What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2011-03-09 compared with 2011-01-13 · 53 added, 37 removed, 36 unchanged (71% of the section changed)

2 unchanged sentences

Except for the historical information contained herein, the matters discussed below are forward-looking statements that involve certain risks and uncertainties, including, among others, the risks and uncertainties discussed below.

Management’s objective for the three months ended September 30, 2010 was to improve overall operations to reduce the need for external financing in the difficult economic and financial markets.

Management’s objective for the three and six months ended December 31, 2010 was to improve overall operations to reduce the need for external financing but also to position the Company for growth in existing markets and new areas such as mobile payments and remittances.

The company continues to target suitable acquisitions to enhance the profitability from sustainable, higher margin, revenue streams.

We continued our focus on growing our prepaid telecom segment that resulted in increased revenues over the period last year but a lower gross margin due to a change in product offerings for the period.

We have been actively engaged in seeking additional external financing and other strategic partnerships and relationships to further enhance the scale, depth and profitability of the business.

In the three months ended September 30, 2010, we had a net loss of $2,089,583 ($0.01 per share basic and diluted), as compared to a net loss of $3,052,220 ($0.04 per share basic and diluted) in the three months ended September 30, 2009.

The decrease in the losses year on year was predominantly as a result of the corporate restructuring activities carried out in early 2010.

This has resulted in a smaller organization of operating companies that are either profitable or breakeven and a reduced operating corporate overhead.

Our overall cash decreased by $10,064 in the three months ended September 30, 2010, compared to a decrease of $1,212,545 in the three months ended September 30, 2009.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

Revenues for the three months ended September 30, 2010 decreased 4% to $4,436,760 as compared to $4,603,647 for the three months ended September 30, 2009.

This decrease is due to management’s focus on mimizing bad debt risk in the prepaid segment given the tough economic climate the low gross margins generated by this segment.

In the three months ended December 31, 2010, we had a net loss of $2,221,663 ($0.10 per share basic and diluted), as compared to a net loss of $10,053,978 ($2.62 per share basic and diluted) in the three months ended December 31, 2009.

We had a net loss of $4,311,246 ($0.26 per share basic and diluted) in the six months ended December 31, 2010, as compared to a net loss of $13,106,197 ($3.37 per share basic and diluted) in the six months ended December 31, 2009.

The decrease in the losses year on year was a direct result of the ceasing of non-profitable businesses, in February 2010, that were acquired as part of the CHVC transaction in 2009 and managements focus on operational cost rationalization during 2010.

Operating losses reduced by 48% in the six months ended December 31, 2010 compared to the same period last year.

Our overall cash increased by $66,892 in the six months ended December 31, 2010, compared to a decrease by $1,049,752 in the six months ended December 31, 2009.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2010 AND 2009

Revenues for the three months ended December 31, 2010 increased 7% to $4,423,909 as compared to $4,134,368 for the three months ended December 31, 2009.

Revenues for the six months ended December 31, 2010 increased 2% to $8,860,669 as compared to $8,675,006 for the six months ended December 31, 2009.

This increase is primarily due to growth in the both the equipment and prepaid segments.

COST OF REVENUES AND GROSS MARGIN

Gross margins for the three months ended September 30, 2010 decreased 28% to $248,867 as compared to $347,428 for the months ended September 30, 2009.

This decrease is mainly due to a change in the product mix sold in the prepaid segment as a result of vendors changing the products offered and reducing the margins available.

Management continues to source new products and services that will increase the margins generated from this segment.

The recent acquisitions of Power2Process and Ingedigit will provide higher margin products for sale through the prepaid channels to improve gross margins in the future.

Gross margin decreased to $183,137 (4.1%) and $432,004 (4.9%) respectively in the three and six months ended December 31, 2010 from $423,254 and $768,126 in the three and six months ended December 31, 2009.

This decrease was primarily due to a changing product mix during 2010 and the loss of higher margin destinations for the prepaid segment from the previous year.

OPERATING EXPENSES

Operating expenses decreased 73% to $687,816 in the three month period ended September 30, 2010 versus $2,518,506 for the same period in the last fiscal year.

Operating expenses decreased by 28% to $1,356,329 in the three month period ended December 31, 2010 versus $1,872,192 for the same period in the last fiscal year, and decreased 51% to $2,044,145 in the six month period ended December 31, 2010 versus $4,138,606 for the same period in the last fiscal year.

Operating expenses consist of general and administrative expenses, including payroll, accounting, legal, consulting, rent and other overhead costs.

This category also includes stock compensation and option expense, the costs associated with being a publicly traded company, including the costs of SEC filings, a management fee payable to Flint, Ltd., investor relations and public relations.

These costs have decreased during the three months ended September 30, 2010 versus 2009 due to cost savings that have been achieved by the business following restructuring activities during the last financial year.

The non-cash charges for compensation consist mainly of the grants of stock issued as part of settlements for services rendered.

The common stock issued was valued at its fair market value at the date of issuance.

The reduction in operating costs was due to management’s focus on cost rationalization throughout 2010, after an increase in operating costs of $597,312 resulting from the acquisitions of III and P2P in October 2010.

The non-cash charges for compensation consist mainly of depreciation and amortization charges for fixed and intangible assets and the grants of stock issued as part of settlements for services rendered.

The common stock issued was valued at its fair market value at the date of issuance and do not represent any cash payments.

INTEREST EXPENSE

The $1,581,749 for the three months ended September 30, 2010 in interest expense is related to accrued interest on the convertible and promissory notes, as well as the amortization of the debt discounts and the accounting cost of beneficial conversion features related to those notes.

The $1,074,034 and $2,655,783 for the three and six months ended December 31, 2010, respectively, in interest expense is related to accrued interest on the convertible and promissory notes, as well as the amortization of the debt discounts related and beneficial conversion features to those notes.

The other component is exchange gains and losses from currency transactions in the Euro and U.S.

The amount of interest charges related to accounting for debt discounts and beneficial conversion features that did not involve the payment of cash amounted to $1,519,674.

LIQUIDITY AND CAPITAL RESOURCES

Overall cash decreased by $10,064 for the three months ended September 30, 2010 due to a continued loss from operations.

We were able to cover some of the cash loss through proceeds from convertible and additional promissory note issuances.

Overall cash increased by $66,892 for the six months ended December 31, 2010.

The sources and uses of cash are summarized as follows (unaudited):

Three Months Ended

September 30,

Six Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by foreign currency activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net cash used in foreign currency activities

Net increase (decrease) in cash and cash equivalents

During the three months ended September 30, 2010, cash used in operating activities was $226,159 resulting from a gross loss of $2,089,583 and operating expenses of $687,816.

The loss included non-cash charges for stock and option compensation of $344,521, accretion of debt discounts and amortization of beneficial conversion features on loan notes totaling $797,139.

Other operating activities that decreased cash were an increase in accounts receivable of $493,522, and an increase in inventory of $4,788.

Operating activities that increased cash were an increase in cash overdraft of $33,859 and an increase in accounts payable of $285,624, along with an increase in accrued liabilities of $82,879 and an increase in accrued interest of $761,080.

Cash provided by financing activities for the three months ended September 30, 2010 consisted of the issuance of convertible notes payable of $150,000 and a reduction in the line of credit of $2,789.

As of September 30, 2010, we had cash and cash equivalents of $9,355, a decrease of $10,064 from the balance at June 30, 2010, which was $19,419.

Our working capital deficit increased as of September 30, 2010 to ($12,915,595) as compared to a working capital deficit of ($10,630,231) at June 30, 2010 .

During the six months ended December 31, 2010, cash used in operating activities was $589,215 resulting from a gross profit of $432,004 and operating expenses of $2,044,145 .

This included non cash charges for depreciation, stock and option compensation, amortization of beneficial conversion feature and accretion of debt discount of $306,879, $631,542, $867,445 and $652,229, respectively.

Other operating activities that increased cash were a reduction in Inventory of $17,972, an increase in the cash overdraft of $29,550, an increase in accounts payable of $703,810, an increase in other accrued liabilities of $199,200 and an increase in accrued interest of $1,152,348.

Operating activities that decreased cash included an increase in accounts receivable of $834,575.

Cash provided by investing activities for the six months ended December 31, 2010 consisted of cash assumed on acquisition of $15,063.

Cash provided by financing activities for the six months ended December 31, 2010 consisted of the sale of short term promissory notes, which provided $602,000 in cash.

Cash used in financing activities for the six month ended December 31, 2010 consisted of payments of $4,277 to lines of credit.

$43,321 of cash was provided in foreign currency transactions related to exchange gains on convertible notes payable during the six months ended December 31, 2010 and $10,807 was used in the six months ending December 31 2009.

As of December 31, 2010, we had cash and cash equivalents of $86,311, an increase of $66,892 from the balance at June 30, 2010, which was $19,419.

Our working capital deficit increased as of December 31, 2010 to ($14,741,401) as compared to a working capital deficit of ($10,630,231) at June 30, 2010 .

We have not yet generated sufficient revenues to cover the costs of continued product and service development and support, sales and marketing efforts and general and administrative expenses

We are still largely dependent on financing in order to generate cash to maintain its operations.

We have been successful in raising required capital to date by way of convertible debt.

In June 2010 we completed a $10 million Reserve Equity Finance agreement with AGS Capital that will allow us to put up to $10 million worth of Common Stock to AGS Capital at our option over 2 years from the effective date subject to certain conditions and limitations.

On November 26, 2010 we terminated this Agreement and signed an Equity Line of Credit Agreement with Kodiak Capital.

On November 26, 2010 we signed an Equity Line of Credit Agreement with Kodiak Capital, as amended and restated on January 21, 2011.

This agreement allows us to place up to $15 million worth of our common stock to Kodiak over two years, subject certain conditions, which will become available to us when a registration statement on Form S-1 is deemed effective by the SEC.

13 unchanged sentences

Future performance cannot be guaranteed but on the basis that the share volumes continue in future periods in line with recent history we would have the ability to avail ourselves of the full $15 million available under the agreement.

Management continue to investigate the capital markets for suitable financings.

As of December 31, 2010, we do not have sufficient authorized shares available to raise the full $15 million under the Kodiak financing agreement.

In order to facilitate the full draw we will most likely have to increase our number of total authorized shares, requiring a shareholder vote, before we would have the ability to raise the full $15 million under the Kodiak financing agreement.

As of the date of the filing of this report, we have a total of approximately $2.9 million of loan principal that is past due from a total principal balance of approximately $6.7 million, representing 11 individual parties.

Under the terms of the loan agreements the $6.7 million principal is payable.

In addition, approximately $2.25 million of accumulated interest, preferred share dividends and related penalties is past due on these loans.

We are in active discussions with these parties about the outstanding debt and rescheduling payments in the future based on the business progress during 2010 and the ability of the Company to meet the new arrangements from the Kodiak funding.

They are waiting to finalize these terms once the Registration Statement is deemed effective and a structured funding environment is in place.

Of the 11 parties, four have initiated legal proceedings, the remainder, including our secured lender, have not initiated legal proceedings.

Of the four that have taken legal steps, we believe, based on discussions with them, that suitable payment terms will be agreed upon over the duration of the Kodiak funding.

In addition to these loans, we have approximately $1.2 million of trade payables that are past due.

Two parties have received summary judgments, as reported in our Form 10-K for the year ended June 30, 2010 and in this quarterly report, and we have been served with a pending action from another.

Despite receiving these judgments, we have agreed to terms to pay down one of the larger amounts over two years.

Management is confident the Company will be successful in satisfying these obligations prior to foreclosure or bankruptcy.

However, there is no assurance that any additional capital will be raised.

We closely monitor our cash balances and our operating costs in order to maintain an adequate level of cash.

FORWARD LOOKING STATEMENTS

Certain statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Certain statements contained in this report may constitute forward-looking statements.

Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be,” and other words of similar meaning, are forward-looking statements.

2 unchanged sentences

We disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable to Smaller Reporting Companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 2. Management’s Discussion and Analysis