated level of operations through the next twelve-month period, management believes that it will have to raise significant additional funds through outside financing activities. The Company's failure to obtain such financing could significantly delay the Company's implementations of its business plan and have a material adverse effect on its business, financial condition and operating results.