ELANDIA INTERNATIONAL INC. - FORM 10-Q

ELANDIA INTERNATIONAL INC. - FORM 10-Q - November 18, 2010

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EX-31.1 - SECTION 302 CEO CERTIFICATION - ELANDIA INTERNATIONAL INC.	dex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - ELANDIA INTERNATIONAL INC.	dex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - ELANDIA INTERNATIONAL INC.	dex322.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - ELANDIA INTERNATIONAL INC.	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51805

ELANDIA INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

Delaware

71-0861848

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

8200 NW 52^nd Terrace

Suite 102

Miami, FL 33166

(Address of principal executive offices, including zip code)

(305) 415-8830

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter time 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 check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

As of November 15, 2010, the registrant had 27,740,220 shares of common stock, $0.00001 par value per share, outstanding.

ELANDIA INTERNATIONAL INC AND SUBSIDIARIES

INDEX TO FORM 10-Q


		Page
PART I—FINANCIAL INFORMATION			3

ITEM 1.	FINANCIAL STATEMENTS		3

	CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009		3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)		4

	CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED)		5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)		6

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		24

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		41

ITEM 4 T.	CONTROLS AND PROCEDURES		41

PART II—OTHER INFORMATION			42

ITEM 1.	LEGAL PROCEEDINGS		42

ITEM 1A.	RISK FACTORS		43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		43

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		43

ITEM 4.	RESERVED		43

ITEM 5.	OTHER INFORMATION		43

ITEM 6.	EXHIBITS		44

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

eLandia International Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents	$	5,986,474		$	17,865,681
Restricted Cash		1,926,476			1,875,220
Accounts Receivable, Net		57,542,777			53,189,137
Inventories, Net		13,658,300			14,579,767
Prepaid Expenses and Other Current Assets		8,986,711			6,083,723
Deposits with Suppliers and Subcontractors		12,438,946			6,709,436
VAT Receivable, Net		5,312,136			4,263,590
Assets Held for Sale		—			1,739,968

Total Current Assets		105,851,820			106,306,522

Property, Plant and Equipment, Net		32,608,855			36,014,831
Telecommunications Licenses and Agreements		858,743			858,743
Customer Lists, Net		1,006,913			1,203,317
Contract Rights, Net		18,072			78,470
Goodwill		11,085,660			10,870,959
Assets Held for Sale - Long-Term		—			363,917
Other Assets		3,561,684			4,000,734

TOTAL ASSETS	$	154,991,747		$	159,697,493


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable	$	36,596,419		$	56,459,692
Accrued Expenses		19,941,006			12,446,838
Lines of Credit		10,103,778			11,451,140
Long-Term Debt - Current Portion		13,561,097			4,196,428
Long-Term Debt - Related Party - Current Portion		351,784			513,644
Capital Lease Obligations - Current Portion		1,264,818			1,256,226
Customer Deposits		17,282,635			11,562,218
Deferred Revenue		3,491,463			3,567,642
Liabilities of Discontinued Operations		758,091			1,738,314
Other Current Liabilities		1,260,852			950,040

Total Current Liabilities		104,611,943			104,142,182

Long-Term Liabilities
Long-Term Debt, Net of Current Portion		31,281,538			21,746,594
Capital Lease Obligations, Net of Current Portion		1,893,674			2,944,489
Liabilities of Discontinued Operations		500,000			1,000,000
Other Long-Term Liabilities		744,421			1,090,732

Total Long-Term Liabilities		34,419,633			26,781,815

Total Liabilities		139,031,576			130,923,997


Commitments and Contingencies

Stockholders’ Equity
eLandia International Inc. Stockholders’ Equity
Preferred Stock, $0.00001 Par Value; 35,000,000 Shares Authorized; 4,118,263 Shares Issued and Outstanding at September 30, 2010 and December 31, 2009, Respectively
Series A Convertible Preferred Stock, $0.00001 Par Value; 6,500,000 Shares Authorized; -0- Shares Issued and Outstanding at September 30, 2010 and December 31, 2009, Respectively		—			—
Series B Convertible Preferred Stock, $0.00001 Par Value; 14,074,074 Shares Authorized; 4,118,263 Shares Issued and Outstanding at September 30, 2010 and December 31, 2009, Respectively. Liquidation preference of $27,798,275 at September 30, 2010 and December 31, 2009, Respectively		16,679,962			16,679,962
Common Stock, $0.00001 par value; 200,000,000 Shares Authorized; 27,740,220 and 27,630,220 Shares Issued and Outstanding at September 30, 2010 and December 31, 2009, Respectively		276			275
Additional Paid-In Capital		172,224,595			171,278,627
Accumulated Deficit		(177,626,430	)		(170,321,386	)
Accumulated Other Comprehensive Income		(3,499,522	)		3,108,194

Total eLandia International Inc. Stockholders’ Equity		7,778,881			20,745,672
Noncontrolling Interests		8,181,290			8,027,824

Total Stockholders’ Equity		15,960,171			28,773,496

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	154,991,747		$	159,697,493

The accompanying notes are an integral part of these condensed consolidated financial statements.

eLandia International Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2010			2009			2010			2009
REVENUE
Product Sales	$	13,404,865		$	22,169,227		$	55,897,107		$	54,394,571
Services		16,043,709			17,147,604			48,843,194			41,249,909

Total Revenue		29,448,574			39,316,831			104,740,301			95,644,480

COSTS AND EXPENSES
Cost of Revenue – Product Sales		10,616,413			18,287,372			45,799,468			41,808,335
Cost of Revenue – Services		8,936,110			10,002,109			26,411,534			24,145,579
Sales, Marketing and Customer Support		4,909,763			6,779,278			14,615,322			19,906,697
General and Administrative		6,824,575			9,250,708			21,209,724			31,705,326
Transaction Related Expenses		414,066			—			946,505			—
Depreciation and Amortization		1,621,847			1,647,211			4,780,039			3,861,564
Amortization – Intangible Assets		79,018			1,008,653			256,802			3,425,822

Total Operating Expenses		33,401,792			46,975,331			114,019,394			124,853,323

LOSS FROM CONTINUING OPERATIONS		(3,953,218	)		(7,658,500	)		(9,279,093	)		(29,208,843	)
OTHER (EXPENSE) INCOME
Interest Expense and Other Financing Costs		(996,531	)		(1,283,982	)		(2,633,806	)		(3,732,289	)
Interest Income		1,200			18,619			82,026			448,395
Other Income (Expense)		391,575			(837,439	)		95,332			(634,373	)
Gain on Extinguishment of Debt		—			—			2,037,500			—
Loss on Swap		—			(2,477,832	)		—			(3,884,837	)
Change in Value of Noncontrolling Interest Purchase Price Obligation		—			—			—			814,127
Foreign Exchange Gain (Loss)		505,391			(534,123	)		142,441			(1,091,835	)

Total Other (Expense) Income		(98,365	)		(5,114,757	)		(276,507	)		(8,080,812	)

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX (EXPENSE) BENEFIT		(4,051,583	)		(12,773,257	)		(9,555,600	)		(37,289,655	)
Income Tax (Expense) Benefit		(10,788	)		18			(10,797	)		9

LOSS FROM CONTINUING OPERATIONS, NET OF INCOME TAX (EXPENSE) BENEFIT		(4,062,371	)		(12,773,239	)		(9,566,397	)		(37,289,646	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX (EXPENSE) BENEFIT		2,444,505			(204,423	)		2,414,819			(10,974,467	)

NET LOSS	$	(1,617,866	)	$	(12,977,662	)	$	(7,151,578	)	$	(48,264,113	)
Less: Loss (Income) Attributable to Noncontrolling Interests		163,811			422,066			(153,466	)		86,767

NET LOSS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.	$	(1,454,055	)	$	(12,555,596	)	$	(7,305,044	)	$	(48,177,346	)


AMOUNTS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.
Loss from Continuing Operations	$	(3,898,560	)	$	(12,351,173	)	$	(9,719,863	)	$	(37,202,879	)
Income (Loss) from Discontinued Operations		2,444,505			(204,423	)		2,414,819			(10,974,467	)

NET LOSS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.	$	(1,454,055	)	$	(12,555,596	)	$	(7,305,044	)	$	(48,177,346	)


NET LOSS PER COMMON SHARE ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC., BASIC AND DILUTED
Continuing Operations	$	(0.14	)	$	(0.46	)	$	(0.35	)	$	(1.35	)
Discontinued Operations		0.09			(0.01	)		0.09			(0.40	)

Net Loss per Common Share	$	(0.05	)	$	(0.47	)	$	(0.26	)	$	(1.75	)


Weighted Average Number of Common Shares Outstanding, Basic and Diluted		27,768,345			26,873,562			27,734,242			27,567,644


OTHER COMPREHENSIVE LOSS, NET OF TAX
Net Loss	$	(1,617,866	)	$	(12,977,662	)	$	(7,151,578	)	$	(48,264,113	)
Foreign Currency Translation Adjustment		(3,731,008	)		364,616			(6,607,716	)		(1,191,441	)

Comprehensive Loss		(5,348,874	)		(12,613,046	)		(13,759,294	)		(49,455,554	)
Comprehensive Loss (Income) Attributable to Noncontrolling Interest		163,811			320,872			(153,466	)		86,767

COMPREHENSIVE LOSS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.	$	(5,185,063	)	$	(12,292,174	)	$	(13,912,760	)	$	(49,368,787	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

eLandia International Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

For The Nine Months Ended September 30, 2010

(Unaudited)


	Preferred Stock - Series A $0.00001 Par Value				Preferred Stock - Series B $0.00001 Par Value				Common Stock $0.00001 Par Value				Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest		Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest		Total Stockholders’ Equity
BALANCES — December 31, 2009		—	$	—		4,118,263	$	16,679,962		27,630,220	$	275	$	171,278,627	$	(170,321,386	)	$	3,108,194		$	8,027,824	$	28,773,496
Issuance of Common Stock for Consulting Services		—		—		—		—		100,000		1		29,999		—			—			—		30,000
Issuance of Common Stock in Connection with Purchase of Noncontrolling Interest		—		—		—		—		10,000		—		5,500		—			—			—		5,500
Foreign Currency Translation Adjustment		—		—		—		—		—		—		—		—			(6,607,716	)		—		(6,607,716	)
Share-based Compensation		—		—		—		—		—		—		910,469		—			—			—		910,469
Net (Loss) Income		—		—		—		—		—		—		—		(7,305,044	)		—			153,466		(7,151,578	)

BALANCES — September 30, 2010		—	$	—		4,118,263	$	16,679,962		27,740,220	$	276	$	172,224,595	$	(177,626,430	)	$	(3,499,522	)	$	8,181,290	$	15,960,171

The accompanying notes are an integral part of these condensed consolidated financial statements.

eLandia International Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss from Continuing Operations	$	(9,566,397	)	$	(37,289,646	)

Adjustments to Reconcile Net Loss from Continuing Operations to Net Cash and Cash Equivalents Used in Operating Activities:
Provision for Doubtful Accounts		572,419			(117,816	)
Provision for Non-Collectible VAT Receivable		29,074			520,302
Share-Based Compensation		910,469			1,470,126
Depreciation and Amortization		4,780,039			3,861,564
Amortization — Intangible Assets		256,802			3,425,822
Amortization of Deferred Financing Costs and Discount on Long-Term Debt		85,360			40,092
Issuance of Common Stock for Marketing Services		—			3,134
Change in Value of Warrant		—			(269,629	)
Change in Value of Noncontrolling Interest Purchase Price Obligation		—			(814,127	)
Gain on Extinguishment of Debt		(2,037,500	)		—
Foreign Currency (Gain) Loss		(142,441	)		1,091,835
Loss on Swap		—			3,884,837
Accrued Interest on Long-Term Debt — Related Party		—			6,247
Changes in Operating Assets and Liabilities:
Accounts Receivable		(4,926,059	)		23,885,571
Inventories		921,467			(2,902,960	)
Prepaid Expenses and Other Current Assets		(3,034,848	)		202,912
Deposits with Suppliers and Subcontractors		(5,729,510	)		(3,924,494	)
VAT Receivable		(1,077,620	)		(2,434,098	)
Other Assets		406,131			404,402
Accounts Payable		(19,863,273	)		(14,630,007	)
Accrued Expenses		7,492,368			(382,935	)
Customer Deposits		5,720,417			(1,899,399	)
Deferred Revenue		(76,179	)		(1,282,451	)
Other Liabilities		(35,499	)		2,038,844

TOTAL ADJUSTMENTS		(15,748,383	)		12,177,772

CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES		(25,314,780	)		(25,111,874	)


CASH FLOWS FROM INVESTING ACTIVITIES
Cash Paid for Acquisitions		—			(3,564,534	)
Proceeds from the Sale of Subsidiary		—			5,587,573
Purchases of Property and Equipment		(1,374,063	)		(15,511,711	)
Redemptions of Certificates of Deposits		—			8,157,104
Restricted Cash		(51,256	)		1,852,847

CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES		(1,425,319	)		(3,478,721	)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (Payments) on Lines of Credit, Net		690,138			(14,164,390	)
Proceeds from Long-Term Debt, Net		18,847,172			18,458,143
Principal Payments on Capital Leases		(1,042,223	)		(662,079	)
Payment for Acquisition of Noncontrolling Interest		(34,200	)		—
Transaction Costs Paid — Conversion of Promissory Note		—			(226,829	)
Proceeds from Noncontrolling Interest Subscription Receivable		—			6,000,000
Payment to Noncontrolling Interest for Settlement of Purchase Price Obligation		—			(500,000	)
Payment for Settlement of Put/Call Agreement		—			(259,998	)
Financing Costs Paid — Long-Term Debt		—			(304,115	)

CASH AND CASH EQUIVALENTS PROVIDED BY FINANCING ACTIVITIES		18,460,887			8,340,732


CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating Cash Flows		3,039,671			1,817,105
Investing Cash Flows		—			(65,609	)
Financing Cash Flows		(1,190	)		(1,135,976	)

NET CASH AND CASH EQUIVALENTS PROVIDED BY DISCONTINUED OPERATIONS		3,038,481			615,520

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(6,638,476	)		(6,179,327	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(11,879,207	)		(25,813,670	)
CASH AND CASH EQUIVALENTS — Beginning		17,865,681			37,304,258

CASH AND CASH EQUIVALENTS — Ending	$	5,986,474		$	11,490,588


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Periods For:
Interest	$	1,591,122		$	2,399,539
Taxes	$	3,357,117		$	1,855,535

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Stock for Consulting Services	$	30,000		$	—
Partial Settlement of Long-Term Debt - Related Party	$	161,860		$	—
Conversion of Convertible Promissory Notes - Related Party to Series B Convertible Preferred Stock	$	—		$	12,000,000
Accrued Interest Contributed to Capital Upon Conversion of Promissory Note - Related Party	$	—		$	199,618
Cancellation of Common Stock Upon Conversion of Promissory Note - Related Party	$	—		$	162
Issuance of Restricted Stock	$	—		$	6
Acquisition of Equipment with Issuance of Capital Leases	$	—		$	1,333,597
Accrued Interest Contributed to Capital Upon Conversion of Promissory Note - Related Party	$	—		$	—
Sale of Subsidiary Shares to Noncontrolling Interest	$	—		$	—
Issuance of Common Stock in Connection with Settlement of CTT Purchase Price	$	—		$	105,000
Issuance of Promissory Note - Related Party in Connection with Settlement of Put/Call Agreement	$	—		$	2,340,000
Value of Common Stock Issued in Connection with Promissory Note	$	—		$	146,250
Issuance of Promissory Note - Related Party in Connection with Settlement of Noncontrolling Interest Purchase Price Obligation	$	—		$	500,000
Settlement of Noncontrolling Interest Purchase Price Obligation	$	—		$	6,134,711
Issuance of Common Stock in Connection with Purchase of 30% Interest in Desca	$	—		$	850,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2010

(Unaudited)

NOTE 1 – Organization and Business

eLandia International Inc. (“eLandia,” “Company,” “we,” “us,” and/or “our”), through its subsidiaries, sells information and communications technology (“ICT”) products and provides professional IT services including network integration, managed services and business transformation solutions, and offers telecommunications products and services in emerging markets, including Latin America and the South Pacific. The products and services we offer in each of these markets vary depending on the infrastructure, existing telecommunication and data communications systems and the needs of the local economy.

NOTE 2 – Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements as of September 30, 2010, and for the three and nine months then ended, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited consolidated financial statements. The unaudited interim condensed consolidated balance sheet as of September 30, 2010, unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009, the unaudited interim condensed consolidated statement of stockholders’ equity for the nine months ended September 30, 2010, and the unaudited interim condensed consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended September 30, 2010 are not necessarily indicative of results to be expected for the year ending December 31, 2010 or for any future interim period. The condensed consolidated balance sheet at December 31, 2009 has been derived from audited consolidated financial statements; however, these notes to the condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete consolidated financial statements. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the SEC.

NOTE 3 – Liquidity, Financial Condition and Management’s Plans

We incurred a $9.6 million loss from continuing operations, net of income tax expense, and used $25.3 million of cash in continuing operations for the nine months ended September 30, 2010. As of September 30, 2010, we have a $177.6 million accumulated deficit and working capital of $1.2 million.

Our net loss includes an aggregate of $4.5 million of net non-cash charges, principally consisting of $5.1 million of depreciation and amortization and $0.9 million of share-based compensation. Offsetting these charges is $2.0 million from the gain on extinguishment of debt.

Our sources of funds include cash from external financing arrangements, including a term loan in the amount of $16.7 million and a revolving line of credit facility of up to $5 million from ANZ Finance American Samoa, Inc., various lines of credit with multiple local banks in South and Central America and financing of trade payables provided by our principal supplier.

As more fully described in Note 9, on May 24, 2010, eLandia and our wholly-owned subsidiary, eLandia/Desca Holdings, LLC (“Desca”), entered into a Strategic Alliance Agreement (the “Strategic Alliance Agreement”) with Amper, S.A. (“Amper”). Pursuant to the Strategic Alliance Agreement, the parties have established an alliance aimed at expanding each party’s access to the Caribbean and Latin American markets and providing the parties the opportunity to offer their combined portfolio of products, services, technology solutions and technical resources throughout the region. In consideration for certain exclusivity covenants, Amper advanced to us the sum of $5 million (the “Exclusivity Advance”). The Exclusivity Advance is repayable in accordance with the terms of the Strategic Alliance Agreement. The amounts outstanding under the Exclusivity Advance accrue interest at 12% per annum until repaid to Amper.

On July 29, 2010, we entered into a Contribution Agreement with Amper pursuant to which Amper will acquire 85% of our issued and outstanding shares of common stock in exchange for the contribution to eLandia by Amper of approximately 79.7% of the outstanding capital stock of Medidata Informática, S.A. (“Medidata”). Medidata offers integrated communications solutions to telecommunications operators, corporations, financial clients and governments in Brazil (see Note 10).

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Management believes that our current level of working capital at September 30, 2010 will be sufficient to sustain operations through at least October 1, 2011. However, there can be no assurance that the plans and actions proposed by management will be successful or that unforeseen circumstances will not require us to seek additional funding sources in the future or effectuate plans to conserve liquidity. In addition, there can be no assurance that in the event additional sources of funds are needed they will be available on acceptable terms, if at all. Although the overall economy is showing signs of recovery, in particular in the markets we serve, the current macro-economic conditions create risk and our ability to measure and react to these issues will ultimately factor into our future success and ability to meet our business objectives and fulfill our business plan. In addition, if we are not able to sell our assets or our sources of revenue do not generate sufficient capital to fund operations, we will need to identify other sources of capital and/or we may be required to modify our business plan. Our inability to obtain needed debt and/or equity financing when needed or to generate sufficient cash from operations may require us to scale back our business plan and limit our planned growth and expansion activities, abandon projects and/or curtail capital expenditures. Our past association with Stanford International Bank Ltd (“SIBL”), the current challenging economic conditions and the unusual events that have affected global financial markets have impaired our ability to identify and secure other sources of capital. At this time, we cannot provide any assurance that other sources of capital will be available.

Our cash position has been declining since January 1, 2009. In order to reverse this trend, we are enforcing our collection terms more stringently than in the past and are also requiring customer advances and/or earlier payment terms for certain customers in certain markets. Additionally, in Venezuela, due to the economic challenges that exist in that marketplace, we have not had the liquidity and/or ability to pay down our payables on a more timely basis. As a result, we have been experiencing credit holds from our principal vendor in Venezuela, which has limited our ability to expand and/or operate our business. We are actively seeking additional working capital that will allow us to book sales irrespective of credit limitations that may be imposed by our vendors. If we cannot continue to strengthen our overall financial position, we may experience additional restrictions on our vendor credit. Such events could have a material adverse impact on our results of operations and financial condition.

NOTE 4 – Significant Accounting Policies

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of eLandia and all of its wholly-owned and majority owned subsidiaries. We have classified as discontinued operations for all periods presented (i) the accounts of Datec PNG, which was sold on April 17, 2009, (ii) the accounts of our operations in Fiji and (iii) certain eLandia predecessor companies that no longer conduct any operations. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited interim condensed consolidated financial statements are presented in United States Dollars. The financial statements of our foreign operations are stated in foreign currencies, referred to as the functional currency except for Desca, where the functional currency is the U.S. Dollar. Functional currency assets and liabilities are translated into the reporting currency, U.S. Dollars, using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional statements of operations amounts expressed in functional currencies are translated using average exchange rates for the respective periods. Remeasurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the unaudited interim condensed consolidated statement of operations.

Reclassification

We have reclassified certain prior year amounts to conform to the current period’s presentation. These reclassifications have no effect on the financial position or results of operations reported as of and for the three and nine months ended September 30, 2009.

Use of Estimates

The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited interim condensed consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: the amount of uncollectible accounts receivable, the valuation of value added tax (“VAT”) receivable, deferred taxes and related valuation allowances, the amount to be paid for the settlement of liabilities of discontinued operations, accrued expenses, the amount allocated to contract rights, customer lists, trade names and goodwill in connection with acquisitions, along with the estimated useful lives for amortizable intangible assets and property, plant and equipment, warrants granted in connection with various financing transactions, and share-based payment arrangements.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect on the consolidated financial statements of a condition, situation or set of circumstances that existed at the date of the unaudited interim condensed consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from our estimates.

Inventory

Inventory consists predominantly of finished goods inventory, inclusive of technology equipment, products and accessories. The majority of our inventory is held waiting for configuration and delivery to customers based on received purchase orders. Inventory is carried at the lower of cost or net realizable value. Cost is based on a weighted average or first-in-first-out method. All expenditures incurred in acquiring inventory including transportation and custom duties are included in inventory. Reserves for obsolete inventory are provided based on historical experience of a variety of factors including sales volume, product life, and levels of inventory at the end of the period.

Accounts Payable

Included in our accounts payable at September 30, 2010 and December 31, 2009 is approximately $5.7 million and $17.9 million, respectively, of short-term vendor financed payables.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss per common share attributable to eLandia by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic and diluted net loss per common share attributable to eLandia for the three and nine months ended September 30, 2010 and 2009 includes 28,125 unexercised warrants, respectively, each with an exercise price of $.001 per share.

The computation of basic loss per share for the three and nine months ended September 30, 2010 and 2009 excludes the following potentially dilutive securities because their inclusion would be anti-dilutive.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
Convertible Preferred Stock		4,118,263		4,118,263		4,118,263		4,118,263
Common Stock Purchase Warrants		1,409,259		1,409,259		1,409,259		1,409,259
Stock Options		8,621,000		7,823,500		8,621,000		7,823,500

		14,148,522		13,351,022		14,148,522		13,351,022

Recently Adopted Accounting Pronouncements

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial position or results of operations.

In March 2010, the FASB issued ASU No. 2010-19, “Foreign Currency (Topic 830) – Foreign Currency Issues: Multiple Foreign Currency Exchange Rates (SEC Update)” (“ASU No. 2010-19”). ASU No. 2010-19 codifies SEC staff views on certain foreign currency issues related to investments in Venezuela including: (a) Venezuela has met the threshold for being considered highly inflationary, and therefore calendar year entities that have not previously accounted for their Venezuelan investment as highly inflationary will begin applying highly inflationary accounting beginning January 1, 2010; (b) SEC staff provided further information on disclosures in circumstances where reported balances for financial reporting purposes differ from the actual U.S. dollar denominated balances; (c) SEC staff noted that ASC 830-10-45-11 must be followed upon application of highly inflationary accounting and accordingly there should be no differences between the amount reported for financial reporting and underlying U.S.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

denominated balances; and (d) at the time of adoption of highly inflationary accounting, differences that existed prior should be recognized in the income statement unless the registrant can document that the difference was previously recognized as a cumulative translation adjustment. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial position or results of operations.

Recently Issued Accounting Pronouncements

In September 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” (“ASU No. 2009-13”). ASU No. 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (“deliverables”) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements,” of the Codification for separating consideration in multiple-deliverable arrangements. A selling price hierarchy is established for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. Additional disclosures related to a vendor’s multiple-deliverable revenue arrangements are also required by this update. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into, or materially modified, in fiscal years beginning on or after June 15, 2010 with early adoption permitted. The adoption of this pronouncement is not expected to have a material impact on our condensed consolidated financial position or results of operations.

In September 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985) – Certain Revenue Arrangements That Include Software Elements” (“ASU No. 2009-14”). ASU No. 2009-14 changes the accounting model for revenue arrangements that include both tangible products and software elements to allow for alternatives when vendor-specific objective evidence does not exist. Under this guidance, tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality and hardware components of a tangible product containing software components are excluded from the software revenue guidance in Subtopic 985-605, “Software-Revenue Recognition;” thus, these arrangements are excluded from this update. ASU No. 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted. The adoption of this pronouncement is not expected to have a material impact on our condensed consolidated financial position or results of operations.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

NOTE 5 – Fair Value

We have determined the estimated fair value amounts presented in these unaudited interim condensed consolidated financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in the unaudited interim condensed consolidated financial statements are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. We have based these fair value estimates on pertinent information available as of September 30, 2010 and December 31, 2009. As of September 30, 2010 and December 31, 2009, the carrying value of all financial instruments approximates fair value.

We have classified our assets and liabilities recorded at fair value based upon the following fair value hierarchy:

•

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

•

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

•

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we classify such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 classification. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.

The following are the classes of assets measured at fair value on a nonrecurring basis as of September 30, 2010 and December 31, 2009, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):


	Level 1: Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at September 30, 2010		Total Impairment for the Nine Months Ended September 30, 2010
Goodwill	$	—	$	—	$	11,085,660	$	11,085,660	$	—
Intangible Assets		—		—		1,883,728		1,883,728		—

Total	$	—	$	—	$	12,969,388	$	12,969,388	$	—


	Level 1: Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at December 31, 2009		Total Impairment for the Nine Months Ended September 30, 2009
Goodwill	$	—	$	—	$	10,870,959	$	10,870,959	$	—
Intangible Assets		—		—		2,140,530		2,140,530		—

Total	$	—	$	—	$	13,011,489	$	13,011,489	$	—

NOTE 6 – Discontinued Operations

Our discontinued operations are comprised of (i) our 50% interest in Datec PNG, which was sold in April 2009; (ii) our operations in Fiji; and (iii) certain eLandia predecessor companies that no longer conduct any operations.

In April 2009, the Reserve Bank of Fiji announced that Fiji’s currency had been devalued by 20% effective April 16, 2009, and the President of Fiji annulled the country’s constitution, terminated all the judges in the country and declared himself the head of state. This triggered an impairment charge to our goodwill in Fiji during the year ended December 31, 2009 due to the anticipated economic instability and an uncertain business climate. As a result of these factors and the uncertainty caused by such factors, in December 2009 our Board of Directors approved management’s proposal to dispose of our operations in Fiji. Management began to actively market and locate a buyer for our operations in Fiji during the quarter ended March 31, 2010. As more fully described in Note 11, on June 24, 2010, we entered into a settlement agreement with Kelton Investments Ltd. (“Kelton”) and Datec Group Ltd. (“Datec”), as plaintiffs, among others, pursuant to which 150,000 shares of our common stock will be transferred to us in exchange for our interests in Datec Fiji and Datec Australia. As a result of the settlement and resolution of the material closing conditions during the quarter ended September 30, 2010, we re-measured the value of the net liabilities to be transferred at the lower of the carrying amount or fair value. We determined that the fair value of the 150,000 shares of our common stock to be returned to us was deminimus. Accordingly, we recorded a gain in discontinued operations, which includes the results of operations for the three and nine months ended September 30, 2010, of $2.4 million. That gain includes approximately $3.6 million from the recovery of accumulated translation gains previously reflected as a component of other comprehensive income.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

A summary of our assets and liabilities from discontinued operations as of September 30, 2010 and December 31, 2009 and our results of discontinued operations for the three and nine months ended September 30, 2010 and 2009 is as follows:

Assets and Liabilities of Discontinued Operations


	As of September 30, 2010		As of December 31, 2009
Cash	$	—	$	249,969
Accounts Receivable, Net		—		808,382
Inventory, Net		—		232,384
Prepaid Expenses and Other Current Assets		—		318,191
Deposits with Suppliers and Subcontractors		—		131,042

Assets Held for Sale - Current	$	—	$	1,739,968


Property, Plant and Equipment, net	$	—	$	354,501
Other Assets		—		9,416

Assets Held for Sale - Long-Term	$	—	$	363,917


Accounts Payable	$	—	$	464,292
Accrued Expenses		48,091		668,415
Accrued FCPA Penalty		700,000		500,000
Capital Lease Obligations		10,000		11,190
Deferred Revenue		—		73,706
Other Current Liabilities		—		20,711

Liabilities from Discontinued Operations - Current	$	758,091	$	1,738,314


Accrued FCPA Penalty	$	500,000	$	1,000,000

Liabilities from Discontinued Operations - Long Term	$	500,000	$	1,000,000

Results of Discontinued Operations


	For the Three Months Ended Sept 30,						For the Nine Months Ended Sept 30,
	2010			2009			2010			2009
Revenue	$	1,999,664		$	1,173,284		$	5,101,487		$	14,486,160
Cost of Revenue		(1,360,030	)		(619,040	)		(3,298,760	)		(8,648,869	)
Sales, Marketing and Customer Support		(317,878	)		(393,401	)		(952,568	)		(2,719,600	)
General and Administrative		(256,882	)		(362,757	)		(760,358	)		(2,122,315	)
Impairment of Intangible Assets and Goodwill		—			—			—			(11,852,969	)
Depreciation and Amortization		(37,259	)		(38,115	)		(109,326	)		(560,089	)
Amortization – Intangible Assets		—			(8	)		—			(290,083	)
Interest Expense, net		(1,461	)		(4,598	)		(4,119	)		(44,147	)
Other Income		2,418,351			40,212			2,438,463			777,445

Net Income (Loss) from Discontinued Operations	$	2,444,505		$	(204,423	)	$	2,414,819		$	(10,974,467	)

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

NOTE 7 – Goodwill and Intangible Assets

Goodwill and intangible assets, net, consist of the following:


	Latin		South
Goodwill:	America		Pacific		Total
Balance at December 31, 2009	$	7,972,097	$	2,898,862	$	10,870,959
Foreign currency translation effect		214,701		—		214,701

Balance at September 30, 2010	$	8,186,798	$	2,898,862	$	11,085,660


	Finite Lived Assets						Indefinite Lived Assets
Intangible Assets:	Customer Lists			Contract Rights			Telecommunications Licenses and Agreements
Gross Value at December 31, 2009	$	1,833,100		$	1,219,000		$	858,743
Accumulated Amortization at December 31, 2009		(629,783	)		(1,140,530	)		—

Net Value at December 31, 2009	$	1,203,317		$	78,470		$	858,743


Gross Value at September 30, 2010	$	1,833,100		$	1,219,000		$	858,743
Accumulated Amortization at September 30, 2010		(826,187	)		(1,200,928	)		—

Net Value at September 30, 2010	$	1,006,913		$	18,072		$	858,743

Intangible assets consist of customer lists and contract rights, which are amortized on a straight-line basis over the estimated useful lives of the assets. We review the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. With respect to the valuation of our goodwill, we considered a variety of factors including the business climate, legal factors, operating performance indicators, competition or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of long-term rate of growth for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in those estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach.

NOTE 8 – Gain on Extinguishment of Debt

On March 16, 2010, we entered into a Settlement Agreement with Stanford International Holdings (Panama) S.A. (“SIHP”), whereby we agreed to pay SIHP $462,500 in full and final settlement of a $2.5 million outstanding line of credit with Stanford Bank (Panama) S.A. Accordingly, we recorded a gain on the extinguishment of debt in the amount of $2,037,500 during the nine months ended September 30, 2010.

NOTE 9 – Long-Term Debt

On May 24, 2010, eLandia and our wholly-owned subsidiary, Desca, entered into the Strategic Alliance Agreement with Amper. Pursuant to the Strategic Alliance Agreement, the parties have established an alliance aimed at expanding each party’s access to the Latin American and Caribbean markets and providing the parties the opportunity to offer their combined portfolio of products, services, technology solutions and technical resources throughout the region. Amper, a Madrid, Spain based company, is a leader in the design and implementation of integrated solutions and information systems for civilian and military communications. Medidata, Amper’s majority-owned subsidiary, offers integrated communications solutions to telecommunications operators, corporations, financial clients and governments in Brazil. The regional alliance established by the Agreement allows Amper to expand into the 13 local markets in the Latin American and Caribbean region in which eLandia currently operates under its wholly-owned Desca and Center of Technology Transfer Corporation (“CTT”) brands. The alliance allows us to provide enhanced support to our regional

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

customers in Brazil. Additionally, eLandia expects to utilize the experience and knowledge of Amper’s Homeland Security business to address the growing opportunities in critical public safety projects throughout the region and the sales of Amper’s Access equipment products to its service provider customers. The initial term of the Strategic Alliance Agreement is six months and is renewable for additional six-month periods unless terminated by either party upon 15 days notice or immediately upon the occurrence of certain events including a breach, bankruptcy, liquidation or similar insolvency proceeding by a party.

Pursuant to the Strategic Alliance Agreement, each party has designated the other as its non-exclusive agent or distributor to promote the sale of the parties’ products and services in the Latin American and Caribbean region. Each of the parties will be entitled to sales commissions or product discounts for their sales and promotional efforts under the Strategic Alliance Agreement. The amount of the commissions or discounts will be negotiated on a case-by-case basis based on product line, customer and other factors.

In addition to the marketing and sales opportunities expected to result from the alliance, the parties also have agreed to evaluate a potential equity transaction pursuant to which we would acquire all or a part of Medidata in exchange for the issuance to Amper of a majority of our capital stock. In consideration of our exclusivity covenants, Amper advanced to us the sum of $5 million. The Exclusivity Advance is repayable as described below. The amounts outstanding under the Exclusivity Advance accrue interest at 12% per annum until repaid to Amper.

In order to secure our repayment obligations with respect to the Exclusivity Advance, eLandia, Desca and Descaserv Ecuador, S.A., an entity wholly owned by a subsidiary of Desca Holdings (“Descaserv”) have entered into certain guarantees, security agreements and pledges of interests in favor of Amper (collectively, the “Security Documents”). The Security Documents include the pledge of the equity interests of certain direct and indirect subsidiaries of Desca. In addition, Descaserv has modified a previously existing commercial trust pursuant to which Descaserv has assigned to Amper certain payment rights under a material customer contract.

The Exclusivity Advance is refundable upon the occurrence of any of the following events: (i) the earlier of (A) November 30, 2010, or (B) the date that payments are received by Descaserv under a certain customer contract; (ii) a material breach of the Strategic Alliance Agreement or any of the Security Documents by eLandia, Desca or any of their subsidiaries; (iii) the completion of an Alternative Transaction; or (iv) the occurrence of any of the following: (A) the sale of any shares of stock of Descaserv held by us, any merger or other business combination involving Descaserv or the transfer of certain material assets of Descaserv, (B) a failure to pay or any material breach by Descaserv with respect to any of its material indebtedness, (C) any bankruptcy or other insolvency or liquidation proceeding involving the Company or any of its significant subsidiaries, or (D) a default by Descaserv under a certain material customer contract. If the Exclusivity Advance is required to be refunded and the amounts in the preceding sentences become payable, we expect that the funds received by us under a material customer contract will be used to make any such repayments.

At September 30, 2010, the carrying value of the Strategic Alliance Agreement was $5,000,000. Contractual interest expense amounted to $187,463 which was recorded as a component of interest expense in the accompanying unaudited interim condensed consolidated statement of operations as of September 30, 2010.

NOTE 10 – Contribution Agreement

On July 29, 2010, we entered into a Contribution Agreement (the “Agreement”) with Amper. As discussed in Note 9, on May 24, 2010, we entered into a Strategic Alliance Agreement with Amper pursuant to which, among other things, the parties agreed to evaluate a potential equity transaction. Pursuant to this Agreement, Amper will acquire certain shares of our newly issued common stock in exchange for the contribution to eLandia by Amper of approximately 90% of the outstanding capital stock of Hemisferio Norte, S.A. (“Hemisferio”). Hemisferio has one wholly-owned direct subsidiary, Hemisferio Sul Participaçoes Ltda. (“Hemisferio Sul”), and two indirect subsidiaries, Medidata and XC Comercial e Exportadora Ltda. (“XC”). Hemisferio Sul owns 88.96% of Medidata, and Medidata owns 100% of XC. Hemisferio, Hemisferio Sul, Medidata and XC are collectively referred to in the Agreement as the “Contributed Entities.” The shares of our common stock being issued to Amper will represent approximately 85% of our issued and outstanding shares of common stock following the closing of the transactions contemplated by the Agreement.

The Agreement contains standard representations and warranties from each of the parties including securities investment representations from Amper as well as representations from each of the parties regarding financial statements, regulatory filings, legal compliance, pending litigation and tax matters. Under the Agreement, we are required to register the shares of our common stock being issued to Amper pursuant to the terms of a mutually agreeable registration rights agreement.

Under the terms of the Agreement, we have been granted an option to acquire the balance of Amper’s interest in Hemisferio for an option price equal to $8.9 million. The option may be exercised for a six-month period following the closing and the option price is payable by us through the issuance to Amper of additional shares of our common stock at a price per share equal to the fair market value of our common stock as of the option exercise date.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Prior to the closing of the transactions contemplated by the Agreement, and subject to the duties of our board of directors to consider unsolicited superior alternative transactions, we have agreed that we will not solicit, negotiate or enter into discussions with a third party, other than Amper or its affiliates, regarding a transaction involving any of the following (each, an “Alternative Transaction”): (i) the acquisition of our assets or the assets of any of our subsidiaries equal to 15% or more of our consolidated assets or to which 15% or more of our net revenues or net income are attributable, (ii) the acquisition of 15% or more of our voting equity interests, (iii) a tender or exchange offer that would result in the acquirer beneficially owning 15% or more of our voting equity interests, (iv) a merger, consolidation, other business combination or similar transaction involving the Company or any of our subsidiaries, pursuant to which the acquirer would own 15% or more of our consolidated assets, net revenues or net income, taken as a whole, or (v) the liquidation or dissolution (or the adoption of a plan of liquidation or dissolution) of the Company or the declaration or payment of an extraordinary dividend by us. Amper also has agreed not to transfer any of its interests in any of the Contributed Entities or enter into discussions with any third party regarding such transfer.

The closing of the transactions contemplated by the Agreement is subject to the satisfaction of certain conditions including, among others, the following: (i) the parties obtaining all applicable third party consents including the approval of the U.S. Federal Communications Commission (“FCC”) and eLandia obtaining a consent to the Agreement and general release and acknowledgment from the receiver for Stanford International Bank Ltd., (ii) execution of new employment agreements by our chief executive and chief financial officers, (iii) certain of our executive officers waiving their severance rights under their current employment contracts, and (iv) our receipt of a final fairness opinion from an investment bank.

Amper may terminate the Agreement as follows: (i) if we are in breach of the Agreement and such breach cannot be cured within 10 days following notice from Amper, (ii) if any conditions to Amper’s obligations cannot be satisfied by January 1, 2011 (the “Termination Date”), unless such failure is due to Amper’s failure to perform or comply with the Agreement, (iii) if we enter into or announce our intention to enter into an Alternative Transaction, or (iv) if the Company fails to obtain the consent, release and acknowledgement from the SIBL receiver described above within 45 days from the date of the Agreement. In addition, we may terminate the Agreement as follows: (a) if Amper is in breach of the Agreement and such breach cannot be cured within 10 days following notice from us, (b) if any conditions to our obligations cannot be satisfied by the Termination Date, unless such failure is due to our failure to perform or comply with the Agreement, or (c) if our board of directors authorizes an Alternative Transaction. Either party may extend the Termination Date to February 1, 2011 if the failure to close is due solely to the inability to obtain the consent of the FCC to the transactions contemplated by the Agreement. If either party terminates the Agreement as a result of our entry into an Alternative Transaction, then Amper shall be entitled to receive from us a termination fee in the amount of 500,000 Euros. Also, if we terminate the Agreement as a result of Amper’s violation of its non-solicitation and exclusivity covenants, then we shall be entitled to receive from Amper a termination fee in the amount of 500,000 Euros.

As discussed in Note 9, we received from Amper an Exclusivity Advance in the amount of $5 million in connection with the execution of the Strategic Alliance Agreement. The repayment of the Exclusivity Advance remains subject to the terms set forth in the Strategic Alliance Agreement.

NOTE 11 – Commitments and Contingencies

Strategic Alliance

In September 2010, we entered into an agreement with Medidata, pursuant to which Medidata advanced us $5.9 million (unrelated to the Exclusivity Advance, as discussed in Note 9), secured by various contracts at Desca. The advance will be repaid in approximately six months and will include approximately $1 million of interest expense. The advance is included in customer deposits in the accompanying unaudited interim condensed consolidated balance sheet at September 30, 2010.

Separation of Executive

On August 13, 2010, we entered into a Separation Agreement with Javier Rodriguez, our former Vice President of Marketing. The Separation Agreement was effective June 30, 2010 and provides for, among other things, severance pay for a period of 12 months and contained a mutual release. The Separation Agreement terminated the employment agreement previously entered into by us and Mr. Rodriguez except, among other provisions, the confidentiality, non-competition and non-solicitation covenants which survived the termination of the employment agreement. In addition, as part of the Separation Agreement, Mr. Rodriguez continues to provide consulting services to us on an ongoing basis.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Financial Collapse of SIBL and its Affiliates

In early 2009, pursuant to an action brought by the SEC against Stanford International Bank Ltd. (“SIBL”) and certain of its affiliates, including its owner Robert Allen Stanford, alleging, among other things, securities law fraud under both the Securities Act of 1933 and the Securities Exchange Act of 1934, the United States District Court for the Northern District of Texas, Dallas Division issued orders to freeze the assets of SIBL and certain of its affiliates and to appoint a receiver to prevent the waste and disposition of such assets.

On May 15, 2009, the district court in Dallas ruled that the Antiguan liquidators for SIBL are entitled to seek Chapter 15 bankruptcy protection for SIBL under U.S. law. A Chapter 15 filing assists in resolving cases involving debtors, assets and claimants in multiple countries. The Antiguan liquidators for SIBL sought the authority to file for bankruptcy as a means of safeguarding SIBL’s assets. The Antiguan liquidators for SIBL and the U.S. Receiver have since agreed, subject to approval of the stipulation by the District Court for the Northern District of Texas and the Antiguan court, to settle the pending litigation between them regarding SIBL in the United States. The Antiguan liquidators will withdraw their petition for Recognition of Foreign Main Proceeding Pursuant to Chapter 15 of the U.S. Bankruptcy Code and will not oppose or interfere with the U.S. Receiver’s status in the United States nor his efforts to take control of assets, and the proceeds of sale of assets, located in the United States.

On June 2, 2009, we received a letter from the U.S. receiver clarifying that the assets and business operations of eLandia and our subsidiaries are not part of the Stanford Financial Group Receivership Estate. The receiver’s letter did state that the voting trust certificates issued to SIBL, representing SIBL’s interest in the shares of our capital stock deposited in the Voting Trust, did constitute part of the Stanford Financial Group Receivership Estate.

On July 16, 2009, the receiver requested approval from the court to engage a private equity advisor to assist the receiver to properly manage the investments in the Receivership Estate, assess their value and identify potential buyers, thereby maximizing the value to the Receivership Estate. These investments include the voting trust certificates issued to SIBL representing SIBL’s interest in the shares of our capital stock deposited in the voting trust.

The collective impact of the uncertainties surrounding possible future actions of the SIBL receivers is that our cash flow position has been negatively affected and our ability to draw on existing credit lines or obtain other sources of financing are being adversely affected as a result of the perceived uncertainty as to how our association with SIBL impacts our business. If we are unable to resolve these issues to the satisfaction of our customers, vendors, creditors, and lenders, we may be unable to satisfy our cash requirements and may need to curtail certain operations or revise our business and growth plans.

Foreign Operations

Our operations in various geographic regions expose us to risks inherent in doing business in each of the countries in which we transact business. Operations in countries other than the United States are subject to various risks particular to each country. With respect to any particular country, these risks may include:

•

Expropriation and nationalization of our assets or of our customers in that country;

•

Political and economic instability;

•

Civil unrest, acts of terrorism, force majeure, war or other armed conflict;

•

Natural disasters including those related to earthquakes, hurricanes, tsunamis and flooding;

•

Inflation;

•

Currency fluctuations, devaluations, conversion and expropriation restrictions;

•

Confiscatory taxation or other adverse tax policies;

•

Governmental activities that limit or disrupt markets, payments, or limit the movement of funds;

•

Governmental activities that may result in the deprivation of contract rights; and

•

Trade restrictions and economic embargoes imposed by the United States and other countries.

Venezuela

In recent years Venezuela has experienced political challenges, difficult economic conditions, relatively high levels of inflation, and foreign exchange and price controls. The President of Venezuela has the authority to legislate certain matters by decree, and the government has nationalized or announced plans to nationalize certain industries and to expropriate certain companies and property. These factors may have a negative impact on our business and our financial condition.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Since 2003, Venezuela has imposed currency controls and created the Commission of Administration of Foreign Currency (“CADIVI”) with the task of establishing detailed rules and regulations and generally administering the exchange control regime. These controls fix the exchange rate between the Bolivar Fuerte and the U.S. Dollar, and restrict the ability to exchange Bolivar Fuertes for U.S. Dollars and vice versa. The near-term effect has been to restrict our ability to pay dollar denominated obligations and repatriate funds from Venezuela in order to meet our cash requirements. In particular, the currency controls in Venezuela have restricted our ability to make payments to certain vendors in U.S. Dollars, causing us to borrow money to meet these obligations and to be subject to credit holds by vendors, which have caused delays in the delivery of customer orders thus delaying or causing the loss of sales, particularly in the September 2010 quarter.

We apply to the Venezuelan government’s Foreign Exchange Administrative Commission, CADIVI, for the conversion of local currency to U.S. Dollars at the official exchange rate. The parallel exchange market is used for U.S. Dollar needs other than conversions obtained through CADIVI, and the parallel exchange market has rates less favorable than the official exchange rate.

As of December 31, 2009, we changed the rate we used to remeasure and translate our Venezuelan subsidiary’s transactions and balances from the official exchange rate to the parallel exchange rate, which approximated 5.97 Venezuelan Bolivar Fuertes to the U.S. Dollar on December 31, 2009. The resulting foreign currency exchange loss of approximately $4.4 million was recorded in our consolidated statement of operations as of December 31, 2009. Our considerations for changing the rate included indications that the Venezuelan government is not likely to continue to provide substantial currency exchange at the official rate for companies importing nonessential products, difficulties in obtaining approval for the conversion of local currency to U.S. Dollars at the official exchange rate (for imported products, royalties and distributions), and delays in obtaining payment approvals.

On January 11, 2010, the Venezuelan government devalued the Venezuelan Bolivar Fuerte and changed to a two-tier exchange structure. The official exchange rate moved from 2.15 Bolivar Fuertes per U.S. Dollar to 2.60 for essential goods and 4.30 for non-essential goods and services, with our products generally falling into the non-essential category. For any U.S. Dollar we obtain at the official rate to pay for the purchase of imported goods, we will realize benefits in our statements of operations associated with the favorable exchange rate, as compared to the parallel rate.

We continued to value our net monetary assets using the parallel exchange rate until May 17, 2010, at which time the Venezuelan government enacted reforms to its foreign currency exchange control regulations (“the exchange control regulations”) to close down the parallel exchange market and announced its intent to implement an alternative market under the control of the Venezuela Central Bank. On June 9, 2010, the Venezuelan government introduced a newly regulated foreign currency exchange system, Sistema de Transacciones con Titulos en Moneda Extranjera (“SITME”), which is controlled by the Central Bank of Venezuela (“BCV”). Foreign currency exchange transactions not conducted through CADIVI or SITME may not comply with the exchange control regulations, and could therefore be considered illegal. The SITME imposes volume restrictions on the conversion of Venezuelan Bolivar Fuertes to U.S. Dollars, currently limiting such activity to a maximum equivalent of $350,000 per month.

Fiji

In April 2009, the Reserve Bank of Fiji announced that Fiji’s currency had been devalued by 20% effective April 16, 2009, the President of Fiji annulled the country’s constitution, terminated all the judges in the country and declared himself the head of state. This triggered an impairment charge to our goodwill in Fiji during the year ended December 31, 2009 and is expected to result in economic instability and an uncertain business climate in Fiji. As a result of the factors discussed above and the uncertainty caused by such factors, in December 2009 our Board of Directors approved management’s proposal to dispose of our operations in Fiji (see Note 6). These political events and any subsequent developments may have a negative impact on our business.

On June 24, 2010, we entered into a settlement agreement with Sir James Ah Koy, Michael Ah Koy; Kelton Investments Ltd. (“Kelton Investments”); Kelton; Datec; Anthony Ah Koy; Carolyn Ah Koy; and Monica Ah Koy pursuant to which we agreed to transfer our interests in Datec Fiji in exchange for the return of 150,000 shares of our common stock.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Ah Koy Litigation

Fiji Action

On February 24, 2009, Kelton and Datec, as plaintiffs, filed in the High Court of Fiji at Suva (the “Fiji Court”) an Ex Parte Notice of Motion for Interim Injunction (the “Motion”). The Motion named as defendants Generic Technology Limited (“Generic”), Datec Pacific Holdings Ltd., eLandia, the Receiver for Stanford, and the Registrar of Companies. The Motion sought an interim injunction preventing certain defendants from, among other things, appointing new directors or removing existing directors from the board of directors of Generic and other entities and also preventing certain defendants from disposing of shares in Generic or its subsidiaries. On February 27, 2009, the Fiji Court entered an order granting this relief on an ex parte basis.

On March 31, 2009, Kelton and Datec filed a Statement of Claim in the Fiji Action. In essence, the Statement of Claim alleged that the Amended and Restated Arrangement Agreement dated August 8, 2005 (“Arrangement Agreement”) pursuant to which eLandia acquired the subsidiaries of Datec was induced by untrue representations related to the capital to be devoted to those subsidiaries and alleged investigations of Stanford. It asserted claims for fraudulent misrepresentation, proper construction and enforceability of certain Stock Purchase Agreements in which claims against eLandia were released, breach of Stock Purchase Agreements, breach of the Arrangement Agreement, and equitable estoppel. As relief, it sought, among other things, rescission of the Arrangement Agreement and Stock Purchase Agreements, a declaration as to the scope of the Stock Purchase Agreements, injunctive relief, and damages. On June 24, 2010, we entered into a settlement agreement with the plaintiffs in this case, among others, pursuant to which subject to the satisfaction of certain closing conditions: (i) 150,000 shares of our common stock will be transferred to us in exchange for our interests in Datec Fiji and Datec Australia, (ii) the parties will dismiss all pending legal proceedings between them, (iii) the parties exchanged mutual general releases, and (iv) the parties agreed to be subject to certain non-interference, and non-disparagement covenants. This action was dismissed on August 12, 2010.

eLandia International Inc. v. Sir James Ah Koy, et al.

On March 9, 2009, we filed an action in the United States District Court for the Southern District of Florida, Miami Division (the “Court”), against Sir James Ah Koy, Michael Ah Koy, Kelton, and Datec. In essence, we alleged that Sir James Ah Koy and his son, Michael Ah Koy, Kelton, and Datec improperly acted to preclude the sale of our interests in the South Pacific. Among other things, we asserted that the defendants improperly employed claims and complaints about the Arrangement Agreement that they have released to favor their own interests at the expense of the Company’s. We asserted claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, conspiracy to breach fiduciary duty, declaratory judgment under various agreements, breach of the implied covenant of good faith and fair dealing, breach of contract, and tortious interference with business relations. We sought a declaratory judgment, an injunction, compensatory damages, punitive damages, attorneys’ fees, and costs.

On June 24, 2010, we entered into a settlement agreement with the plaintiffs in this case pursuant to which, subject to the satisfaction of certain closing conditions: (i) 150,000 shares of our common stock will be transferred to us in exchange for our interests in Datec Fiji and Datec Australia, (ii) the parties will dismiss all pending legal proceedings between them, (iii) the parties exchanged mutual general releases, and (iv) the parties agreed to be subject to certain non-interference, and non-disparagement covenants. This action was dismissed on June 25, 2010.

Assignment for the Benefit of Creditors – Latin Node

On June 12, 2008, Latin Node filed for an assignment for benefit of creditors in the 11th Judicial Circuit in and for Miami-Dade County, Florida. As part of this proceeding, all of the assets of Latin Node were transferred to Michael Phelan, Esq., assignee. On July 17, 2008, most of these assets were sold to the highest bidder, Business Telecommunications Services, Inc. (“BTS”). The immediate proceeds from the sale of these assets were used to pay administrative costs. A final court order approving the disposition of the proceeds from the sale of all other assets was scheduled for May 21, 2009. However, on May 20, 2009, Empresa Hondureña de Telecomunicaciones filed a Motion for Continuance or in the alternative, a Motion to stay the hearing. At a hearing held on September 17, 2009, the court appointed a Special Examiner to conduct an examination and determine whether the claims made by Hondutel were well-taken. The Special Examiner’s report was issued on February 16, 2010. The Special Examiner determined that Latin Node and/or eLandia did not act improperly in this matter. On April 27, 2010 the court granted the Order Approving Assignee’s Final Report, Fixing Fees, Discharging Assignee and Closing Case on this matter. As a result of the court order, the assignment for the benefit of creditors proceeding was concluded after the expiration of Hondutel’s right to appeal thirty days from the date of the court order.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

General Legal Matters

From time to time, we are involved in legal matters arising in the ordinary course of business. While we believe that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which we are, or could be, involved in litigation, will not have a material adverse effect on our business, financial condition or results of operations.

Customer and Vendor Concentrations

For the nine months ended September 30, 2010, we had one customer that represented approximately 13% of our consolidated revenues. At September 30, 2010, this same customer represented approximately 43% of our gross accounts receivable related to a contract with extended payment terms.

During the three and nine months ended September 30, 2010, approximately 95% and 87%, respectively, of our cost of revenue for product sales was purchased from a single vendor. At September 30, 2010, the amount due to this vendor was approximately 57% of our total accounts payable.

NOTE 12 – Stockholders’ Equity

Common Stock Issuances

On March 17, 2010, we issued 100,000 shares of our common stock to a consultant for services to be provided over a period of twelve months, commencing on April 1, 2010. The value of the shares, amounting to $30,000, is being amortized as consulting expense over the term of the agreement.

In August 2010, we issued 10,000 shares of our common stock in exchange for a 30% interest in Desca Panama, S.A. thereby increasing our ownership to 90%. The value of the shares was determined to be $5,500. The total consideration paid for the acquisition of this interest was nominal.

NOTE 13 – Income Taxes

At December 31, 2009, we had federal and Florida net operating loss (NOL) carryovers of $38,275,009 and $33,571,987, respectively, which expire through 2028. We also had capital losses in 2008 and 2009 totaling $33,153,111 and $5,636,987, respectively, which expire December 31, 2013 and 2014, respectively. In addition, at December 31, 2009, we had foreign net operating loss carryovers of approximately $28,972,474 which will expire through 2016.

We have $5,606,156 of NOLs that are subject to limitations under Internal Revenue Code Section 382.

As of December 31, 2009, our NOL and capital loss carryovers were completely offset by valuation allowances.

We recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in our condensed consolidated statements of operation. Similarly, our policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.

There have not been any material changes in our liability for unrecognized tax benefits, including interest and penalties, during the nine months ended September 30, 2010. We do not currently anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

NOTE 14 – Segment Information

Our discontinued operations are comprised of (i) our 50% interest in Datec PNG; (ii) our operations in Fiji; and (iii) certain eLandia predecessor companies that no longer conduct any operations.

Below is a summary of the results by segment for the three and nine months ended September 30, 2010 and identifiable assets as of September 30, 2010:


	For the Three Months Ended September 30, 2010
	Latin America			South Pacific			Corporate and Discontinued Operations			Consolidated
Revenue
Product Sales	$	13,301,944		$	102,921		$	—		$	13,404,865
Services		12,309,123			3,734,586			—			16,043,709

Total Revenue		25,611,067			3,837,507			—			29,448,574
Cost of Revenue
Product Sales		10,520,187			96,226			—			10,616,413
Services		7,759,915			1,176,195			—			8,936,110

Total Cost of Revenue		18,280,102			1,272,421			—			19,552,523

Gross Profit		7,330,965			2,565,086			—			9,896,051
		28.6	%		66.8	%		0.0	%		33.6	%

Expenses
Sales, Marketing and Customer Support		4,701,807			207,956			—			4,909,763
General and Administrative		4,822,855			741,970			1,259,750			6,824,575
Impairment of Intangible Assets and Goodwill		—			—			—			—
Transaction Related Expenses		—			—			414,066			414,066
Depreciation and Amortization		650,881			934,830			36,136			1,621,847
Amortization – Intangible Assets		—			79,018			—			79,018

Total Expenses		10,175,543			1,963,774			1,709,952			13,849,269

Operating Income (Loss)		(2,844,578	)		601,312			(1,709,952	)		(3,953,218	)
Interest Expense, Net		(489,639	)		(330,888	)		(174,804	)		(995,331	)
Gain on Extinguishment of Debt		—			—			—			—
Change in Value of Noncontrolling Interest Purchase Obligation		—			—			—			—
Other Income (Expense)		991,984			57,629			376			1,049,989
Income (Loss) from Discontinued Operations		—			—			2,444,505			2,444,505

Net Income (Loss) Attributable to eLandia	$	(2,342,233	)	$	328,053		$	560,125		$	(1,454,055	)

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)


	For the Nine Months Ended September 30, 2010
	Latin America			South Pacific			Corporate and Discontinued Operations			Consolidated
Revenue
Product Sales	$	55,508,574		$	388,533		$	—		$	55,897,107
Services		37,778,163			11,065,031			—			48,843,194

Total Revenue		93,286,737			11,453,564			—			104,740,301
Cost of Revenue
Product Sales		45,407,557			391,911			—			45,799,468
Services		22,738,619			3,672,915			—			26,411,534

Total Cost of Revenue		68,146,176			4,064,826			—			72,211,002

Gross Profit		25,140,561			7,388,738			—			32,529,299
		26.9	%		64.5	%		0.0	%		31.1	%

Expenses
Sales, Marketing and Customer Support		13,955,479			659,843			—			14,615,322
General and Administrative		13,353,125			2,240,545			5,616,054			21,209,724
Impairment of Intangible Assets and Goodwill		—			—			—			—
Transaction Related Expenses		—			—			946,505			946,505
Depreciation and Amortization		1,867,561			2,810,448			102,030			4,780,039
Amortization – Intangible Assets		—			256,802			—			256,802

Total Expenses		29,176,165			5,967,638			6,664,589			41,808,392

Operating Income (Loss)		(4,035,604	)		1,421,100			(6,664,589	)		(9,279,093	)
Interest Expense, Net		(1,294,291	)		(997,833	)		(259,656	)		(2,551,780	)
Gain on Extinguishment of Debt		2,037,500			—			—			2,037,500
Change in Value of Noncontrolling Interest Purchase Obligation		—			—			—			—
Other Income (Expense)		(415,162	)		360,210			128,462			73,510
Income (Loss) from Discontinued Operations		—			—			2,414,819			2,414,819

Net Income (Loss) Attributable to eLandia	$	(3,707,557	)	$	783,477		$	(4,380,964	)	$	(7,305,044	)

Total Assets	$	118,402,810		$	36,112,283		$	476,655		$	154,991,747

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

Below is a summary of the results by segment for the three and nine months ended September 30, 2009 and identifiable assets as of December 31, 2009:


	For the Three Months Ended September 30, 2009
	Latin America			South Pacific			Corporate and Discontinued Operations			Consolidated
Revenue	$	21,968,974		$	200,253		$	—		$	22,169,227
Product Sales		13,763,446			3,384,158			—			17,147,604

Services		35,732,420			3,584,411			—			39,316,831
Total Revenue
Cost of Revenue		18,049,696			237,676			—			18,287,372
Product Sales		8,610,168			1,391,941			—			10,002,109

Services		26,659,864			1,629,617			—			28,289,481

Total Cost of Revenue		9,072,556			1,954,794			—			11,027,350
Gross Profit		25.4	%		54.5	%		0.0	%		28.0	%

Expenses
Sales, Marketing and Customer Support		6,106,898			672,380			—			6,779,278
General and Administrative		7,309,022			566,357			1,375,329			9,250,708
Depreciation and Amortization		576,910			1,045,765			24,536			1,647,211
Amortization – Intangible Assets		870,386			138,267			—			1,008,653

Total Expenses		14,863,216			2,422,769			1,399,865			18,685,850

Operating Income (Loss)		(5,790,660	)		(467,975	)		(1,399,865	)		(7,658,500	)
Interest Expense, Net		(921,432	)		(405,173	)		61,242			(1,265,363	)
Other Income (Expense)		(3,646,568	)		291,424			(72,166	)		(3,427,310	)
Income (Loss) from Discontinued Operations		—			—			(204,423	)		(204,423	)

Net Income (Loss) Attributable to eLandia	$	(10,358,660	)	$	(581,724	)	$	(1,615,212	)	$	(12,555,596	)


	For the Nine Months Ended September 30, 2009
	Latin America			South Pacific			Corporate and Discontinued Operations			Consolidated
Revenue	$	54,054,422		$	340,149		$	—		$	54,394,571
Product Sales		32,686,783			8,563,126			—			41,249,909

Services		86,741,205			8,903,275			—			95,644,480
Total Revenue
Cost of Revenue		41,432,550			375,785			—			41,808,335
Product Sales		20,850,719			3,294,860			—			24,145,579

Services		62,283,269			3,670,645			—			65,953,914

Total Cost of Revenue		24,457,936			5,232,630			—			29,690,566
Gross Profit		28.2	%		58.8	%		0.0	%		31.0	%

Expenses
Sales, Marketing and Customer Support		18,801,816			1,104,881			—			19,906,697
General and Administrative		19,791,347			1,633,479			10,280,500			31,705,326
Depreciation and Amortization		1,987,719			1,823,279			50,566			3,861,564
Amortization – Intangible Assets		2,611,158			814,664			—			3,425,822

Total Expenses		43,192,040			5,376,303			10,331,066			58,899,409

Operating Income (Loss)		(18,734,104	)		(143,673	)		(10,331,066	)		(29,208,843	)
Interest Expense, Net		(2,741,291	)		(597,781	)		55,178			(3,283,894	)
Change in Value of Noncontrolling Interest Purchase Obligation		814,127			—			—			814,127
Other Income (Expense)		(5,974,193	)		282,617			167,307			(5,524,269	)
Income (Loss) from Discontinued Operations		—			—			(10,974,467	)		(10,974,467	)

Net Income (Loss) Attributable to eLandia	$	(26,635,461	)	$	(458,837	)	$	(21,083,048	)	$	(48,177,346	)

Total Assets	$	117,355,321		$	41,690,055		$	652,117		$	159,697,493

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

September 30, 2010

(Unaudited)

NOTE 15 – Subsequent Events

On October 5, 2010, we entered into a Separation Agreement with Jorge Enrique Alvarado Amado (“Alvarado”). Pursuant to the Separation Agreement, Alvarado’s employment relationship with Desca was terminated without cause. Alvarado previously served as principal executive officer of Desca. As part of his separation from Desca, Alvarado has resigned from all positions held with Desca, its subsidiaries and affiliates in each Latin American jurisdiction in which such entities operate. The Separation Agreement includes a standard waiver and general release by Alvarado of any and all claims he may have against the Company, Desca or any of their respective subsidiaries or affiliates.

Under a Securities Purchase Agreement, dated July 1, 2009 (the “Purchase Agreement”), we had acquired 30% of the outstanding equity interests of Desca from Alvarado. A portion of the purchase price under the Purchase Agreement was evidenced by a promissory note in the principal amount of $500,000 (the “Note”) as well as 2.5 million shares of our common stock (the “Shares”). One-half of the Shares were placed into escrow in order to satisfy certain claims for indemnification which we could have against Alvarado under the Purchase Agreement. We agreed to waive any such indemnification claims, with the exception of any future claims relating to any intentional misconduct by Alvarado, in exchange for the following: (a) all of the 2.5 million Shares (along with any convertible securities held by Alvarado) will be returned by Alvarado to the Company for cancellation; and (b) the payment schedule under the Note will be modified to provide for 12 monthly payments of $10,000 each and, thereafter through the maturity date in January 2013, monthly payments of $32,500 each. Payments on the Note may be accelerated if we receive certain minimum payments under a material customer contract. In addition, we have agreed to transfer our ownership interest in Magna Consult L.L.C., a consulting services company, to Alvarado. This consulting company does not engage in direct competition with us or our subsidiaries.

As part of the Separation Agreement, Alvarado reaffirmed and ratified the terms of his existing non-compete agreement which contains customary non-compete, non-solicitation, non-disclosure and non-disparagement covenants. Such non-compete agreement shall remain in force for a 12-month period following the effective date of the Separation Agreement.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note About Forward-Looking Statements

This report contains certain “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 (the “Exchange Act”), which 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 described in eLandia International Inc.’s (“eLandia”), Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”). 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. We undertake no obligation, and do 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. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

Overview

eLandia is a provider of Information and Communications Technology (“ICT”) products and services to small, medium-sized and large businesses as well as government entities and service providers, primarily in Latin America. We have presence in over 17 countries, including Argentina, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Venezuela and the United States. eLandia also operates in the South Pacific region through our wholly-owned subsidiary, AST Telecom, LLC (“AST”) which offers mobile communications, Internet services and cable TV services (Moana TV) in American Samoa under the Bluesky Communications brand. In addition, we also own 66 2/3% of the American Samoa Hawaii Cable, LLC (“ASH Cable”) in partnership with the American Samoa Government, providing high-speed networking connections between the territory of American Samoa and Hawaii.

We provide innovative technology solutions that help customers increase efficiency, improve business agility, decrease costs, and maximize their existing ICT investments in order to achieve competitive advantages. Our service portfolio currently consists of three core business offerings: Network Integration, Managed Services and Business Transformation Solutions, all of which assist our customers compete effectively in the global economy. We also hold more than 38 certifications and specializations from leading technology companies, including Cisco Systems, Inc. (“Cisco”), Microsoft Corporation (“Microsoft”) and others.

eLandia corporate headquarters are located at 8200 NW 52^ndTerrace, Miami, Florida 33166. The telephone number is (305) 415-8830.

Recent Developments

Strategic Alliance Agreement – Amper, S.A.

On May 24, 2010, eLandia and our wholly-owned subsidiary, eLandia/Desca Holdings, LLC (“Desca”), entered into a Strategic Alliance Agreement (the “Strategic Alliance Agreement”) with Amper, S.A. (“Amper”). Pursuant to the Strategic Alliance Agreement, the parties have established an alliance aimed at expanding each party’s access to the Latin American and Caribbean markets and providing the parties the opportunity to offer their combined portfolio of products, services, technology solutions and technical resources throughout the region. Amper, a Madrid, Spain based company, is a leader in the design and implementation of integrated solutions and information systems for civilian and military communications. Medidata Informatica, S.A., Amper’s majority-owned subsidiary (“Medidata”), offers integrated communications solutions to telecommunications operators, corporations, financial clients and governments in Brazil. The regional alliance established by the Strategic Alliance Agreement allows Amper to expand into the 13 local markets in the Latin American and Caribbean region in which eLandia currently operates under its wholly-owned Desca and Center of Technology Transfer Corporation (“CTT”) brands. The alliance allows us to provide enhanced support to our regional customers in Brazil. Additionally, eLandia expects to utilize the experience and knowledge of Amper’s Homeland Security business to address the growing opportunities in critical public safety projects throughout the region and the sales of Amper’s Access equipment products to its service provider customers. The initial term of the Strategic Alliance Agreement is six months and is renewable for additional six-month periods unless terminated by either party upon 15 days notice or immediately upon the occurrence of certain events including a breach, bankruptcy, liquidation or similar insolvency proceeding by a party.

Pursuant to the Strategic Alliance Agreement, each party has designated the other as its non-exclusive agent or distributor to promote the sale of the parties’ products and services in the Latin American and Caribbean region. Each of the parties will be entitled to sales commissions or product discounts for their sales and promotional efforts under the Agreement. The amount of the commissions or discounts will be negotiated on a case-by-case basis based on product line, customer and other factors.

In addition to the marketing and sales opportunities expected to result from the alliance, the parties also have agreed to evaluate a potential equity transaction pursuant to which we would acquire all or a part of Medidata in exchange for the issuance to Amper of a majority of our capital stock. In consideration of our exclusivity covenants, Amper advanced to us the sum of $5 million (the “Exclusivity Advance”). The Exclusivity Advance is repayable as described below. The amounts outstanding under the Exclusivity Advance accrue interest at 12% per annum until repaid to Amper.

Contribution Agreement – Amper, S.A.

Following the Strategic Alliance Agreement, on July 29, 2010, we entered into a Contribution Agreement (the “Agreement”) with Amper. Pursuant to this Agreement, Amper will acquire certain shares of our newly issued common stock in exchange for the contribution to eLandia by Amper of approximately 90% of the outstanding capital stock of Hemisferio Norte, S.A. (“Hemisferio”). Hemisferio has one wholly-owned direct subsidiary, Hemisferio Sul Participaçoes Ltda. (“Hemisferio Sul”), and two indirect subsidiaries, Medidata and XC Comercial e Exportadora Ltda. (“XC”). Hemisferio Sul owns 88.96% of Medidata, and Medidata owns 100% of XC. Hemisferio, Hemisferio Sul, Medidata and XC are collectively referred to in the Agreement as the “Contributed Entities.” The shares of our common stock being issued to Amper will represent approximately 85% of our issued and outstanding shares of common stock following the closing of the transactions contemplated by the Agreement.

As discussed above, we received from Amper an Exclusivity Advance in the amount of $5 million in connection with the execution of the Strategic Alliance Agreement. The repayment of the Exclusivity Advance remains subject to the terms set forth in the Strategic Alliance Agreement.

Separation of Executives

Discontinued Operations – Fiji

In April 2009, the Reserve Bank of Fiji announced that Fiji’s currency had been devalued by 20% effective April 16, 2009, the President of Fiji annulled the country’s constitution, terminated all the judges in the country and declared himself the head of state. This triggered an impairment charge to our goodwill in Fiji during the year ended December 31, 2009 due to the anticipated economic instability and an uncertain business climate. These political events and any subsequent developments may have a negative impact on our business. As a result of these factors and the uncertainty caused by such factors, in December 2009 our Board of Directors approved management’s proposal to dispose of our operations in Fiji.

We began to actively market and locate a buyer for our operations in Fiji during the quarter ended March 31, 2010. On June 24, 2010, we entered into a settlement agreement with Kelton Investments Ltd. (“Kelton”) and Datec Group Ltd. (“Datec”), as plaintiffs, among others, pursuant to which 150,000 shares of our common stock will be transferred to us in exchange for our interests in Datec Fiji and Datec Australia. As a result of the settlement and resolution of the material closing conditions, during the quarter ended September 30, 2010, we re-measured the value of the net liabilities to be transferred at the lower of the carrying amount or fair value. We determined that the fair value of the 150,000 shares of our common stock to be returned to us was deminimus. Accordingly, we recorded in discontinued operations a gain, which includes the results of operations for the three and nine months ended September 30, 2010, of $2.4 million. That gain includes approximately $3.6 million from the recovery of accumulated translation gains previously reflected as a component of other comprehensive income.

Critical Accounting Policies and Estimates

The preparation of our unaudited interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to exercise its judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements.

On an ongoing basis, we evaluate our estimates and judgments. Areas in which we exercise significant judgment include, but are not necessarily limited to, the amount of uncollectible accounts receivable, the valuation of value added taxes (“VAT”) receivable, deferred taxes and related valuation allowances, the amount to be paid for the settlement of liabilities of discontinued operations, accrued expenses, valuation of assets acquired and liabilities assumed such as, but not limited to, the amount allocated to contract rights, customer lists, trade names and goodwill along with the estimated useful lives for amortizable intangible assets and property, plant and equipment, warrants granted in connection with various financing transactions, and share based payment arrangements.

We base our estimates and judgments on a variety of factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our services and products and the regulatory environment. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC for a discussion of our critical accounting policies. During the nine months ended September 30, 2010, there were no material changes to these policies.

Results of Operations – Overview

We experienced a 10% growth in revenues for the nine months ended September 30, 2010 compared with the same period in 2009. Our results for the nine months ended September 30, 2009 reflect the translation of our Venezuelan operations at the official exchange rate, whereas the results for the nine months ended September 30, 2010 reflect the translation of our Venezuelan operations at the parallel exchange rate through May 2010 and the SITME (as defined below) rate thereafter. Excluding the effect of the differences in exchange rates in Venezuela, revenues increased 40% for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Our results for the nine months ended September 30, 2010 were impacted by the performance of a significant contract in Ecuador, improving customer confidence, improvement in economic conditions internationally, continued selective investment in strategic sales, marketing and customer support activities to drive sales and develop growth platforms, as well as the implementation of general and administrative cost-cutting measures. However, offsetting such improvements was the impact of credit holds with a major vendor. Such credit holds have delayed the delivery of customer orders, which, in turn, has delayed or caused the loss of sales during the nine months ended September 30, 2010, and in particular, the three months ended September 30, 2010. A significant amount of credit holds with this major vendor were released in October 2010 thus allowing us to deliver all of the delayed orders to our customers.

Sales in a particular period may be significantly impacted by several factors related to revenue recognition, including large and sporadic purchases by customers; the complexity of transactions such as multiple element arrangements; and final acceptance of the product, system, or solution, among other factors. We are monitoring the current environment and its potential effects on our customers and on the markets we serve. Additionally, we continue to closely manage our costs in order to respond to changing conditions. We are also managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund our capital needs.

•

Gross margin, as a percentage of consolidated net sales, remained relatively stable at 31% for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009, primarily due to a shift in our product mix towards more service-related products, which generally yield higher overall margins. Offsetting the improvement in our service gross margin, were lower margins on our product-related sales.

•

Operating loss for the nine months ended September 30, 2010 was $9.3 million, compared to $29.2 million for the nine months ended September 30, 2009. The decrease in operating loss is primarily due to an increase in sales of approximately $9.1 million and a decrease in overall operating expenses of approximately $17.1 million, partially offset by an increase in cost of sales of approximately $6.3 million.

•

Net loss attributable to eLandia for the nine months ended September 30, 2010 was $7.3 million, compared to $48.2 million in the same period in 2009. The decrease in net loss is primarily due to a lower operating loss and lower other non-operating expenses. Contributing to the decrease in other non-operating expenses was a decrease in the foreign currency swap of $3.9 million and a gain on the extinguishment of debt of $2.0 million recognized during the nine months ended September 30, 2010. Additionally, we had income from discontinued operations of $2.4 million for the nine months ended September 30, 2010 compared to a loss from discontinued operations of $11.0 million for the nine months ended September 30, 2009.

•

Net loss per share decreased from ($1.75) for the nine months ended September 30, 2009 to ($0.26) for the nine months ended September 30, 2010.

Results of Operations – Latin America

In addition to various lines of traditional and advanced information technology products, we currently offer a broad range of technology services and solutions built within our comprehensive security and best practices philosophy, providing the solid foundation on which we continue to develop our solutions along three core competencies:

•

Network Integration: we create tailored ICT solutions integrating products supplied by our strategic partners. Our solutions empower our customers to effectively increase their employees’ productivity, enhance customer service, optimize operational costs and lay the basis for improved bottom line results. Central to our offerings is our capability to plan, prepare, deploy, implement, operate and optimize secure network ICT solutions for corporations, governments and service providers alike. Our Next Generation Network solutions encompass multiple infrastructure and service layers that empower wireline, wireless, cable operators, over the top operators, broadcast and satellite providers to offer innovative services to their subscribers.

•

Managed Services: By providing a complete array of services based on our technology solutions, we support our customers in achieving optimal operations and minimum costs, lower risks and continuous technology refresh. Most importantly, we enable our customers to focus on their own core competencies and less on the challenges of building and maintaining a technology infrastructure. Our broad experience in deploying large and complex projects has demonstrated that these services require a very robust technology infrastructure on our end which enables customers to access advanced technology services without a significant capital expense or the need to build internal resources and capabilities.

•

Business Transformation Solutions: In order to help our customers transform their businesses, we develop partnerships with them so that we understand their capabilities, strategies, and markets and deploy technology-based solutions that lead to fundamental change. Our skills and capabilities enable us to facilitate our customers’ transformational process in achieving new levels of growth.

In support of our broad range of offerings we currently hold more than 38 certifications and specializations from leading technology companies, including Cisco, Microsoft and others. The products and services we offer in each of our markets vary depending on the infrastructure, existing data communications systems and the needs of the local economy.

Venezuela

We measure assets, liabilities, sales and expenses denominated in Venezuelan Bolivar Fuertes converting such amounts into U.S. Dollars using the applicable exchange rate, and the resulting translation adjustments are included in earnings. Through May 2010, we used the parallel rate to convert transactions and balances denominated in Venezuelan Bolivar Fuertes into U.S. Dollars. Our results in Venezuela through May 2010 are reflected in the consolidated financial statements at the parallel exchange rate, which was approximately 8.98 to 1 U.S. Dollar; and during substantially all of 2009, we used the official rate of 2.15 to 1 to report the results of our Venezuelan operations. As of December 31, 2009, we changed the rate we used to remeasure our Venezuelan operations from the official exchange rate to the parallel exchange rate. Our considerations for changing the rate included indications that the Venezuelan government was not likely to continue to provide substantial currency exchange at the official rate for companies importing nonessential products, difficulties in obtaining approval for the conversion of local currency to U.S. Dollars at the official exchange rate (for imported products, royalties and distributions), and delays in obtaining payment approvals.

As a result of the enactment of the reforms to the exchange control regulations, we changed the rate we use to remeasure Venezuelan Bolivar Fuerte-denominated transactions from the parallel exchange rate to the SITME rate specified by the BCV, which was quoted at 5.30 Venezuelan Bolivar Fuertes per U.S. Dollar on September 30, 2010. Since this new translation rate was more favorable than the parallel rate, we recorded a gain of $2.1 million for the six months ended September 30, 2010. This gain significantly offset the $2.2 million loss recorded during the three months ended March 31, 2010 resulting from the less favorable parallel rate as of March 31, 2010 compared to December 31, 2009. Due to the level of uncertainty in Venezuela, we cannot predict the exchange rate that will ultimately be used to convert our local currency monetary assets in Venezuela to U.S. Dollars in the future. As a result, negative charges reflecting a less favorable exchange rate outcome are possible.

Following are the exchange rates utilized to remeasure and translate our Venezuelan results of operations during the nine months ended September 30, 2010 and 2009, respectively:


	As of September 30,
Monthly Average Exchange Rate:	2010		2009
January		6.15		2.15
February		6.49		2.15
March		6.90		2.15
April		7.33		2.15
May		8.02		2.15
June		5.27		2.15
July		5.30		2.15
August		5.30		2.15
September		5.30		2.15
Year to Date Average Exchange Rate		6.23		2.15
Period End Exchange Rate		5.30		2.15

The aforementioned changes in the exchange rates have reduced the remeasured and translated value in U.S. Dollars of Bolivar Fuerte denominated Venezuelan transactions compared with prior periods. Venezuela exchange rate matters, along with local market and regulatory conditions, have resulted in a substantial decrease in net sales for our Venezuelan subsidiary. For the three and nine months ended September 30, 2010, our Venezuelan subsidiary represented 10% and 11%, respectively, of our consolidated net sales, as compared to 22% and 31% for the three and nine months ended September 30, 2009, respectively.

Revenues for our Venezuelan operations for the three months ended September 30, 2010, remeasured at the parallel rate through May 2010 and the SITME rate thereafter, were $2.8 million, compared to $8.7 million for the three months ended September 30, 2009, remeasured at the official rate. Gross profit for Venezuela for the three months ended September 30, 2010 was $0.8 million, or gross margin of 28%, compared to gross profit of $4.1 million, or gross margin of 47%, for the three months ended September 30, 2009. Operating expenses for Venezuela for the three months ended September 30, 2010 were $1.8 million, compared to $4.5 million for the three months ended September 30, 2009.

Revenues for our Venezuelan operations for the nine months ended September 30, 2010, remeasured at the parallel rate through May 2010 and the SITME rate thereafter, were $11.8 million, compared to $29.2 million for the nine months ended September 30, 2009, remeasured at the official rate. Gross profit for Venezuela for the nine months ended September 30, 2010 was $3.5 million, or gross margin of 29%, compared to gross profit of $12.3 million, or gross margin of 42%, for the nine months ended September 30, 2009. Operating expenses for Venezuela for the nine months ended September 30, 2010 were $4.7 million, compared to $12.8 million for the nine months ended September 30, 2009.

There will be an ongoing impact related to measuring the statement of operations for our Venezuelan operations at the SITME exchange rate. Our net sales and operating income in Venezuela are subject to a highly inflationary environment, which as of September 30, 2010, was in excess of 30% per year. The comparability of our Venezuelan results and the resulting U.S. Dollar value reported in any given period are affected by the fluctuations in the exchange rates.

Comparison of the Three Months Ended September 30, 2010 to the Three Months Ended September 30, 2009

The following table sets forth, for the periods indicated, unaudited interim condensed consolidated statements of operations information for our continuing operations in Latin America.


	For the Three Months Ended September 30,
	2010			2009			$ Change			% Change
Revenue
Product Sales	$	13,301,944		$	21,968,974		$	(8,667,030	)		(39.5	)%
Services		12,309,123			13,763,446			(1,454,323	)		(10.6	)%

Total Revenue		25,611,067			35,732,420			(10,121,353	)		(28.3	)%
Cost of Revenue
Product Sales		10,520,187			18,049,696			(7,529,509	)		(41.7	)%
Services		7,759,915			8,610,168			(850,253	)		(9.9	)%

Total Cost of Revenue		18,280,102			26,659,864			(8,379,762	)		(31.4	)%

Gross Profit		7,330,965			9,072,556			(1,741,591	)		(19.2	)%
		28.6	%		25.4	%					3.2	%

Expenses
Sales, Marketing and Customer Support		4,701,807			6,106,898			(1,405,091	)		(23.0	)%
General and Administrative		4,822,855			7,309,022			(2,486,167	)		(34.0	)%
Depreciation and Amortization		650,881			576,910			73,971			12.8	%
Amortization – Intangible Assets		—			870,386			(870,386	)		(100.0	)%

Total Expenses		10,175,543			14,863,216			(4,687,673	)		(31.5	)%

Operating Income (Loss)		(2,844,578	)		(5,790,660	)		2,946,082			(50.9	)%
Interest (Expense) Income, Net		(489,639	)		(921,432	)		431,793			(46.9	)%
Other Income (Expense)		991,984			(3,646,568	)		4,638,552			(127.2	)%

Net Income (Loss)	$	(2,342,233	)	$	(10,358,660	)	$	8,016,427			(77.4	)%

Product Sales

Year over year decline in product sales was $8.7 million, or 40%. Excluding the effect of Venezuela’s product revenues in both periods, our year over year decline in product sales was $5.5 million, or 31%. The decrease in product sales is primarily attributable to the impact of credit holds imposed on us by a major vendor. Such credit holds have delayed the delivery of customer orders, which delayed or caused the loss of sales during the three months ended September 30, 2010. A significant amount of these credit holds were released in October 2010, allowing us to deliver all of our delayed orders to our customers. Additionally, the three months ended September 30, 2009 includes approximately $3.6 million in product revenues related to a significant project in Mexico, which did not recur during the three months ended September 30, 2010.

The Venezuelan market, and to a lesser extent, our other Latin American markets, have been significantly affected by the global financial crisis and significant inflation. This has made it more challenging for our customers to maintain their capital spending and obtain credit to fund their purchases resulting in the termination, postponement or dollar value decrease of several contracts. Additionally, our results of operations for Venezuela are impacted by the differential between our revenue and cost cycles. Sales are mainly denominated in Bolivar Fuertes whereas purchases are mainly denominated in U.S. Dollars, thereby creating an exchange rate difference between revenues and costs, which has impacted our gross margins. In order to mitigate the risks that are present in Venezuela, management has been developing sales and customer bases in our other more profitable markets and restricting, to a lesser extent, its sales in Venezuela. We are also working closely with our sales personnel and vendors to enter into more profitable arrangements.

Product gross margin increased from 18% for the three months ended September 30, 2009, to 21% for the three months ended September 30, 2010. Excluding the effect of our Venezuelan operations in both periods, our product gross margin increased from 14% for the three months ended September 30, 2009, to 19% for the three months ended September 30, 2010. The gross margin for the three months ended September 30, 2009 was impacted by the lower gross margin relating to a significant project in Mexico.

Services

Year over year decline in revenue from the provision of professional ICT services was $1.5 million, or 11%. Excluding the effect of Venezuela’s service revenues in both periods, year over year service revenues grew $1.2 million, or 13%. The increase (excluding the results of Venezuela) is primarily attributable to several new maintenance agreements entered into during the three months ended September 30, 2010, which have resulted in a larger installed base of our equipment being serviced.

Venezuela’s revenues for the three months ended September 30, 2010 include service revenues at lower margins compared to the same period in the prior year. As noted above, the Venezuelan market, and to a lesser extent, our other Latin American markets, have been significantly affected by the global financial crisis and significant inflation.

Service gross margin remained stable at 37% for the three months ended September 30, 2010 and 2009. Excluding the effect of Venezuela in both periods, our service gross margin increased from 27% for the three months ended September 30, 2009 to 39% for the three months ended September 30, 2010. Our gross margin for 2010 has benefited from the synergies achieved from the consolidation of costs among the markets we serve which enabled us to control costs, while increasing revenues.

Expenses

Our overall operating expenses during the three months ended September 30, 2010 decreased as a result of cost-cutting measures implemented during 2009 in response to the overall weakened economy in Latin America. We revised our growth plans while implementing cost control programs, optimizing back-office functions and reducing our headcount by approximately 300 people. The change in the exchange rates we use to remeasure our Venezuelan operations also contributed to the decrease in expenses.

Sales, marketing and customer support costs include costs associated with advertising and promoting our products and services as well as supporting the customer after the sale is complete. Sales, marketing and customer support expenses for the three months ended September 30, 2009 reflect the significant investments made to expand our sales teams in multiple markets and roll out marketing campaigns supporting our entry into new markets such as Peru, El Salvador, Guatemala and Nicaragua. As a result of the weakened economic environment, we began reallocating resources by cutting plans and projects in order to reinvest in newer, more effective strategies, thereby reducing our costs during the three months ended September 30, 2010.

General and administrative expenses include back office expenses such as executive and support staff costs as well as professional fees for accounting, legal and other services associated with our Latin America operations. The three months ended September 30, 2010 reflect the benefits of our 2009 cost-cutting measures achieved mostly through reductions in salaries, office expenses and office-related expenses, including the closure of four offices in Latin America. We are benefitting from the efficiencies resulting from the optimization of our back-office infrastructure, such as the combination of support functions, and the realization of savings from cost control programs, such as the limitation of travel expenses, implemented over the last several quarters.

During the year ended December 31, 2009, we reviewed the carrying value of our goodwill and intangible assets in our Latin American segment. As a result of the review, we recorded a $15 million impairment charge as of December 31, 2009, thereby reducing the carrying value of our goodwill to $8.0 million and our intangible assets to $0 at December 31, 2009. Since we no longer have amortizable intangible assets, we have not recorded amortization expense for the three months ended September 30, 2010.

Interest expense is the cost associated with our outstanding debt obligations in Latin America including lines of credit, loans from financial institutions and capital leases. Interest expense, net of interest income, decreased for the three months ended September 30, 2010, as compared to 2009, as a result of lower average outstanding debt obligations.

Other income and expense is comprised of non-operating items. Other income for the three months ended September 30, 2010 is mainly comprised of foreign currency exchange gains arising from the remeasurement of our Venezuelan results of operations at the SITME rate. Other expense for the three months ended September 30, 2009 is mainly comprised of foreign currency swap losses, which are no longer present in 2010, and foreign currency exchange losses, both of which are related to our operations in Venezuela.

Comparison of the Nine Months Ended September 30, 2010 to the Nine Months Ended September 30, 2009

The following table sets forth, for the periods indicated, unaudited interim condensed consolidated statements of operations information for our continuing operations in Latin America.


	For the Nine Months Ended September 30,
	2010			2009			$ Change			% Change
Revenue
Product Sales	$	55,508,574		$	54,054,422		$	1,454,152			2.7	%
Services		37,778,163			32,686,783			5,091,380			15.6	%

Total Revenue		93,286,737			86,741,205			6,545,532			7.5	%
Cost of Revenue
Product Sales		45,407,557			41,432,550			3,975,007			9.6	%
Services		22,738,619			20,850,719			1,887,900			9.1	%

Total Cost of Revenue		68,146,176			62,283,269			5,862,907			9.4	%

Gross Profit		25,140,561			24,457,936			682,625			2.8	%
		26.9	%		28.2	%					(1.2	)%

Expenses
Sales, Marketing and Customer Support		13,955,479			18,801,816			(4,846,337	)		(25.8	)%
General and Administrative		13,353,125			19,791,347			(6,438,222	)		(32.5	)%
Depreciation and Amortization		1,867,561			1,987,719			(120,158	)		(6.0	)%
Amortization – Intangible Assets		—			2,611,158			(2,611,158	)		(100.0	)%

Total Expenses		29,176,165			43,192,040			(14,015,875	)		(32.5	)%

Operating Income (Loss)		(4,035,604	)		(18,734,104	)		14,698,500			(78.5	)%
Interest (Expense) Income, Net		(1,294,291	)		(2,741,291	)		1,447,000			(52.8	)%
Gain on Extinguishment of Debt		2,037,500			—			2,037,500			100.0	%
Change in Value of Noncontrolling Interest Purchase Price Obligation		—			814,127			(814,127	)		(100.0	)%
Other Income (Expense)		(415,162	)		(5,974,193	)		5,559,031			(93.1	)%

Net Income (Loss)	$	(3,707,557	)	$	(26,635,461	)	$	22,927,904			(86.1	)%

Product Sales

Year over year growth in product sales was $1.5 million, or 3%. Excluding the effect of Venezuela’s product revenues in both periods, our year over year growth in product sales was $12.8 million, or 36%. The increase in product sales is primarily attributable to increased sales in our markets in Argentina, Colombia and Ecuador. During the nine months ended September 30, 2010, we recognized approximately $9.5 million in product revenues related to two significant projects in Ecuador and approximately $5.4 million in product revenues related to a significant project in Argentina. Although we have recognized the revenue related to the projects in Ecuador consistent with our revenue recognition policies, the payment terms are such that the collection of these receivables is scheduled to occur in November 2010 and November 2011. During the nine months ended September 30, 2010, product revenues in our Latin America segment benefited from higher dollar value sales and an increased customer base, as compared to the nine months ended September 30, 2009. Product sales for the nine months ended September 30, 2010 were impacted by credit holds imposed on us by a major vendor. Such credit holds delayed the delivery of customer orders, which, in turn, delayed or caused the loss of sales during the nine months ended September 30, 2010.

Revenues for our Venezuelan operations for the nine months ended September 30, 2009 include product revenues at higher margins as compared to margins for customer orders in the same period in 2010 which were significantly lower. The Venezuelan market, and to a lesser extent, our other Latin American markets, have been significantly affected by the global financial crisis and significant inflation. This has made it more challenging for our customers to maintain their capital spending and obtain credit to fund their purchases resulting in the termination, postponement or dollar value decrease of several contracts. Additionally, our results of operations for Venezuela are impacted by the differential between our revenue and cost cycles. Sales are mainly denominated in Bolivar Fuertes whereas purchases are mainly denominated in U.S. Dollars, thereby creating an exchange rate difference between revenues and costs, which has impacted our gross margins. In order to mitigate the risks that are present in Venezuela, management has been developing sales and customer bases in our other more profitable markets and restricting, to a lesser extent, its sales in Venezuela. We are also working closely with our sales personnel and vendors to enter into more profitable arrangements.

Product gross margin decreased from 23% for the nine months ended September 30, 2009 to 18% for the nine months ended September 30, 2010. Excluding the effect of Venezuela in both periods, our product gross margin increased from 14% for the nine months ended September 30, 2009 to 17% for the nine months ended September 30, 2010.

Services

Year over year growth in revenue from the provision of professional ICT services was $5.1 million, or 16%. Excluding the effect of Venezuela’s service revenues in both periods, year over year growth in service revenues was $11.2 million, or 50%. During the nine months ended September 30, 2010, we recognized approximately $5.6 million in services revenues related to a significant project in Ecuador. We expect to recognize an additional $1.0 million, in service revenue from this project, during the remainder of 2010 and a total of $4.2 million in services revenue during 2011 and 2012. Although we have recognized the revenue related to this project in Ecuador consistent with our revenue recognition policies, the payment terms are such that the collection of these receivables is scheduled to occur in November 2010 and November 2011. The increase is also attributable to several new maintenance agreements entered into during the nine months ended September 30, 2010 associated with product sales, which has resulted in a larger installed base of our equipment being serviced.

Venezuela’s revenues for the nine months ended September 30, 2009 include service revenues at higher margins related to customers whose 2010 orders were significantly lower. As noted above, the Venezuelan market, and to a lesser extent, our other Latin American markets, have been significantly affected by the global financial crisis and significant inflation.

Service gross margin increased from 36% for the nine months ended September 30, 2009 to 40% for the nine months ended September 30, 2010. Excluding the effect of Venezuela in both periods, our service gross margin increased from 32% for the nine months ended September 30, 2009 to 40% for the nine months ended September 30, 2010. Our gross margin for 2010 has benefited from the synergies achieved from the consolidation of costs among the markets we serve which enabled us to control costs, while increasing revenues.

Expenses

Our overall operating expenses during the nine months ended September 30, 2010 decreased as a result of cost-cutting measures implemented during 2009 in response to the overall weakened economy in Latin America. We revised our growth plans while implementing cost control programs, optimizing back-office functions and reducing our headcount by approximately 300 people. The change in the exchange rates we use to remeasure our Venezuelan operations also contributed to the decrease in expenses.

Sales, marketing and customer support costs include costs associated with advertising and promoting our products and services as well as supporting the customer after the sale is complete. Sales, marketing and customer support expenses for the nine months ended September 30, 2009 reflect the significant investments made to expand our sales teams in multiple markets and roll out marketing campaigns supporting our entry into new markets such as Peru, El Salvador, Guatemala and Nicaragua. As a result of the weakened economic environment, we began reallocating resources by cutting plans and projects in order to reinvest in newer, more effective strategies, thereby reducing our costs during the nine months ended September 30, 2010.

General and administrative expenses include back office expenses such as executive and support staff costs as well as professional fees for accounting, legal and other services associated with our Latin America operations. The nine months ended September 30, 2010 reflect the benefits of our 2009 cost-cutting measures achieved mostly through reductions in salaries, office expenses and office-related expenses, including the closure of four offices in Latin America. We are benefitting from the efficiencies resulting from the optimization of our back-office infrastructure, such as the combination of support functions, and the realization of savings from cost control programs, such as the limitation of travel expenses, implemented over the last several quarters.

Interest expense is the cost associated with our outstanding debt obligations in Latin America including lines of credit, loans from financial institutions and capital leases. Interest expense, net of interest income, decreased for the nine months ended September 30, 2010, as compared to 2009, as a result of lower average outstanding debt obligations.

On March 16, 2010, we entered into a Settlement Agreement with Stanford International Holdings (Panama) S.A. (“SIHP”), whereby we agreed to pay SIHP $462,500 in full and final settlement of a $2.5 million outstanding balance under a line of credit with Stanford Bank (Panama) S.A. Accordingly, we recorded a gain on the extinguishment of debt in the amount of $2,037,500 during the nine months ended September 30, 2010.

During the nine months ended September 30, 2009, we recorded an $814,127 change in value of the noncontrolling interest purchase price obligation related to the remaining 30% interest in Desca which was previously owned by Jorge Enrique Alvarado Amado (“Alvarado”). On July 17, 2009, we consummated a purchase and sale transaction under a Securities Purchase Agreement effective as of July 1, 2009 with Alvarado pursuant to which, we purchased the remaining 3,000,000 Common Units of Desca for an aggregate purchase price of $1.9 million.

Other income and expense is comprised of non-operating items. Other expense for the nine months ended September 30, 2010 is mainly comprised of income attributable to noncontrolling interests. Other expense for the nine months ended September 30, 2009 is mainly comprised of foreign currency swap losses, which are no longer present in 2010, and foreign currency exchange losses, both of which are related to our Venezuelan operations.

Results of Operations – South Pacific

We offer mobile communications, Internet services and cable TV services (Moana TV) in American Samoa under the Bluesky Communications brand. In addition, we also own 66²/3% of the ASH Cable in partnership with the American Samoa Government, providing high-speed networking connections between the territory of American Samoa and Hawaii. The products and services we offer in each of these markets vary depending on the infrastructure, existing telecommunication and data communications systems and the needs of the local economy. Our services revenue includes support provided to our clients by our systems engineers, IT support, and technical staff for new or existing software, hardware, systems, or applications as well as ISP and data network infrastructure and telecommunications services. Sales of related products include computer hardware, communications hardware and commercial off-the-shelf software sold through retail locations or by our direct sales force.

During the third quarter of 2008, we began restructuring our South Pacific operations by consolidating our presence in American Samoa, Fiji and Papua New Guinea. Further, in April 2009, we sold our operations in Papua New Guinea and, as a result, have classified the results of operations for our Papua New Guinea operations as discontinued operations for all periods presented in our unaudited interim condensed consolidated financial statements. Additionally, in March 2010, we classified the results of operations for our Fiji operations as discontinued operations for all periods presented in our unaudited interim condensed consolidated financial statements. The reorganization of our South Pacific operations is expected to save us approximately $1 million in operating costs on an annual basis.

Comparison of the Three Months Ended September 30, 2010 to the Three Months Ended September 30, 2009

The following table sets forth, for the periods indicated, unaudited interim condensed consolidated statements of operations information for our continuing operations in the South Pacific.


	For the Three Months Ended September 30,
	2010			2009			$ Change			% Change
Revenue
Product Sales	$	102,921		$	200,253		$	(97,332	)		(48.6	)%
Services		3,734,586			3,384,158			350,428			10.4	%

Total Revenue		3,837,507			3,584,411			253,096			7.1	%
Cost of Revenue
Product Sales		96,226			237,676			(141,450	)		(59.5	)%
Services		1,176,195			1,391,941			(215,746	)		(15.5	)%

Total Cost of Revenue		1,272,421			1,629,617			(357,196	)		(21.9	)%

Gross Profit		2,565,086			1,954,794			610,292			31.2	%
		66.8	%		54.5	%					12.3	%

Expenses
Sales, Marketing and Customer Support		207,956			672,380			(464,424	)		(69.1	)%
General and Administrative		741,970			566,357			175,613			31.0	%
Depreciation and Amortization		934,830			1,045,765			(110,935	)		(10.6	)%
Amortization – Intangible Assets		79,018			138,267			(59,249	)		(42.9	)%

Total Expenses		1,963,774			2,422,769			(458,995	)		(18.9	)%

Operating Income (Loss)		601,312			(467,975	)		1,069,287			(228.5	)%
Interest (Expense) Income, Net		(330,888	)		(405,173	)		74,285			(18.3	)%
Other Income (Expense)		57,629			291,424			(233,795	)		(80.2	)%

Net Income (Loss)	$	328,053		$	(581,724	)	$	909,777			(156.4	)%

Product Sales

Revenues from product sales during the three months ended September 30, 2010 decreased from the same period in 2009 due to an overall decrease in retail sales for handsets and personal computers. This is attributed to a decline in consumer spending between both periods. The cost of revenue from product sales decreased at a slightly higher rate than the corresponding revenue, thereby increasing our product margin, due to increased efforts in controlling our discounts so as to increase our net revenues. Our product margin was affected by incentives provided to customers for purchasing our products. We continue to expand our supplier base in order to maintain competitive pricing and products within our markets.

Services

Revenue from the provision of professional services for the three months ended September 30, 2010 increased compared with the same period in 2009 primarily as a result of the provision of communication services through our undersea cable operations, as well as revenues generated from our cable television operations, both of which began generating revenues during the second quarter of 2009. Additionally, during the fourth quarter of 2009, we provided services for many Federal Disaster Recovery agencies in the wake of the September 2009 earthquake and tsunami that struck American Samoa, a portion of which have continued through the second and third quarters of 2010. Service revenue also increased as a result of securing and activating additional fiber capacity for our existing customers and leased capacity for new broadband and fiber customers.

Our service gross margin increased from 59% for the three months ended September 30, 2009 to 69% for the three months ended September 30, 2010. The increase is primarily attributable to the higher margin revenues related to the communication services provided by our undersea cable operations and our data services provided to our large broadband customers. The increase in our service margin was offset by our cable television service offerings, which carry a lower overall margin than some of our other services.

Expenses

Sales, marketing and customer support expenses were lower for the three months ended September 30, 2010 compared to the same period in 2009. This decrease resulted primarily from the costs associated in 2009 with several marketing promotions and campaigns as well as community service programs launched to commemorate AST Telecom’s 10-year presence in American Samoa.

General and administrative expenses were higher for the three months ended September 30, 2010 than for the same period in 2009. The increase is mainly due to legal, professional and management fees incurred for the undersea cable operations related to the broadband stimulus funding application process.

Expenses related to the depreciation of property, plant and equipment for the three months ended September 30, 2010 were lower than for the same period in 2009 mainly due to the full depreciation of certain assets, offset by the depreciation on network equipment installed to support our undersea cable operations.

Other income, net for the three months ended September 30, 2010 and 2009, is mainly comprised of the noncontrolling interest on the American Samoan Hawaii Cable segment of our operations, representing the 33.33% ownership of the American Samoa Government.

Comparison of the Nine Months Ended September 30, 2010 to the Nine Months Ended September 30, 2009

The following table sets forth, for the periods indicated, unaudited interim condensed consolidated statements of operations information for our continuing operations in the South Pacific.


	For the Nine Months Ended September 30,
	2010			2009			$ Change			% Change
Revenue
Product Sales	$	388,533		$	340,149		$	48,384			14.2	%
Services		11,065,031			8,563,126			2,501,905			29.2	%

Total Revenue		11,453,564			8,903,275			2,550,289			28.6	%
Cost of Revenue
Product Sales		391,911			375,785			16,126			4.3	%
Services		3,672,915			3,294,860			378,055			11.5	%

Total Cost of Revenue		4,064,826			3,670,645			394,181			10.7	%

Gross Profit		7,388,738			5,232,630			2,156,108			41.2	%
		64.5	%		58.8	%					5.7	%

Expenses
Sales, Marketing and Customer Support		659,843			1,104,881			(445,038	)		(40.3	)%
General and Administrative		2,240,545			1,633,479			607,066			37.2	%
Depreciation and Amortization		2,810,448			1,823,279			987,169			54.1	%
Amortization – Intangible Assets		256,802			814,664			(557,862	)		(68.5	)%

Total Expenses		5,967,638			5,376,303			591,335			11.0	%

Operating Income (Loss)		1,421,100			(143,673	)		1,564,773			(1089.1	)%
Interest (Expense) Income, Net		(997,833	)		(597,781	)		(400,052	)		66.9	%
Other Income (Expense)		360,210			282,617			77,593			27.5	%

Net Income (Loss)	$	783,477		$	(458,837	)	$	1,242,314			(270.8	)%

Product Sales

Revenues from product sales during the nine months ended September 30, 2010 increased from the same period in 2009 primarily as a result of our marketing efforts to launch promotions aimed at incentivizing customers to purchase handsets and personal computers. We focused our efforts in controlling our discounts so as to increase our net revenues, while providing incentives to customers for purchasing our products.

Services

Revenue from the provision of professional services for the nine months ended September 30, 2010 increased as compared with the same period in 2009 primarily as a result of the provision of communication services through our undersea cable operations, as well as revenues generated from our cable television operations, both of which began generating revenues during the second quarter of 2009. During the fourth quarter of 2009, we provided services for many Federal Disaster Recovery agencies in the wake of the September 2009 earthquake and tsunami that struck American Samoa, portions of which have continued through 2010. Additionally, service revenue increased as a result of securing and activating additional fiber capacity for our existing customers and leased capacity for new broadband and fiber customers.

Our service gross margin increased from 62% for the nine months ended September 30, 2009 to 67% for the nine months ended September 30, 2010. The increase is primarily attributable to the higher margin sales related to the communication services provided by our undersea cable operations and our internet broadband services provided by our data operations. The increase in our service margin was offset by our cable television service offerings, which carry a lower overall margin than some of our other services.

Expenses

Sales, marketing and customer support expenses were lower for the nine months ended September 30, 2010 compared to the same period in 2009. This decrease resulted primarily from the costs associated in 2009 with several marketing promotions and campaigns as well as community service programs launched to commemorate AST Telecom’s 10-year presence in American Samoa.

General and administrative expenses were higher for the nine months ended September 30, 2010 than for the same period in 2009. The increase is mainly due to (a) back office expenses, such as executive and support staff costs, incurred with our undersea cable operations and cable television operations, both of which did not have substantial operations until the second half of 2009 and (b) legal, professional and management fees incurred for our undersea fiber cable operations related to the broadband stimulus funding application process.

Expenses related to the depreciation of property, plant and equipment for the nine months ended September 30, 2010 were higher than for the same period in 2009 mainly due to the installation of new network equipment to support the undersea cable operations.

Expenses related to the amortization of intangible assets for the nine months ended September 30, 2010 decreased from the same period in 2009 primarily due to the termination of the amortization period of certain intangible assets acquired in connection with acquisitions made in 2006.

Interest expense, net of interest income, for the nine months ended September 30, 2010 increased as compared to the same period in 2009 as a result of the $16.7 million debt associated with the undersea cable operations.

Other income, net for the nine months ended September 30, 2010 and 2009, is mainly comprised of the noncontrolling interest on the American Samoan Hawaii Cable segment of our operations, representing the 33.33% ownership of the American Samoa Government.

Results of Operations – Corporate and Discontinued Operations

Comparison of the Three and Nine Months Ended September 30, 2010 to the Three and Nine Months Ended September 30, 2009

Our corporate headquarters primarily performs administrative services, and as such, does not generate revenue. The discontinued operations pertain predominantly to our Papua New Guinea and Fiji operations, as discussed below.

The following tables set forth, for the periods indicated, unaudited interim condensed consolidated statements of operations information for our corporate office and our discontinued operations.


	For the Three Months Ended September 30,
	2010			2009			$ Change			% Change
Expenses
General and Administrative	$	1,259,750		$	1,375,329		$	(115,579	)		(8.4	)%
Transaction Related Expenses		414,066			—			414,066			100.0	%
Depreciation and Amortization		36,136			24,536			11,600			47.3	%

Total Expenses		1,709,952			1,399,865			310,087			22.2	%

Operating Income (Loss)		(1,709,952	)		(1,399,865	)		(310,087	)		22.2	%
Interest (Expense) Income, Net		(174,804	)		61,242			(236,046	)		(385.4	)%
Other Income (Expense)		376			(72,166	)		72,542			(100.5	)%
Income (Loss) from Discontinued Operations		2,444,505			(204,423	)		2,648,928			(1295.8	)%

Net Income (Loss)	$	560,125		$	(1,615,212	)	$	2,175,337			(134.7	)%


	For the Nine Months Ended September 30,
	2010			2009			$ Change			% Change
Expenses
General and Administrative	$	5,616,054		$	10,280,500		$	(4,664,446	)		(45.4	)%
Transaction Related Expenses		946,505			—			946,505			100.0	%
Depreciation and Amortization		102,030			50,566			51,464			101.8	%

Total Expenses		6,664,589			10,331,066			(3,666,477	)		(35.5	)%

Operating Income (Loss)		(6,664,589	)		(10,331,066	)		3,666,477			(35.5	)%
Interest (Expense) Income, Net		(259,656	)		55,178			(314,834	)		(570.6	)%
Other Income (Expense)		128,462			167,307			(38,845	)		(23.2	)%
Income (Loss) from Discontinued Operations		2,414,819			(10,974,467	)		13,389,286			(122.0	)%

Net Income (Loss)	$	(4,380,964	)	$	(21,083,048	)	$	16,702,084			(79.2	)%

General and administrative expenses are predominantly corporate overhead expenses including executive costs and fees for professional services. The decrease for the three and nine months ended September 30, 2010 as compared to the same period in 2009 was primarily the result of lower legal and other professional fees, as well as lower compensation costs. Legal and professional fees during the three and nine months ended September 30, 2009 include significant costs incurred related to the handling of various SIBL-related matters, including the modification of our Bridge Loan, restricted access to credit facilities with our banks in Latin America, credit holds from vendors and overall perception confusion regarding our relationship with SIBL. In addition, 2009 includes legal and professional fees incurred related to an unsuccessful potential acquisition, and other special non-recurring projects. Non-cash share-based compensation expense amounted to $284,550 and $910,469 for the three and nine months ended September 30, 2010, respectively, compared to $299,818 and $1,470,126 for the three and nine months ended September 30, 2009, respectively. The decrease in compensation costs for the three and nine months ended September 30, 2010 is primarily attributable to a reduction in corporate headcount and lower salary and salary related expenses.

Transaction related expenses in 2010 mainly represent legal, professional, travel and other expenses incurred in connection with our transactions with Amper. The expenses are comprised of due diligence fees, contract negotiations and review, in-country visits, and investor presentations.

Interest expense for the three and nine months ended September 30, 2010 is primarily due of the $5.0 million Exclusivity Advance from Amper.

The income (loss) from discontinued operations pertains primarily to our operations in Papua New Guinea, which were sold in April 2009, and our operations in Fiji. In April 2009, we sold our operations in Papua New Guinea and, as a result, have classified the results of operations for our Papua New Guinea operations as discontinued operations for all periods presented in our unaudited interim condensed consolidated financial statements. In December 2009, our Board of Directors approved management’s plan to dispose of our operations in Fiji. We began to actively market and locate a buyer for our operations in Fiji during the quarter ended March 31, 2010. On June 24, 2010, we entered into a settlement agreement with Kelton and Datec, as plaintiffs, among others, pursuant to which 150,000 shares of our common stock will be transferred to us in exchange for our interests in Datec Fiji and Datec Australia. As a result of the settlement and resolution of the material closing conditions during the quarter ended September 30, 2010, we re-measured the value of the net liabilities to be transferred at the lower of the carrying amount or fair value. We determined that the fair value of the 150,000 shares of our common stock to be returned to us was deminimus. Accordingly, we recorded in discontinued operations a gain, which includes the results of operations for the three and nine months ended September 30, 2010, of $2.4 million. That gain includes approximately $3.6 million from the recovery of accumulated translation gains previously reflected as a component of other comprehensive income.

Liquidity and Capital Resources

Stanford International Bank Ltd.

As a result of the Stanford International Bank Ltd. (“SIBL”) receiverships, and the uncertainty caused by them, we lost access to our primary source of financing which negatively impacted our ability to obtain additional capital which we may need to fund our expansion plans and service our debt obligations. Also, due to the recent circumstances surrounding SIBL, our previous association with SIBL has become a significant detriment to our operations and prospects. Several banks in Latin America have restricted our access to revolving credit lines or have prevented additional draws on open credit lines requiring us to use cash reserves to remain current with our vendors. Our lines of credit with certain vendors have also been tightened with additional deposit or security requirements being added. The uncertainty caused by the possible impact of our association with SIBL has also inhibited our ability to obtain third party financing and has caused us to spend significant amounts of working capital that were not budgeted or anticipated. However, we do not believe that these factors will have a material adverse effect on our business, financial condition or results of operations.

In addition, our association with SIBL along with any legal proceedings that may arise from such association could adversely impact our liquidity, capital resources and operations. Any such legal actions may result in substantial costs and are expected to divert our management’s attention and resources. An unfavorable judgment against us in any legal proceeding or claim could require us to pay monetary damages. Also, an unfavorable judgment in which the counterparty is awarded equitable relief, such as an injunction, could harm our business, consolidated results of operations and consolidated financial condition.

In addition, local credit markets in Latin America have tightened and local bank lending policies have become more stringent than in the past. Our Latin American subsidiary, Desca, has had local lines of credit expire unrenewed as a result and we have had to supply cash to Desca to replace that liquidity.

Overall Cash Inflows and Outflows

We incurred a $9.3 million loss from continuing operations and used $25.3 million of cash in continuing operations for the nine months ended September 30, 2010. As of September 30, 2010, we have a working capital of $1.2 million.

Operating Activities. We used $25.3 million to fund operations during the nine months ended September 30, 2010. For the nine months ended September 30, 2010, our loss from continuing operations, net of income tax expense amounted to $9.6 million, which included net non-cash expenses of $4.5 million. Changes in operating assets and liabilities utilized $20.2 million in cash.

Investing Activities. We paid $1.4 million for investments in capital assets during the nine months ended September 30, 2010.

Financing Activities. We received $18.5 million in cash from financing activities during the nine months ended September 30, 2010. During the nine months ended September 30, 2010, we received $19.5 million in net proceeds from lines of credit and long-term debt. We paid an aggregate of $1.0 million in cash for our capital leases during the nine months ended September 30, 2010.

On June 8, 2009, we entered into a Term Loan Agreement in the amount of $16,672,000 with ANZ, whereby the proceeds of the term loan were used to fund the construction, installation and delivery to customers of a fully operational underwater fiber optic cable linking America Samoa and Samoa to Hawaii and providing improved long distance telecommunication and data services.

On May 24, 2010 we entered into a Strategic Alliance Agreement with Amper pursuant to which we established an alliance aimed at expanding each other’s access to the Latin American and Caribbean markets and providing each other the opportunity to offer our combined portfolio of products, services, technology solutions and technical resources throughout the region. In consideration for the certain exclusivity covenants, Amper advanced to us the Exclusivity Advance in the amount of $5 million. The Exclusivity Advance is refundable upon the occurrence of any of the following events: (i) the earlier of (A) November 30, 2010, or (B) the date that payments are received by Descaserv under a certain customer contract; (ii) a material breach of the Strategic Alliance Agreement or any of the Security Documents by eLandia, Desca or any of their subsidiaries; (iii) the completion of an Alternative

Transaction; or (iv) the occurrence of any of the following: (A) the sale of any shares of stock of Descaserv held by us, any merger or other business combination involving Descaserv or the transfer of certain material assets of Descaserv, (B) a failure to pay or any material breach by Descaserv with respect to any of its material indebtedness, (C) any bankruptcy or other insolvency or liquidation proceeding involving the Company or any of its significant subsidiaries, or (D) a default by Descaserv under a certain material customer contract. If the Exclusivity Advance is required to be refunded and the amounts in the preceding sentences become payable, we expect that the funds received by us under a material customer contract will be used to make any such repayments. As more fully described above, on July 29, 2010 we entered into a Contribution Agreement with Amper pursuant to which Amper will acquire 85% of our issued and outstanding shares of common stock in exchange for the contribution to eLandia by Amper of approximately 79.7% of their ownership in Medidata.

The successful management of our working capital needs is a key driver of our growth and cash flow generation of our operations in Latin America. One measurement we use to monitor working capital is days sales outstanding (“DSO”), which measures the number of days we take to collect revenue after a sale is made. Our September 30, 2010 consolidated annualized DSO was 111 days, compared with 128 days at December 31, 2009. Our DSO as of December 31, 2009 is on a pro forma basis to give effect to the classification of Datec PNG and Fiji as discontinued operations. The fluctuation in our DSO is mainly the result of higher annualized sales and lower average accounts receivable.

Since 2003, Venezuela has imposed currency controls and created the CADIVI process with the task of establishing detailed rules and regulations and generally administering the exchange control regime. These controls fix the exchange rate between the Bolivar and the U.S. Dollar, and have had the effect of restricting the ability to exchange Bolivars for Dollars and vice versa. The near-term effect has been to restrict our ability to repatriate funds from Venezuela in order to meet our cash requirements. To the extent that we moved money in or out of Venezuela, either for cash flow purposes or working capital needs, we were subject to exchange gains or losses because Venezuela is operating on a fixed exchange rate, whereas the actual market is operating on a variable exchange rate.

In particular, the currency controls in Venezuela have restricted our ability to make payments to vendors in U.S. Dollars, causing us to borrow money to meet these obligations and to be subject to credit holds, and therefore delaying the delivery of customer orders which, in turn, has delayed or caused the loss of sales.

In order to address and mitigate these issues, we either (i) enter into short-term financing arrangements with our vendors which extends the date when payment is due, (ii) obtain short-term financing from local banks in country, or (iii) we may deploy working capital from eLandia. Additionally, we continue to successfully decrease our working capital debt and related interest expense in Latin America and have recently been able to refinance certain obligations with long-term debt, which historically was not possible.

We continue to make appropriate applications through the Venezuelan government and CADIVI for approval to obtain U.S. Dollars at the official exchange rate. However, we have experienced difficulties in obtaining such approvals on a timely basis and we have not been given any assurances as to when the approval process would be completed. Due to these delays, we have used available local currency paid by customers to reduce our debt obligations denominated in that local currency. As a result, when approvals from CADIVI have been obtained we have had to promptly acquire Bolivars using a legal parallel exchange process in order to obtain U.S. Dollars at the official exchange rate which can then be repatriated and used to meet our working capital needs. If previously obtained approvals do not ultimately result in currency conversions at the official exchange rate or if there is a delay in approvals being honored by CADIVI, we would be required to obtain U.S. Dollars at a substantially less favorable exchange rate which would negatively impact our financial results and financial position. From time to time, we may have had to recognize charges to operating income in connection with the exchange of Bolivars to U.S. Dollars at rates which were unfavorable to the official exchange rate. During the fourth quarter of 2009 and the first quarter of 2010, we received a large amount of approvals from CADIVI which we used to reduce the risk on our payables and debt obligations.

As noted in prior filings, at December 31, 2009, we determined that the parallel rate was the appropriate rate to use for the remeasurement of our Venezuelan financial statements for the purposes of consolidation based on the facts and circumstances of our business. In May 2010, the Venezuela government announced that trading in the historical parallel market would be suspended. They also announced that the BCV would establish an alternative to the historical parallel market. This alternative exchange market contained a number of trading restrictions. The specifics of the BCV alternative exchange option include a limitation of $350,000 U.S. Dollars per month for any particular entity, provided that no CADIVI approvals have been received over the prior 90 days. This is a substantial restriction in the amount of U.S. Dollars available for the payment of newly imported product, outside of the CADIVI approval process, as compared to the suspended parallel market. We continue to monitor this situation including the impact such restrictions may have on our future business operations. At this time, we are unable to predict with any degree of certainty how the recent changes as well as future developments within Venezuela will affect our Venezuela operations, if at all.

We believe that we have sufficient working capital on a consolidated basis in order to satisfy any subsidiary needs to the extent that such fundings are in our best interest as a whole. However, to the extent that we must rely on short-term financing from vendors or local banks, these financing arrangements may involve high interest rates or payment terms which could be unfavorable to us.

While we have begun to see the beginnings of economic stability and recovery in the markets we currently serve, the recent global economic crisis has caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. In addition, our association with SIBL, and the related ongoing uncertainties have made our efforts to raise additional capital more difficult. These conditions not only limit our access to capital, but also make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and could cause U.S. and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. Furthermore, during challenging economic times our customers may face issues including:

•

the inability to obtain credit to finance purchases of our products;

•

customer insolvencies;

•

decreased customer confidence to make purchasing decisions;

•

decreased customer demand; and

•

decreased customer ability to pay their trade obligations.

In addition, the recent economic crisis could adversely impact our suppliers’ ability to provide us with materials and components, either of which may negatively impact our business, financial condition and results of operations.

Our anticipated growth and expansion in Latin America has required significant use of our working capital, as well as the use of vendor financings and other forms of borrowings. Along with these investments, we have incurred significant expenses to fund our anticipated growth. Our customer activity is influenced by seasonal effects related to budget cycles and other factors specific to our target customer base. As such, revenues are generally higher in the fourth quarter. As a result of the anticipated growth, we will need access and availability to our existing vendor financings and credit facilities and/or will need to obtain additional financing and capital resources. We have also begun utilizing our cash resources to reduce our short-term debt and purchase additional inventory.

Our capital expenditures, together with ongoing operating expenses and obligations to service our debts, will likely decrease our available cash balances during the next fiscal year. We believe that our current level of working capital will be sufficient to sustain our current operations and service our debt obligations through at least October 1, 2011. However, there can be no assurance that the plans and actions proposed by management will be successful or that unforeseen circumstances will not require us to seek additional funding sources in the future or effectuate plans to conserve liquidity in the event additional sources of funds are needed or may not be available on acceptable terms, if at all. Although the overall economy is showing signs of recovery, in particular in the markets we serve, the current macro-economic conditions create risk and our ability to measure and react to these issues, as well as any issues that may arise as a result of the SIBL matter, will ultimately factor into our future success and ability to meet our business objectives and fulfill our business plan. In addition, if we are not able to sell our assets or our sources of revenue do not generate sufficient capital to fund operations, we will need to identify other sources of capital and/or we may be required to modify our business plan. Our inability to obtain needed debt and/or equity financing when needed or to generate sufficient cash from operations may require us to scale back our business plan and limit our planned growth and expansion activities, abandon projects and/or curtail capital expenditures. Our past association with SIBL, the current challenging economic conditions and the unusual events that have affected global financial markets have impaired our ability to identify and secure other sources of capital. At this time, we cannot provide any assurance that other sources of capital will be available.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4T.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation we have concluded that our disclosure controls and procedures are not effective in ensuring that all material information required to be filed with the SEC is recorded, processed, summarized and reported within the time period specified in the rules and forms of the SEC because of material weaknesses in our internal control over financial reporting as discussed below and in our Annual Report on Form 10-K for the year ended December 31, 2009.

In light of the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2009, our management continues to perform additional analyses and other post-closing procedures to ensure that our unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP. Accordingly, our management believes that the unaudited interim condensed consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2009, we are implementing enhancements and changes to our internal control over financial reporting to provide reasonable assurance that errors and control deficiencies will not occur. We recognize the importance of having staff with competencies required for the accurate interpretation of GAAP; for having effective internal controls over financial reporting; and for establishing the appropriate policies and procedures to assure timely, accurate, and reliable information. Consequently, to eliminate material weaknesses identified with respect to staffing and training, our management has continued efforts to increase the depth and upgrade the skill sets of our accounting group through continuing education and ongoing training while maintaining staffing with appropriate skills and experience in the application of GAAP commensurate with our financial reporting requirements. Chief among these efforts is the development of a Controllership Guide and coordinated on-line education program.

We recognize the need for establishing entity level controls as defined by the COSO framework. We recognize the importance of having a Code of Business Conduct and FCPA training program; consistent finance and accounting policies and procedures; account reconciliation guidelines; whistle blower reporting mechanism; fraud risk assessment process; and delegation of authority document. To this end, we are requiring 100% compliance by each of our operations around the world with respect to the Code of Business Conduct, FCPA training and other corporate governance policies; development, circulation and training of accounting and finance policies; development and compliance of an account reconciliation policy; establishment of a whistle blower mechanism; development of a fraud risk assessment process and anti fraud program; development and communication of the delegation of authority document and other process enhancements.

Additionally, we are enforcing spreadsheet control policies, especially those affecting spreadsheets that are critical to the preparation of financial statements and related disclosures in accordance with GAAP and SEC regulations.

No other changes to internal controls over financial reporting have come to management’s attention during the nine months ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On June 24, 2010, we entered into a settlement agreement (“Settlement Agreement” ) with the plaintiffs in this case, among others, pursuant to which subject to the satisfaction of certain closing conditions: (i) 150,000 shares of our common stock will be transferred to us in exchange for our interests in Datec Fiji and Datec Australia, (ii) the parties will dismiss all pending legal proceedings between them, (iii) the parties exchanged mutual general releases, and (iv) the parties agreed to be subject to certain non-interference, and non-disparagement covenants. This action was dismissed August 12, 2010.

On March 9, 2009, we filed an action in the United States District Court for the Southern District of Florida, Miami Division (the “Court”), against Sir James Ah Koy, Michael Ah Koy, Kelton, and Datec. In essence, we alleged that Sir James Ah Koy and his son, Michael Ah Koy, Kelton, and Datec improperly acted to preclude the sale of our interests in the South Pacific. We asserted that the defendants improperly employed claims and complaints about the Arrangement Agreement that they have released to favor their own interests at our expense. We asserted claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, conspiracy to breach fiduciary duty, declaratory judgment under various agreements, breach of the implied covenant of good faith and fair dealing, breach of contract, and tortious interference with business relations. We sought a declaratory judgment, an injunction, compensatory damages, punitive damages, attorneys’ fees, and costs. Pursuant to the Settlement Agreement, this action was dismissed on June 25, 2010.

In addition to the above, from time to time, we are periodically a party to or otherwise involved in legal proceedings arising in the normal and ordinary course of business. Other than as described above, as of the date of this Quarterly Report, management does not believe that there is any proceeding threatened or pending against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

ITEM 1A.

RISK FACTORS

Not required for smaller reporting companies.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchase of Noncontrolling Interest

On August 9, 2010, pursuant to the terms of the Stock Purchase Agreement, we issued 10,000 shares of our common stock valued at $5,500 based on a closing stock price of $0.55 in exchange for a 30% interest in Desca Panama, S.A. These shares were issued in a transaction exempt from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

RESERVED

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS


Exhibit No.	Description of Document	Method of Filing

31.1	Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

31.2	Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

32.1	Certification of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

32.2	Certification of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ELANDIA INTERNATIONAL INC.

Date: November 18, 2010	By:	/S/ PETE R. PIZARRO
		Pete R. Pizarro
		Chief Executive Officer

Date: November 18, 2010	By:	/S/ HARLEY L. ROLLINS, III
		Harley L. Rollins, III
		Chief Financial Officer

Exhibit Index


Exhibit No.	Description of Document	Method of Filing

31.1	Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

31.2	Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

32.1	Certification of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

32.2	Certification of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company