Item 1. Legal Proceedings
ITEM 1. LEGAL PROCEEDINGS.
A stipulation for judgment was filed by Carmel Solutions, Inc. ("Carmel") in the Superior Court of California, Orange County, in accordance with, and upon our default of, a settlement agreement we entered into with Carmel on May 5, 2009, and a judgment was entered against us on October 26, 2009 in the amount of $72,852, plus accruing interest from that date at the rate of $20 per day and post judgment costs incurred in enforcing the judgment. As of December 31, 2010, the financial statements contain a payable amount of $60,000 in relation to this action. Our management is confident that the lower amount will be more reflective of the end settlements amount. There are currently no discussions taking place between the parties on settling this amount and no approach has been received from Carmel since the judgment was entered.
We are a defendant in a pending legal proceeding filed by AT&T on December 11, 2009, in the U.S District Court of the District of Connecticut. This suit alleges one cause of action for breach of contract. The complaint alleges that we owe money for services rendered, that we subsequently entered into a settlement agreement with AT&T to settle the amount owed to AT&T, and that we failed to make any payments due under such settlement agreement. AT&T was granted an automatic entry of judgment against us in the amount of $440,672 plus interest, attorney’s fees and costs. In December of 2010, AT&T obtained an Order of Garnishment against one of our bank accounts in the amount of $510,525, $76,653 of which was actually garnished. We are currently negotiating a payment schedule with AT&T that management is confident will result in a structured plan to allow us pay the remaining balance. As of December 31, 2010, the financial statements contain a payable amount of $440,672 in relation to this action. Our management is in active discussions with AT&T to agree a phased payment of this amount over two years and is confident that this outcome will result from those discussions.
We are also one of a number of defendants in a pending legal proceeding filed by First Citizens Bank & Trust, Inc. on June 17, 2010 in the Superior Court of Fulton County, Georgia. This suit alleges five causes of action, three of which relate to the breach of Flint’s loan agreement entered into with the Georgian Bank in the principal amount of $500,000 plus interest, attorney’s fees and costs. We did not respond within the time period allowed. A motion for default judgment was filed on October 11, 2010 against us for the amount of $200,000 plus interest, attorney’s fees and costs. As of December 31, 2010, we have accrued $200,000 in the accounts in relation to this action. Management has opened discussions with representatives of the plaintiff to discuss a phased payment of the amount due. It is too early for management to say if this will be achieved.
Bill Burbank, our previous President and COO, filed a lawsuit against us in the 15th Judicial Circuit in Palm Beach County, Florida on September 22, 2010. This complaint alleges one cause of action for breach of agreement. The Complaint claims that we entered into a settlement agreement with Bill Burbank to settle the amount owed to him, and that we failed to make the first payment due under such settlement agreement. Mr. Burbank sought and received a judgment for damages in the amount of $190,000 plus interest, attorney’s fees and costs. As of December 31, 2010, we have accrued $195,623 in the accounts in relation to this action to include interest and penalties. Management intends to enter into renewed discussions with Mr. Burbank to discharge this amount.
On October 25, 2010, China Voice Holding Corp. ("CHVC") filed a lawsuit against us in the 15th Judicial Circuit in Palm Beach County, Florida. This suit alleges one cause of action for breach of contract. The complaint alleges that we entered into a settlement agreement with CHVC to settle the amount owed to it, and that we failed to make the first monthly payment due under such settlement agreement. CHVC sought and received a judgment for damages in the amount of $82,742 plus pre-judgment interest of 18% per annum starting September 1, 2010, plus $500,000 as an additional liquidated damage, post judgment interest, costs and attorney’s fees. As of December 31, 2010, we have accrued $2,182,676 in the financial statements in relation to this action to include interest and penalties. In the interim, a large proportion of this amount as been assigned to a third party by CHVC and management is in active discussions with that party to agree new payment terms.
On November 10, 2010, Abovenet Communications filed a complaint against us in US District Court for the Southern District of New York, alleging breach of contract and seeking $87,761 in damages, plus interest, attorney’s fees and costs. As of December 31, 2010, we have accrued $16,000 in the financial statements in relation to this action, which is the amount of services used from Abovenet prior to its action. It is too early in the process for management to accurately estimate the full contingency amount attached to this legal action. To date, no discussions have taken place with Abovenet in relation to settling this action.
On November 24, 2010, Tom Davis filed a Demand for Arbitration alleging a breach of the settlement agreement by and among Mr. Davis and Flint, and seeking damages in the amount of $2,230,000. As of December 31, 2010 the financial statements include $1,126,875 in loans and accrued interest and $1,530,000 in preferred shares in relation to Mr. Davis. Management remains confident that suitable terms can be reached with Mr. Davis to reschedule agreed payment arrangements to settle this action.
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Because Thermocredit has a first priority secured interest against all of Flint’s assets, Flint expects that Thermocredit will stop the actual collection on any of these judgments, and management hopes to be able to negotiate further with these plaintiffs and come to a reasonable settlement.
We are also a party to other legal proceedings in the normal course of business. Based on evaluation of these matters and discussions with counsel, we believe that liabilities arising from these matters will not have a material adverse effect on the consolidated results of our operations or financial position.
Due to the regulatory nature of the industry, the Company periodically receives and responds to various correspondence and inquiries from state and federal regulatory agencies. Management does not expect the outcome on these inquiries to have a material impact on our operations or financial condition.
Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
ITEM 1A. RISK FACTORS.
Not Applicable to Smaller Reporting Companies.
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