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, 2011

¨	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)

8333 NW 53^rd Street

Suite 400

Miami, FL 33166

(Address of principal executive offices, including zip code)

(305) 415-8830

(Registrant’s telephone number, including area code)

8200 NW 52^nd Terrace

Suite 102

Miami, FL 33166

(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 x 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 21, 2011, the registrant had 177,348,133 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, 2011 (UNAUDITED) AND DECEMBER 31, 2010		3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)		4

	CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED)		5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)		6

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		27

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		42

ITEM 4 T.	CONTROLS AND PROCEDURES		42

PART II—OTHER INFORMATION			43

ITEM 1.	LEGAL PROCEEDINGS		43

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.	REMOVED AND 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, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents	$	19,140,095		$	10,926,659
Restricted Cash		5,904,837			851,654
Accounts Receivable, Net		93,865,400			63,622,336
Inventories, Net		20,528,035			8,330,218
Prepaid Expenses and Other Current Assets		12,499,399			8,076,018
Deposits with Suppliers and Subcontractors		11,219,973			9,943,463
VAT Receivable, Net		8,318,724			3,259,350

Total Current Assets		171,476,463			105,009,698

Property, Plant and Equipment, Net		41,835,907			32,020,861
Deferred Tax Asset		7,967,558			60,557
Intangible Assets, Net		1,603,785			1,804,710
Goodwill		11,085,660			11,085,660
Due from Affiliates		14,129,899			585,556
VAT Receivable, Net of Current Portion		1,747,000			—
Other Assets		5,413,831			2,562,307

TOTAL ASSETS	$	255,260,103		$	153,129,349


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable	$	60,572,376		$	47,582,308
Accrued Expenses		32,225,253			17,641,158
Lines of Credit		6,849,902			6,052,110
Long-Term Debt - Current Portion		22,686,160			10,343,251
Long-Term Debt - Related Party - Current Portion		5,000,000			5,000,000
Capital Lease Obligations - Current Portion		1,371,373			1,514,522
Customer Deposits		3,524,477			10,712,176
Deferred Revenue		5,419,893			10,107,877
Liabilities of Discontinued Operations		—			758,091
Other Current Liabilities		11,110,217			4,459,482

Total Current Liabilities		148,759,651			114,170,975


Long-Term Liabilities
Long-Term Debt, Net of Current Portion		28,656,929			28,755,546
Capital Lease Obligations, Net of Current Portion		2,467,898			1,606,173
Deferred Revenue, Net of Current Portion		1,512,449			1,776,823
Liabilities of Discontinued Operations		—			500,000
Other Long-Term Liabilities		14,503,603			2,635,613

Total Long-Term Liabilities		47,140,879			35,274,155

Total Liabilities		195,900,530			149,445,130


Commitments and Contingencies

Stockholders’ Equity
eLandia International Inc. Stockholders’ Equity (Deficit)
Preferred Stock, $0.00001 Par Value; 35,000,000 Shares Authorized; -0- and 4,118,263 Shares Issued and Outstanding at September 30, 2011 and December 31, 2010, Respectively
Series A Convertible Preferred Stock, $0.00001 Par Value; 6,500,000 Shares Authorized; -0- Shares Issued and Outstanding at September 30, 2011 and December 31, 2010, Respectively		—			—
Series B Convertible Preferred Stock, $0.00001 Par Value; 14,074,074 Shares Authorized; -0- and 4,118,263 Shares Issued and Outstanding at September 30, 2011 and December 31, 2010, Respectively. Liquidation preference of $27,798,275 at December 31, 2010		—			16,679,962

Common Stock, $0.00001 par value; 200,000,000 Shares Authorized; 177,348,133 and 25,240,220 Shares Issued and Outstanding at September 30, 2011 and December 31, 2010, Respectively		1,772			251
Additional Paid-In Capital		237,895,270			172,204,748
Accumulated Deficit		(196,517,027	)		(189,693,771	)
Accumulated Other Comprehensive Loss		(9,655,479	)		(3,133,652	)

Total eLandia International Inc. Stockholders’ Equity (Deficit)		31,724,536			(3,942,462	)
Noncontrolling Interests		27,635,037			7,626,681

Total Stockholders’ Equity		59,359,573			3,684,219

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	255,260,103		$	153,129,349

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 Sept. 30,						For the Nine Months Ended Sept. 30,
	2011			2010			2011			2010
REVENUE
Product Sales	$	52,588,109		$	13,404,865		$	118,717,232		$	55,897,107
Services		25,984,017			16,043,709			67,534,015			48,843,194

Total Revenue		78,572,126			29,448,574			186,251,247			104,740,301

COSTS AND EXPENSES
Cost of Revenue – Product Sales		37,903,581			10,616,413			90,210,880			45,278,725
Cost of Revenue – Services		19,901,141			8,936,110			44,924,266			26,411,534
Sales, Marketing and Customer Support		5,927,095			4,909,763			15,787,752			14,615,322
General and Administrative		11,953,971			6,679,504			29,434,603			20,582,295
Negative Goodwill		—			—			(2,907,114	)		—
Transaction Related Expenses		—			414,066			1,047,598			946,505
Depreciation and Amortization		2,094,501			1,621,847			5,284,926			4,780,039
Amortization – Intangible Assets		65,468			79,018			200,925			256,802

Total Operating Expenses		77,845,757			33,256,721			183,983,836			112,871,222

INCOME (LOSS) FROM CONTINUING OPERATIONS		726,369			(3,808,147	)		2,267,411			(8,130,921	)
OTHER (EXPENSE) INCOME
Interest Expense and Other Financing Costs		(2,258,831	)		(1,141,602	)		(5,903,718	)		(3,261,235	)
Interest Income		410,743			1,200			738,804			82,026
Other (Expense) Income		(1,282,656	)		391,575			80,647			95,332
Gain on Extinguishment of Debt		—			—			—			2,037,500
Foreign Exchange (Loss) Gain		(2,099,558	)		505,391			(3,566,528	)		(378,302	)

Total Other (Expense) Income		(5,230,302	)		(243,436	)		(8,650,795	)		(1,424,679	)

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT (EXPENSE)		(4,503,933	)		(4,051,583	)		(6,383,384	)		(9,555,600	)
Income Tax Benefit (Expense)		1,144,474			(10,788	)		(3,759	)		(10,797	)

LOSS FROM CONTINUING OPERATIONS, NET OF INCOME TAX BENEFIT (EXPENSE)		(3,359,459	)		(4,062,371	)		(6,387,143	)		(9,566,397	)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT (EXPENSE)		—			2,444,505			—			2,414,819

NET LOSS	$	(3,359,459	)	$	(1,617,866	)	$	(6,387,143	)	$	(7,151,578	)
Less: Loss (Income) Attributable to Noncontrolling Interests		518,623			163,811			(436,113	)		(153,466	)

NET LOSS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.	$	(2,840,836	)	$	(1,454,055	)	$	(6,823,256	)	$	(7,305,044	)


AMOUNTS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.
Loss from Continuing Operations	$	(2,840,836	)	$	(3,898,560	)	$	(6,823,256	)	$	(9,719,863	)
Income from Discontinued Operations		—			2,444,505			—			2,414,819

NET LOSS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.	$	(2,840,836	)	$	(1,454,055	)	$	(6,823,256	)	$	(7,305,044	)


NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC., BASIC AND DILUTED
Continuing Operations	$	(0.02	)	$	(0.14	)	$	(0.07	)	$	(0.35	)
Discontinued Operations		—			0.09			—			0.09

Net Loss per Common Share	$	(0.02	)	$	(0.05	)	$	(0.07	)	$	(0.26	)


Weighted Average Number of Common Shares Outstanding, Basic and Diluted		177,376,258			27,768,345			93,766,965			27,734,242


OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Net Loss	$	(3,359,459	)	$	(1,617,866	)	$	(6,387,143	)	$	(7,151,578	)
Foreign Currency Translation Adjustment		(8,560,780	)		(3,731,008	)		(7,059,827	)		(6,607,716	)
Unrealized gain on financial instrument		763,000			—			538,000			—

Comprehensive Loss		(11,157,239	)		(5,348,874	)		(12,908,970	)		(13,759,294	)
Comprehensive Loss (Income) Attributable to Noncontrolling Interest		518,623			163,811			(436,113	)		(153,466	)

COMPREHENSIVE LOSS ATTRIBUTABLE TO ELANDIA INTERNATIONAL INC.	$	(10,638,616	)	$	(5,185,063	)	$	(13,345,083	)	$	(13,912,760	)

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, 2011

(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			Accumulated			Accumulated Other Comprehensive			Noncontrolling			Total Stockholders’
	Shares		Amount		Shares			Amount			Shares			Amount			Capital			Deficit			Income (Loss)			Interest			Equity
BALANCES — January 1, 2011		—	$	—		4,118,263		$	16,679,962			25,240,220		$	251		$	172,204,748		$	(189,693,771	)	$	(3,133,652	)	$	7,626,681		$	3,684,219
Conversion of Series B Preferred Stock to Common Stock in Connection with Termination of Voting Trust Agreement		—		—		(4,118,263	)		(16,679,962	)		1,801,740			18			16,679,944			—			—			—			—
Cancellation of Common Stock in Connection with Termination of Voting Trust Agreement		—		—		—			—			(1,801,740	)		(18	)		18			—			—			—			—

Return and Cancellation of Common Stock in Connection with Settlement Agreement		—		—		—			—			(150,000	)		(1	)		(29,999	)		—			—			—			(30,000	)
Common Stock Issued in Connection with Acquisition of Medidata		—		—		—			—			150,745,913			1,507			48,061,698			—			—			—			48,063,205
Common Stock Issued to Executive Management		—		—		—			—			1,512,000			15			226,785			—			—			—			226,800
Noncontrolling Interest in Connection with Acquisition of Medidata		—		—		—			—			—			—			—			—			—			12,235,772			12,235,772
Noncontrolling Interest in Connection with Acquisition of SamoaTel		—		—		—			—			—			—			—			—			—			4,635,705			4,635,705
Noncontrolling Interest in Connection with the Formation of BSI		—		—		—			—			—			—			—			—			—			3,088,043			3,088,043
Distributions to Noncontrolling Interest		—		—		—			—			—			—			—			—			—			(387,277	)		(387,277	)
Unrealized gain on financial instrument		—		—		—			—			—			—			—			—			538,000			—			538,000
Foreign Currency Translation Adjustment		—		—		—			—			—			—			—			—			(7,059,827	)		—			(7,059,827	)
Share-Based Compensation		—		—		—			—			—			—			752,076			—			—			—			752,076
Net Income (Loss)		—		—		—			—			—			—			—			(6,823,256	)		—			436,113			(6,387,143	)

BALANCES — September 30, 2011		—	$	—		—		$	—			177,348,133		$	1,772		$	237,895,270		$	(196,517,027	)	$	(9,655,479	)	$	27,635,037		$	59,359,573

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 Sept. 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(6,387,143	)	$	(7,151,578	)

Adjustments to Reconcile Net Loss to Net Cash and Cash Equivalents Provided By (Used in) Operating Activities:
Income from Discontinued Operations		—			(2,414,819	)
Provision for Doubtful Accounts		1,944,042			572,419
Provision for Non-Collectible VAT Receivable		—			29,074
Share-Based Compensation		752,076			910,469
Depreciation and Amortization		5,284,926			4,780,039
Amortization — Intangible Assets		200,925			256,802
Amortization of Deferred Financing Costs and Discount on Long-Term Debt		135,910			85,360
Issuance of Common Stock to Executive Management		226,800			—
Negative Goodwill		(2,907,114	)		—
Gain on Extinguishment of Debt		—			(2,037,500	)
Foreign Currency Loss		3,566,528			378,302
Changes in Operating Assets and Liabilities:
Accounts Receivable		(11,256,328	)		(4,926,059	)
Inventories		1,749,410			921,467
Prepaid Expenses and Other Current Assets		(3,199,297	)		(3,034,848	)
Deposits with Suppliers and Subcontractors		2,733,671			(5,729,510	)
VAT Receivable		1,684,773			(1,077,620	)
Other Assets		14,270,984			406,131
Accounts Payable		13,125,655			(19,863,273	)
Accrued Expenses		5,323,289			7,492,368
Customer Deposits		(7,187,699	)		5,720,417
Deferred Revenue		(5,052,505	)		(76,179	)
Other Liabilities		(1,848,973	)		(35,499	)

TOTAL ADJUSTMENTS		19,547,073			(17,642,459	)

CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN) OPERATING ACTIVITIES		13,159,930			(24,794,037	)


CASH FLOWS FROM INVESTING ACTIVITIES
Cash Received from Acquisitions, Net of Cash Paid		6,119,591			—
Purchases of Property and Equipment		(649,516	)		(1,374,063	)
Restricted Cash		(862,425	)		(51,256	)

CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN) INVESTING ACTIVITIES		4,607,650			(1,425,319	)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Lines of Credit, Net		797,792			690,138
Proceeds from (Payments of) Long-Term Debt, Net		(889,672	)		18,847,172
Principal Payments on Capital Leases		(1,108,640	)		(1,042,223	)
Proceeds from Noncontrolling Interest in Connection with BSI		3,088,043			—
Payment for Acquisition of Noncontrolling Interest		—			(34,200	)
Financing Costs Paid — Long-Term Debt		(82,500	)		—

CASH AND CASH EQUIVALENTS PROVIDED BY FINANCING ACTIVITIES		1,805,023			18,460,887


CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating Cash Flows		(1,248,091	)		3,039,671
Financing Cash Flows		(10,000	)		(1,190	)

NET CASH AND CASH EQUIVALENTS (USED IN) PROVIDED BY DISCONTINUED OPERATIONS		(1,258,091	)		3,038,481

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(10,101,076	)		(7,159,219	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		8,213,436			(11,879,207	)
CASH AND CASH EQUIVALENTS— Beginning		10,926,659			17,865,681

CASH AND CASH EQUIVALENTS— Ending	$	19,140,095		$	5,986,474


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Periods For:
Interest	$	4,407,238		$	1,591,122
Taxes	$	1,955,915		$	3,357,117

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series B Preferred Stock to Common Stock in Connection with Termination of Voting Trust Agreement	$	16,679,962		$	—
Cancellation of Shares in Connection with Termination of Voting Trust Agreement	$	18		$	—
Value of Options Granted to BSI Lenders	$	189,200		$	—
Acquisition of Equipment with Issuance of Capital Leases	$	1,827,216		$	—
Issuance of Common Stock for Consulting Services	$	—		$	30,000
Partial Settlement of Long-Term Debt - Related Party	$	—		$	161,860

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, 2011

(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 technology solutions, business practice solutions and advanced services, 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, 2011, 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, 2011, unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010, the unaudited interim condensed consolidated statement of stockholders’ equity for the nine months ended September 30, 2011, and the unaudited interim condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010 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, 2011 are not necessarily indicative of results to be expected for the year ending December 31, 2011 or for any future interim period. The condensed consolidated balance sheet at December 31, 2010 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, 2010 as filed with the SEC.

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

We generated $13.1 million of cash from operations during the nine months ended September 30, 2011 and have working capital of $22.7 million. We incurred a $6.4 million loss from continuing operations, net of income tax expense, during the nine months ended September 30, 2011 and have a $196.5 million accumulated deficit.

Our net loss includes an aggregate of $9.2 million of net non-cash charges, principally consisting of $5.6 million of depreciation and amortization, $3.6 million of foreign currency losses and a $1.9 million provision for doubtful accounts, offset by $2.9 million of negative goodwill arising from the acquisition of SamoaTel (see Note 6).

Our sources of funds include cash from external financing arrangements, including term loans in the amount of $22.2 million and a revolving line of credit facility of up to $6.5 million from ANZ Finance American Samoa, Inc. (“ANZ Finance”), 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 6, on March 31, 2011, we consummated the closing under a Share Sale and Purchase Agreement with The Government of the Independent State of Samoa pursuant to which Bluesky SamoaTel Investments Limited (“BSI”), a subsidiary of AST Telecom, LLC (“AST”), acquired 75% of the issued and outstanding capital shares of SamoaTel Limited (“SamoaTel”) in exchange for $11 million. We own approximately 75% of BSI and the remaining 25% is owned by other financial investors. SamoaTel is a provider of telecommunications products and services in Samoa and offers a full range of services including fixed line, mobile, data and calling card services for homes and businesses in Samoa. Prior to this transaction, AST had no operations in Samoa, which is approximately 80 miles from America Samoa, where AST operates.

Additionally, as more fully described in Note 7, on May 31, 2011, we completed the closing under the Contribution Agreement, whereby Amper, S.A. (“Amper”) acquired 150,745,913 shares of our newly issued common stock in exchange for the contribution to eLandia of approximately 79.7% of the outstanding capital stock of Medidata Informatica, S.A. (“Medidata”).

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

Management believes that we will have sufficient working capital to sustain operations through at least October 1, 2012. The acquisition of Medidata and SamoaTel are expected to provide us with a significant working capital surplus in the future. 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.

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. In addition, as of September 30, 2011, the unaudited interim condensed consolidated financial statements include the operations of Medidata and SamoaTel, our majority owned subsidiaries, from their respective dates of acquisition onward (see Notes 6 and 7). We have classified as discontinued operations for all periods presented the accounts of our operations in Fiji and 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 (that operates principally throughout Latin America), 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 significant effect on the financial position or results of operations reported as of and for the three and nine months ended September 30, 2010.

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 valuation of SamoaTel, 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 valuation of derivatives, the 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.

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.

Accounts Receivable

Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, and sales returns. Estimates for cash discounts and sales returns are based on contractual terms, historical trends and expectations regarding the utilization rates for these programs.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

Our policy is to reserve for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Other factors that we consider include our existing contractual obligations, historical payment patterns of our customers and individual customer circumstances, an analysis of days sales outstanding by customer and geographic region, and a review of the local economic environment and its potential impact on the collectibility of accounts receivable. Account balances deemed to be uncollectible are charged to the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote. Our allowance for doubtful accounts at September 30, 2011 and December 31, 2010 amounted to approximately $4.0 million and $2.1 million, respectively.

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 purchase orders received. 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, 2011 and December 31, 2010 is approximately $33.0 million and $21.1 million, respectively, of short-term vendor financed payables.

Derivative Instruments and Hedging

Derivative Instruments

In June 2008, the FASB issued new accounting guidance, which requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of ASC 815, “Derivative and Hedging,” and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008, and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings.

ASC 815-40 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock. As disclosed in Note 6, on March 31, 2011, BSI entered into two loan agreements that included an option to purchase shares in BSI. In accordance with ASC 815-40, this option is classified as a derivative liability and was valued at $189,200. This amount was credited to derivative liability when the notes were issued.

Hedges

Our policy is to attempt to minimize short-term business exposure to foreign currency exchange rate fluctuations using an effective and efficient method to eliminate or reduce such exposures. In the normal course of business, our financial position is routinely subjected to market risk associated with foreign currency exchange rate fluctuations. To protect against a reduction in value of US Dollar-denominated expenses in our Brazilian operations, we have instituted a foreign currency cash flow hedging program. We enter into foreign exchange forward contracts that generally expire within 90 to 120 days. These foreign exchange forward contracts are designated as cash flow hedges and are carried on our balance sheet at fair value with the effective portion of the contracts’ gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in revenue in the same period the hedged revenue is recognized.

At inception and at each quarter end, hedges are tested prospectively and retrospectively for effectiveness using dollar-value analysis. To qualify for hedge accounting, the hedge relationship must meet criteria relating both to the derivative instrument and the hedged item. These criteria include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows will be measured. There were no gains or losses during the nine months ended September 30, 2011 or 2010 associated with ineffectiveness or forecasted transactions that failed to occur.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge and the hedges must be tested to demonstrate an expectation of providing highly effective offsetting changes to future cash flows on hedged transactions. When derivative instruments are designated and qualify as effective cash flow hedges, we are able to defer effective changes in the fair value of the hedging instrument within accumulated other comprehensive income (loss) until the hedged exposure is realized. Consequently, with the exception of hedge ineffectiveness recognized, our results of operations are not subject to fluctuation as a result of changes in the fair value of the derivative instruments. If hedges are not highly effective or if we do not believe that the underlying hedged forecasted transactions will occur, we may not be able to account for our derivative instruments as cash flow hedges. If this were to occur, future changes in the fair values of our derivative instruments would be recognized in earnings. Additionally, related amounts previously recorded in accumulated other comprehensive income would be reclassified to income immediately. At September 30, 2011, we had gains of $0.5 million accumulated in other comprehensive income, which we expect to reclassify into earnings over the next 12 months.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) 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 any, includes 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, 2011 and 2010 includes 28,125 unexercised warrants, respectively, each with an exercise price of $.001 per share.

The computation of basic income (loss) per share for the three and nine months ended September 30, 2011 and 2010 excludes the following potentially dilutive securities because their inclusion would be anti-dilutive.


	For the Three Months Ended Sept. 30,				For the Nine Months Ended Sept. 30,
	2011		2010		2011		2010
Convertible Preferred Stock		—		4,118,263		—		4,118,263
Common Stock Purchase Warrants		259,259		1,409,259		259,259		1,409,259
Stock Options		3,186,493		8,621,000		3,186,493		8,621,000

		3,445,752		14,148,522		3,445,752		14,148,522

Recently Adopted Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 did not 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 did not have a material impact on our condensed consolidated financial position or results of operations.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

In December 2010, the FASB issued ASU No. 2010-28, “Intangibles – Goodwill and Other (Topic 350) – When to Perform Step 2 of the Goodwill Impairment Test for reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”). ASU 2010-28 modifies Step 1 of the goodwill impairment test so that for those reporting units with zero or negative carrying amounts, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not based in an assessment of qualitative indicators that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exits, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this pronouncement did not 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, 2011 and December 31, 2010. As of September 30, 2011 and December 31, 2010, 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.

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 classification 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.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

The following are the classes of assets measured at fair value on a nonrecurring basis as of September 30, 2011 and December 31, 2010, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):


	September 30, 2011
	Level 1: Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at Sept. 30, 2011
Goodwill	$	—	$	—	$	11,085,660	$	11,085,660
Intangible Assets		—		—		1,603,785		1,603,785

Total	$	—	$	—	$	12,689,445	$	12,689,445


	December 31, 2010
	Level 1: Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at Dec. 31, 2010
Goodwill	$	—	$	—	$	11,085,660	$	11,085,660
Intangible Assets		—		—		1,804,710		1,804,710

Total	$	—	$	—	$	12,890,370	$	12,890,370

NOTE 6 – Acquisition of SamoaTel

On March 31, 2011, our wholly-owned subsidiary, AST, consummated the closing under a Share Sale and Purchase Agreement with The Government of the Independent State of Samoa (“Samoa”) pursuant to which, among other things, BSI, a subsidiary of AST, acquired 75% of the issued and outstanding capital shares of SamoaTel in exchange for $11 million. We own approximately 75% of BSI and the remaining 25% is owned by other financial investors. SamoaTel is a provider of telecommunications products and services in Samoa and offers a full range of services including fixed line, mobile, data and calling card services for homes and businesses in Samoa.

The acquisition of SamoaTel was accounted for under the acquisition method of accounting. Accordingly, the acquired assets and assumed liabilities were recorded at their estimated fair values, and operating results for SamoaTel are included in the consolidated financial statements from the effective date of acquisition of March 31, 2011. Accounting standards require that when the fair value of the net assets acquired exceeds the purchase price, resulting in negative goodwill, the acquirer must reassess the reasonableness of the values assigned to all of the net assets acquired, liabilities assumed and consideration transferred. We performed such a reassessment and concluded that the values assigned for the SamoaTel acquisition are reasonable. Consequently, we have recorded $2.9 million of negative goodwill arising from the acquisition of SamoaTel in the statement of operations for the nine months ended September 30, 2011. We believe the negative goodwill realized in acquisition accounting was the result of a number of factors, including viewing this as the best outcome for SamoaTel based on the bids received by the government of Samoa.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

The purchase price has been allocated on a preliminary basis using information currently available. The allocation of the purchase price to the assets acquired and liabilities assumed is expected to be finalized during the first quarter of 2012, as more information is obtained regarding asset valuations, liabilities assumed and revisions of preliminary estimates of fair values made at the date of purchase. The allocation of the purchase price is summarized as follows:


Consideration Paid:
Cash Paid	$	11,000,000


Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Total Current Assets		8,684,384
Property, Plant and Equipment		12,235,137
Other Assets		384,488
Current Liabilities		(2,761,190	)

Net Assets Acquired		18,542,819
Noncontrolling Interest		(4,635,705	)
Negative Goodwill		(2,907,114	)

	$	11,000,000

We have determined that pro forma results of operations for SamoaTel are not significant for inclusion.

Funding of the Acquisition

The acquisition of SamoaTel was funded through $5.5 million of debt, cash paid by AST in the amount of $1.9 million and cash paid by other investors in the amount of $3.6 million.

In connection with the closing of the SamoaTel Share Sale and Purchase Agreement, AST entered into a loan agreement (the “Loan Agreement”) with ANZ Finance America Samoa, Inc. and ANZ Amerika Samoa Bank (jointly, “ANZ”), pursuant to which ANZ committed to provide financing of up to $5,500,000 in the form of a five year term loan described below (the “Loan”). In addition, ANZ committed to provide up to $3,500,000 in a two year letter of credit facility which AST may use to issue letters of credit to various vendors (the “Facility”) for capital improvements. AST is the borrower under the Loan Agreement and the Facility. The Loan and the Facility are principally secured by substantially all of the assets and operations of AST. The Loan bears interest at the rate of 2.5% above the prime rate. AST paid ANZ a fee of $82,500 at closing. At closing, AST borrowed the full amount available under the Loan and used the proceeds for the purchase of SamoaTel. In connection with the Loan Agreement and the Facility, we increased our existing guaranty and security agreements in favor of ANZ (respectively, the “Guaranty”) to include the amounts borrowed under the Loan Agreement and the Facility. Pursuant to the Guaranty, we have unconditionally guaranteed the repayment and other obligations of AST under the Loan Agreement and the Facility. In connection with the Loan Agreement and the Facility, AST executed a stock pledge agreement of all of its interest in the issued and outstanding shares of capital stock of BSI.

During the 2010 review of the loan agreement covenants, ANZ noted certain nonfinancial breaches with respect to timely reporting. Management does not believe these breaches are material. ANZ has not, as of the date of this report, enforced any remedy provisions under the loan agreement as a result of these nonfinancial breaches.

A portion of the acquisition of SamoaTel was funded by $3.1 million in proceeds received from investors in exchange for preferred stock in BSI. Local investors purchased $2.5 million of Series B preferred stock and $0.6 million of Series C preferred stock. In addition to being entitled to receive ordinary dividends paid by BSI, the Series B preferred stock has an annual cumulative dividend of 7% through March 31, 2016. The Series C preferred stock has an annual cumulative dividend of 10% through March 31, 2016 which will increase to 20% thereafter if the shares are not redeemed prior to that date. On March 31, 2011, BSI entered into loan agreements, representing indebtedness in the aggregate amount of $498,552, with two investors which mature on March 31, 2016. The proceeds of the loans were used for the acquisition of SamoaTel. In addition, the loan agreements grant the lenders the option to purchase shares in BSI. The prospective value of this option is estimated at $189,200 and is recorded in other long-term liabilities in the accompanying condensed consolidated balance sheet at September 30, 2011. The cash paid by the investors for BSI’s preferred stock has been recorded as a component of noncontrolling interest. Additionally, an executive of AST participated in the acquisition of SamoaTel by purchasing common and preferred stock in BSI under similar terms as those offered to the other investors, for a total consideration of $400,000.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

NOTE 7 – Contribution Agreement with Amper

On July 29, 2010, we entered into a Contribution Agreement, as amended by a First Amendment to Contribution Agreement effective December 2, 2010 (collectively, the “Contribution Agreement”) with Amper. Pursuant to the Contribution Agreement, Amper would acquire 150,745,913 newly issued shares of our common stock representing approximately 85% of our issued and outstanding shares of common stock following the issuance in exchange for the contribution to eLandia by Amper of approximately 90% of the outstanding capital stock of Hemisferio Norte Brasil, S.L. (“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 Contribution Agreement as the “Contributed Entities.”

On March 31, 2011, we and Amper executed and delivered certain closing documents into escrow pending the receipt of certain legal opinions from Spanish and Brazilian counsel to Amper as well as the delivery of a stock certificate representing 150,743,913 shares of our common stock issued in the name of Amper and stock certificates representing the 5,223,517 capital shares of Hemisferio transferred to the name of the Company, which transfer required registration with certain Spanish and Brazilian authorities. The closing of the transactions contemplated by the Contribution Agreement was subject to various conditions, all of which were satisfied, waived or deferred pursuant to the escrow arrangement prior to the closing, including: (i) obtaining the consent of the U.S Federal Communications Commission, (ii) receipt of a fairness opinion from our investment bank, (iii) receipt of waivers executed by our chief executive officer and chief financial officer with respect to any severance obligations of the Company which may be triggered by the closing of the Contribution Agreement transactions, and (iv) receipt of a consent of the receiver for Stanford International Bank Ltd. (“SIBL”) to the transactions contemplated by the Contribution Agreement.

During the escrow period, we did not have any ownership rights, including the authority or power to vote, with respect to the 5,223,517 shares of Hemisferio, and Amper did not have any ownership rights, including the authority or power to vote, with respect to the 150,745,913 shares of our common stock.

On May 31, 2011, pursuant to the Contribution Agreement, Amper acquired 150,745,913 shares of our newly issued common stock, representing approximately 85% of our issued and outstanding shares of common stock after giving effect to the Contribution Agreement transaction. In exchange for the issuance to Amper of such shares of our common stock, Amper contributed to the Company approximately 90% of the outstanding capital stock of Hemisferio. Accordingly, as of May 31, 2011, the Contribution Agreement was completed and we acquired all ownership rights, including the authority and power to vote, with respect to the 5,223,517 shares of Hemisferio, and Amper acquired all ownership rights, including the authority and power to vote, with respect to the 150,745,913 shares of our common stock.

In connection with the closing of the Contribution Agreement, we entered into an Option Agreement, effective as of May 31, 2011, pursuant to which Amper granted us the option, at any time prior to six months from the date of the Option Agreement, to purchase 606,301 capital shares of Hemisferio representing 10.4% of the issued and outstanding capital shares of Hemisferio. The 10.4% interest represents the remaining interest of Hemisferio which we did not acquire upon the closing of the transaction contemplated by the Contribution Agreement. The aggregate purchase price for such remaining interest is $8,900,000 and is payable by the issuance of additional shares of our common stock to Amper at a price per share equal to the fair market value of a share of our common stock as of the date of the exercise of the option.

We also entered into a Registration Rights Agreement, effective as of May 31, 2011, with Amper pursuant to which we have agreed to register the shares of our common stock issued to Amper pursuant to the Contribution Agreement. Under the Registration Rights Agreement, Amper may demand that we from time to time during the term of the Registration Rights Agreement register the shares of our common stock held by Amper. The Registration Rights Agreement terminates upon the earlier of: (i) the date on which no registrable shares remain outstanding or a registration statement with respect to the resale of all registrable shares has been declared effective, or (ii) the date on which all registrable shares may be sold, transferred or disposed of in accordance with Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Amper is entitled to three demand registrations during each 12-month period during the term of the Registration Rights Agreement. Amper is also entitled to piggyback registration rights in the event of certain public offerings by the Company of our securities.

Additionally, in connection with the closing of the Contribution Agreement transaction, effective May 31, 2011, we entered into an Amended and Restated Executive Employment Agreement with Pete R. Pizarro, our former Chief Executive Officer, (the “Pizarro Employment Agreement”) which superseded and replaced Mr. Pizarro’s prior employment agreement. The Pizarro Employment Agreement had an initial term of four years. As in his previous employment agreement, Mr. Pizarro was entitled to receive a base salary of $375,000 and could also receive an annual performance bonus of up to 100% of his base salary in accordance with criteria to be set by our Board of Directors in a written plan. As further inducement for Amper to enter into the Contribution Agreement,

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

Mr. Pizarro agreed to waive certain rights including the vesting of 4,200,000 previously issued and partially vested stock options, and agreed to the cancellation thereof, as well as his right to terminate his prior employment agreement for “Good Reason” as a result of a change of control triggered by the Amper transaction and the severance payments to which Mr. Pizarro would be entitled to as a result thereof. Mr. Pizarro was reissued options to purchase up to 4,200,000 shares of our common stock (the same amount as was cancelled by the Company), at the same exercise price of $0.45 per share and subject to a new vesting schedule. The options were to vest as follows: (i) 25% of the options would vest on the three year anniversary of the grant date, and (ii) 75% would vest equally, on a quarterly basis, over a 12-month period commencing on the three year anniversary of the grant date, if and only if Mr. Pizarro remained continuously employed by the Company from the date of the Pizarro Employment Agreement until each respective vesting date.

In exchange for and as consideration for the waiver of certain rights described above, Mr. Pizarro received the following: (a) 1,120,000 shares of Company common stock; and (b) $240,000 in cash which amount will be used in part to satisfy the income tax obligations related to such consideration.

As previously disclosed, Mr. Pizarro resigned as our Chief Executive Officer effective August 1, 2011; however, Mr. Pizarro continues his role as Chairman of the Board (see Note 11).

In connection with the closing of the Contribution Agreement transaction, effective May 31, 2011, we entered into an Amendment of Executive Employment Agreement with Harley L. Rollins, our Chief Financial Officer (the “Rollins Employment Agreement”). Pursuant to such amendment, the term of the Rollins Employment Agreement has been extended for a three-year term. Under the terms of the Rollins Employment Agreement, as amended, Mr. Rollins will receive an annual base salary of $250,000 and he may also receive an annual performance bonus of up to 50% of his base salary, based upon a written bonus plan to be approved by our Board of Directors. As further inducement for Amper to enter into the Contribution Agreement, Mr. Rollins agreed to waive certain rights including the vesting of 1,000,000 previously issued and partially vested stock options, and agreed to the cancellation thereof, as well as his right to terminate the Rollins Employment Agreement for “Good Reason” as a result of a change of control triggered by the Amper transaction and the severance payments to which Mr. Rollins would be entitled to as a result thereof. Mr. Rollins was reissued options to purchase up to 1,000,000 shares of our common stock (the same amount as was cancelled by the Company), at the same exercise price of $0.45 per share and subject to a new vesting schedule. The options will vest as follows: (i) 25% of the options will vest on the three year anniversary of the grant date, and (ii) 75% will vest equally, on a quarterly basis, over a twelve-month period commencing on the three year anniversary of the grant date, if and only if Mr. Rollins remains continuously employed by the Company from the date of the amendment until each respective vesting date.

In exchange for and as consideration for the waiver of certain rights described above, Mr. Rollins will receive the following: (a) 392,000 shares of Company common stock; and (b) 84,000 in cash which amount will be used in part to satisfy the income tax obligations related to such consideration.

Effective August 1, 2011, Mr. Rollins is serving as our Chief Executive Officer and President.

As a result of the acquisition of our shares by Amper, Amper became the controlling stockholder of eLandia. Accordingly, the acquired assets and assumed liabilities of Medidata have been recorded at their historical basis, and operating results for Medidata are included in the consolidated financial statements from the effective date of acquisition of May 31, 2011. The allocation of the purchase price is summarized as follows:


Consideration Paid:
Value of Common Stock (150,745,913 shares)	$	48,063,205


Allocated To:
Cash and cash equivalents		10,685,287
Accounts receivable		19,095,806
Other current assets		30,310,342
Long-term assets		39,674,082
Accounts payable		(8,753,398	)
Other current liabilities		(13,352,452	)
Long-term liabilities		(17,360,690	)
Noncontrolling interest		(12,235,772	)

Net assets acquired	$	48,063,205

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

The following unaudited consolidated pro forma information gives effect to the acquisition of Medidata as if this transaction had occurred on January 1, 2010. The following pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition of Medidata been completed on January 1, 2010, nor are they indicative of the results that may occur in any future periods.


	For the Three Months Ended Sept. 30,						For the Nine Months Ended Sept. 30,
	2011			2010			2011			2010
Revenues	$	78,572,126		$	48,748,574		$	225,749,247		$	167,891,301
Income (Loss) from Continuing Operations		726,369			(4,515,147	)		8,409,411			(7,427,921	)
Net Loss Attributable to eLandia		(2,840,836	)		(2,399,055	)		(2,262,257	)		(5,901,044	)

Basic and Diluted Loss per Share Attributable to eLandia	$	(0.02	)	$	(0.01	)	$	(0.01	)	$	(0.03	)

Weighted Average Shares Outstanding - Basic and Diluted		177,376,258			180,026,258			177,425,159			179,992,155

NOTE 8 – Discontinued Operations

Our discontinued operations are comprised of our operations in Fiji and certain eLandia predecessor companies that no longer conduct any operations.

A summary of our liabilities from discontinued operations as of September 30, 2011 and December 31, 2010 and our results of discontinued operations for the three and nine months ended September 30, 2011 and 2010 is as follows:

Liabilities of Discontinued Operations


	As of September 30,		As of December 31,
	2011		2010
Accrued Expenses	$	—	$	48,091
Accrued FCPA Penalty		—		700,000
Capital Lease Obligations		—		10,000

Liabilities from Discontinued Operations - Current	$	—	$	758,091


Accrued FCPA Penalty	$	—	$	500,000

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

Results of Discontinued Operations


	For the Three Months Ended Sept. 30,					For the Nine Months Ended Sept. 30,
	2011		2010			2011		2010
Revenue	$	—	$	1,999,664		$	—	$	5,101,487
Cost of Revenue		—		(1,360,030	)		—		(3,298,760	)
Sales, Marketing and Customer Support		—		(317,878	)		—		(952,568	)
General and Administrative		—		(256,882	)		—		(760,358	)
Depreciation and Amortization		—		(37,259	)		—		(109,326	)
Interest Expense, net		—		(1,461	)		—		(4,119	)
Other Income		—		2,418,351			—		2,438,463

Net Income from Discontinued Operations	$	—	$	2,444,505		$	—	$	2,414,819

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

NOTE 9 – Goodwill and Intangible Assets

At September 30, 2011 and December 31, 2010, goodwill consists of the following:


Latin America	$	8,186,798
South Pacific		2,898,862

	$	11,085,660

At September 30, 2011 and December 31, 2010, intangible assets, net consist of the following:


	Finite Lived Assets						Indefinite Lived Assets
	Customer Lists			Contract Rights			Telecommunications Licenses and Agreements
Gross Value at December 31, 2010	$	1,833,100		$	1,219,000		$	858,743
Accumulated Amortization at December 31, 2010		(891,655	)		(1,214,478	)		—

Net Value at December 31, 2010	$	941,445		$	4,522		$	858,743


Gross Value at September 30, 2011	$	1,833,100		$	1,219,000		$	858,743
Accumulated Amortization at September 30, 2011		(1,088,058	)		(1,219,000	)		—

Net Value at September 30, 2011	$	745,042		$	—		$	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 rates 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 10 – Long-Term Debt

In June 2011, Medidata entered into several promissory notes in favor of a bank, pursuant to which the bank provided an aggregate of $7.5 million to finance certain import transactions. Medidata has provided security for 40% of the principal balance of the promissory notes through the pledge of certain certificates of deposits held by the bank. The promissory notes bear interest at 3.91% per annum and mature in a lump-sum payment one year from their respective origination dates. At September 30, 2011, the carrying value of these promissory notes aggregated $7.8 million, inclusive of accrued interest.

On March 10, 2011, Medidata entered into a promissory note in favor of a government agency in Brazil pursuant to which the agency will provide $6.1 million to finance certain import transactions. Medidata is the borrower under the promissory notes and Hemisferio Sul is a guarantor. Funding of the promissory notes is as follows: $2.0 million at the loan origination date; $2.0 million 180 days after the first tranche is released and $2.1 million 180 days after the second tranche is released. The promissory note is secured by cash and bears interest at 4.0% per annum. The promissory note requires monthly payments of interest only through November 15, 2012, followed by monthly payments of principal and interest through the maturity date of July 15, 2019. Additionally, Medidata agreed to participate in the costs of preparing the project in the minimum amount of $786,000. At September 30, 2011, the carrying value of this promissory note was $2.0 million.

In July 2011, Medidata entered into several promissory notes in favor of a bank, pursuant to which the bank provided an aggregate of $2.9 million to finance certain import transactions. Medidata is the borrower under the promissory notes and XC is a guarantor. The promissory notes bear interest at rates between 1.64% and 1.79% per annum and mature in a lump-sum payment one year from their respective origination dates. At September 30, 2011, the carrying value of these promissory notes aggregated $3.0 million, inclusive of accrued interest.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

NOTE 11 – Commitments and Contingencies

Resignation of Executive

On June 20, 2011, Pete R. Pizarro advised the Board of Directors that he would step down from his role as Chief Executive Officer of the Company effective August 1, 2011, but mutually agreed with the Board of Directors that he would continue his role as Chairman of the Board of Directors notwithstanding his relinquishment of his operating role as Chief Executive Officer. Mr. Pizarro’s determination to resign as Chief Executive Officer was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. As a result of Mr. Pizarro’s resignation, the 4,200,000 options granted to him under the May 31, 2011 Amended and Restated Executive Employment Agreement were forfeited.

The Board of Directors of the Company determined that effective August 1, 2011, Harley L. Rollins, our current Chief Financial Officer, will serve as Chief Executive Officer and President of the Company.

Financial Collapse of SIBL and its Affiliates

In early 2009, pursuant to an action brought by the SEC against 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 were seeking 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.

On March 24, 2011, the United States District Court issued a court order approving our motion to:

(1)

authorize SIBL’s receiver to act on SIBL’s behalf in connection with the matters addressed in the court order or related Modification Agreement between SIBL and eLandia;

(2)

direct SIBL’s receiver to agree to the termination of the Voting Trust Agreement;

(3)

convert the 4,118,263 shares of Series B Preferred Stock held by SIBL into 1,801,740 shares of our common stock;

(4)

cancel the above 1,801,740 shares of our common stock owned by SIBL;

(5)

direct SIBL’s receiver to release eLandia from any claims that SIBL’s receiver or the Receivership Estate may have with respect to eLandia; and

(6)

direct SIBL’s receiver to refrain from taking any action in contravention to the Amper Transaction.

In connection with the closing of the transactions contemplated in the Contribution Agreement described in Note 7, on March 30, 2011, we terminated the Voting Trust Agreement. Under the Voting Trust Agreement, SIBL had placed 12,364,377 shares of our common stock and 4,118,263 shares of our Series B Preferred Stock, representing all shares of our capital stock owned by SIBL, into a voting trust.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

Upon the termination of the Voting Trust Agreement, the 12,364,377 shares of our common stock were reissued in the name of SIBL. In addition, the 4,118,263 shares of our Series B Preferred Stock were automatically converted into 1,801,740 shares of our common stock in accordance with the current conversion ratio as set forth in the Certificate of Designations, Rights and Preferences of the Series B Preferred Stock. Such 1,801,740 shares of our common stock were immediately cancelled as required by the terms of that certain Additional Modification Agreement, dated February 9, 2009, between SIBL and the Company. We obtained the consent and acknowledgment of the receiver for SIBL for the issuances and cancellation of shares described above.

Capital Expenditures Commitment

As of September 30, 2011, we have commitments for capital expenditures in the approximate amount of $10 million.

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, high levels of inflation, and foreign exchange and price controls. The President of Venezuela has the authority to legislate certain areas 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, 2011

(Unaudited)

These controls fix the exchange rate between the Bolivar 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.

Through May 17, 2010, we remeasured Bolivar Fuerte-denominated transactions utilizing the parallel rate. From June 2010 through December 31, 2010, we utilized the Sistema de Transacciones con Titulos en Moneda Extranjera (“SITME”) rate, which is a newly regulated foreign currency exchange system introduced by the Venezuelan government in June 2010.

During the nine months ended September 30, 2011, as a means to obtain U.S. Dollars to remit dividends, we have purchased U.S. Dollars through government sponsored bond transactions. We believe that the effective yield resulting from these bond transactions (the “bond rate”) is the best current indicator of the exchange rate applicable for the conversion of Bolivar Fuertes to U.S. Dollars. Accordingly, as of January 1, 2011, we remeasure Bolivar Fuerte-denominated transactions utilizing the bond rate. At September 30, 2011, the bond rate was 5.66 Bolivar Fuertes per U.S. Dollar.

SENIAT Liability in Venezuela

We have received notice from the Servicio Nacional de Administracion Aduanera y Tributaria (“SENIAT”), the taxing authorities in Venezuela, asserting claims for unpaid taxes in the amount of up to 25 million Bolivar Fuertes. We have appealed the decision and are currently in discussions with the SENIAT. We believe that if we are unsuccessful in our appeal, any possible liability would not be material.

Brazil

Contingent liabilities arising from potential litigation or notices received from the inspection authorities related to our Brazilian operations are assessed by management based on the individual analysis of these proceedings and on the opinion of the Company’s lawyers and legal consultants. Those considered as probable losses are provisioned in the accompanying unaudited interim condensed consolidated financial statements. Based on the information received from our legal consultants and on the analysis of potential demands, we have provisioned an amount deemed sufficient to cover estimated losses. Said contingent liabilities, mainly representing labor, real estate and sales tax contingencies, amounted to $12.8 million at September 30, 2011 and are recorded as a component of other long-term liabilities in the accompanying unaudited interim condensed consolidated balance sheet at September 30, 2011.

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

At September 30, 2011, we had two customers in our Latin American segment that each represented approximately 11% of our gross accounts receivable. During the three months ended September 30, 2011, we had one customer in our Latin American segment that represented approximately 10% of our revenues.

During the three and nine months ended September 30, 2011, one vendor in our Latin American segment represented approximately 37% and 43% of our consolidated cost of product sales and services, respectively. At September 30, 2011, the amount due to this vendor was approximately 62% of our total accounts payable.

NOTE 12 – Stockholders’ Equity

Series B Convertible Preferred Stock

As more fully described in Note 11, on March 30, 2011, in connection with the termination of the Voting Trust Agreement, 4,118,263 shares of our Series B Preferred Stock were automatically converted into 1,801,740 shares of our common stock.

Common Stock Transactions

As more fully described in Note 11, on March 30, 2011, in connection with the termination of the Voting Trust Agreement, 1,801,740 shares of our common stock were cancelled.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

In connection with the settlement agreement entered into 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, on March 31, 2011, we cancelled 150,000 returned shares of our common stock, valued at $30,000.

As more fully described in Note 7, on May 31, 2011, in connection with the acquisition of Medidata, we issued 150,745,913 shares of our common stock to Amper, valued at $48,063,205.

Also as described in Note 7, on May 31, 2011, in connection with the acquisition of Medidata, we issued 1,512,000 shares of our common stock to executive management, valued at $226,800.

Interest on Equity

As permitted by Medidata’s by-laws and Brazilian corporate law, Medidata accrues interest on equity which allows Medidata to deduct as interest expense amounts calculated based on the net equity of the company. The amounts are cumulative, noncancelable by Medidata and are not due to shareholders of record until declared. As of September 30, 2011, $0.8 million has been accrued and no amounts have been declared.

NOTE 13 – Income Taxes

At December 31, 2010, we had federal and Florida net operating loss (NOL) carryovers of $51,375,000 and $58,655,000, respectively, which expire through 2030. As more fully described in Note 7, we completed the closing under the Contribution Agreement. As a result, all of our NOLs arising through May 31, 2011 may be subject to limitations under Internal Revenue Code Section 382. These limitations could significantly impair the Company’s ability to utilize the NOLs against future taxable income prior to their expiration.

We also had capital losses in 2008 totaling $38,850,100 which expire December 31, 2013. In addition, at December 31, 2010, we had foreign net operating loss carryovers of approximately $20,219,000 which will expire through 2017.

As of September 30, 2011, the Company’s net deferred tax assets are mainly comprised of temporary differences associated with Medidata’s tax and labor-related contingencies, obsolescence reserve, and sales commissions. Based on its business plan, Management believes it is more likely than not that Medidata will generate sufficient taxable income in future periods to realize these benefits.

All other deferred tax assets, including those relating to the Federal NOL and capital loss carryovers, were completely offset by valuation allowances.

The major tax jurisdictions where the Company is subject to income tax and their respective statutory tax rates are as follows: United States Federal (34%), Brazil (34%), and Ecuador (24%) and Samoa (27%). The actual income tax expense differs from the statutory tax expense for the year (computed by applying the U.S. federal corporate tax rate of 34% to income before provision for income taxes) mainly because of the tax holiday on American Samoa earnings, the loss of benefits due to valuation allowance, and differences in foreign jurisdictions’ tax rates.

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, 2011. We do not currently anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. Generally, the Company’s tax years ended after December 31, 2007 remain subject to examination by tax authorities.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

NOTE 14 – Segment Information

Our discontinued operations are comprised of our operations in Fiji and 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, 2011 and identifiable assets as of September 30, 2011:


	For the Three Months Ended September 30, 2011
	Latin America			South Pacific			Corporate and Discontinued Operations			Consolidated
Revenue
Product Sales	$	52,315,958		$	272,151		$	—		$	52,588,109
Services		18,145,766			7,838,251			—			25,984,017

Total Revenue		70,461,724			8,110,402			—			78,572,126
Cost of Revenue
Product Sales		37,631,907			271,674			—			37,903,581
Services		17,269,310			2,631,831			—			19,901,141

Total Cost of Revenue		54,901,217			2,903,505			—			57,804,722

Gross Profit		15,560,507			5,206,897			—			20,767,404
		22.1	%		64.2	%					26.4	%
Expenses
Sales, Marketing and Customer Support		5,275,718			651,377			—			5,927,095
General and Administrative		9,550,430			1,826,794			576,747			11,953,971
Depreciation and Amortization		707,591			1,352,953			33,957			2,094,501
Amortization – Intangible Assets		—			65,468			—			65,468

Total Expenses		15,533,739			3,896,592			610,704			20,041,035

Operating Income (Loss)		26,768			1,310,305			(610,704	)		726,369
Interest Expense, Net		(1,263,520	)		(402,945	)		(181,623	)		(1,848,088	)
Other Income (Expense)		(2,683,676	)		(116,791	)		(63,124	)		(2,863,591	)
Income Tax Expense		1,341,419			(196,945	)		—			1,144,474

Net Income (Loss) Attributable to eLandia	$	(2,579,009	)	$	593,624		$	(855,451	)	$	(2,840,836	)

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)


	For the Nine Months Ended September 30, 2011
	Latin America			South Pacific			Corporate and Discontinued Operations			Consolidated
Revenue
Product Sales	$	118,038,499		$	678,733		$	—		$	118,717,232
Services		48,214,957			19,319,058			—			67,534,015

Total Revenue		166,253,456			19,997,791			—			186,251,247
Cost of Revenue
Product Sales		89,548,140			662,740			—			90,210,880
Services		38,342,141			6,582,125			—			44,924,266

Total Cost of Revenue		127,890,281			7,244,865			—			135,135,146

Gross Profit		38,363,175			12,752,926			—			51,116,101
		23.1	%		63.8	%					27.4	%
Expenses
Sales, Marketing and Customer Support		14,335,925			1,451,827			—			15,787,752
General and Administrative		20,490,078			4,411,798			4,532,727			29,434,603
Negative Goodwill		—			(2,907,114	)		—			(2,907,114	)
Transaction Related Expenses		—			—			1,047,598			1,047,598
Depreciation and Amortization		1,744,337			3,439,862			100,727			5,284,926
Amortization – Intangible Assets		—			200,925			—			200,925

Total Expenses		36,570,340			6,597,298			5,681,052			48,848,690

Operating Income (Loss)		1,792,835			6,155,628			(5,681,052	)		2,267,411
Interest Expense, Net		(3,470,484	)		(1,124,075	)		(570,355	)		(5,164,914	)
Other Income (Expense)		(2,881,518	)		(1,013,059	)		(27,417	)		(3,921,994	)
Income Tax Expense		394,076			(397,835	)		—			(3,759	)

Net Income (Loss) Attributable to eLandia	$	(4,165,091	)	$	3,620,659		$	(6,278,824	)	$	(6,823,256	)


Total Assets	$	200,533,151		$	54,194,670		$	532,282		$	255,260,103

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

Below is a summary of the results by segment for the three and nine months ended September 30, 2010 and identifiable assets as of December 31, 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	%					33.6	%
Expenses
Sales, Marketing and Customer Support		4,701,807			207,956			—			4,909,763
General and Administrative		4,694,117			727,920			1,257,467			6,679,504
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		10,046,805			1,949,724			1,707,669			13,704,198

Operating Income (Loss)		(2,715,840	)		615,362			(1,707,669	)		(3,808,147	)
Interest Expense, Net		(618,377	)		(344,938	)		(177,087	)		(1,140,402	)
Other Income (Expense)		1,002,772			57,629			376			1,060,777
Income Tax Expense		(10,788	)		—			—			(10,788	)
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, 2011

(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		44,886,814			391,911			—			45,278,725
Services		22,738,619			3,672,915			—			26,411,534

Total Cost of Revenue		67,625,433			4,064,826			—			71,690,259

Gross Profit		25,661,304			7,388,738			—			33,050,042
		27.5	%		64.5	%					31.6	%
Expenses
Sales, Marketing and Customer Support		13,955,479			659,843			—			14,615,322
General and Administrative		12,774,773			2,198,708			5,608,814			20,582,295
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		28,597,813			5,925,801			6,657,349			41,180,963

Operating Income (Loss)		(2,936,509	)		1,462,937			(6,657,349	)		(8,130,921	)
Interest Expense, Net		(1,872,643	)		(1,039,670	)		(266,896	)		(3,179,209	)
Gain on Extinguishment of Debt		2,037,500			—			—			2,037,500
Other Income (Expense)		(925,108	)		360,210			128,462			(436,436	)
Income Tax Expense		(10,797	)		—			—			(10,797	)
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	$	116,962,373		$	35,671,603		$	495,373		$	153,129,349

NOTE 15 – Subsequent Events

On November 2, 2011, our board of directors received a formal proposal from Amper to take the Company private. Our board of directors had previously formed a special committee comprised of all independent directors to evaluate and consider the Amper proposal. The special committee retained an independent financial advisor to assist it in, among other things, evaluating and determining the company’s response to Amper’s proposal, as well as evaluating any third-party proposals. On November 3, 2011, the special committee approved the proposed going-private transaction in principle, subject to review and approval of definitive documentation.

Pursuant to the going-private transaction proposed by Amper, the Company would amend its certificate of incorporation to effect a 1-for-150,000 reverse stock split of our common stock. After the reverse stock split, any shareholder holding less than one share will receive a cash payment of $0.65 for each eLandia share held prior to the reverse stock split. Holders of at least one full share following the reverse stock split will receive fractional shares to the extent the amount is not equally divisible by 150,000. As a result of the reverse stock split, it is expected that we will reduce the number of our beneficial shareholders to below 300 making the Company eligible to deregister its shares of common stock under applicable SEC regulations.

Under applicable state law, the amendment to our certificate of incorporation to effectuate the reverse stock split requires the approval of shareholders holding a majority of our outstanding common stock. As part of its proposal, Amper has indicated that it will vote all of its shares of common stock to approve the amendment to the certificate of incorporation pursuant to a written consent of majority shareholder. Consequently, all necessary corporate approvals in connection with the reverse stock split are expected to be obtained.

eLandia International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements––(Continued)

September 30, 2011

(Unaudited)

Prior to consummating the reverse stock split described above, we must file a preliminary information statement and a Schedule 13E-3 transaction statement with the SEC. These filings will contain additional information regarding the reverse stock split and the proposed going-private transaction. Following review by the SEC, we intend to distribute a definitive information statement to our shareholders and to effect the reverse stock split as soon as practicable following the date that is 20 days after the distribution of the information statement to shareholders. We anticipate the transaction will be completed in early 2012. After the reverse stock split becomes effective, we expect to deregister our common stock and terminate our reporting obligations with the SEC. In addition, as a result of this deregistration, we anticipate that our common stock will cease to be quoted on the OTC Bulletin Board.

Amper has proposed to enter into agreements with each shareholder holding more than 150,000 shares of our common stock which qualify as “accredited investors” (the “Exchanging Shareholders”) pursuant to which the Exchanging Shareholders could receive 0.1265 shares of Amper stock in exchange for each share of our common stock held by the Exchanging Shareholders immediately prior to the reverse stock split. The exchange agreements will provide that on the second anniversary of the date of the exchange, if the market value of Amper stock is less than €3.68 per share, Amper will issue to each Exchanging Shareholder an additional amount of Amper shares so that the market value of Amper shares issued and held in respect of each exchanged Company share shall have a market value equal to €3.68 using the weighted average trading price per share of Amper common stock during the 30 days prior to the second anniversary of the exchange.

The shares of Amper when issued to the Exchanging Shareholders will be freely tradable on the Madrid stock exchange. The Exchanging Shareholders will be subject to certain lock-up provisions prohibiting them from selling more than 5% of the total Amper shares issued in the exchange to such Exchanging Shareholders during any of the first four quarters following the exchange and more than 10% of the total Amper shares issued in the exchange per quarter during the fifth through eighth quarters following the exchange.

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, Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, 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 the rest of the world. As more fully described below, on March 31, 2011, we completed the acquisition of SamoaTel Limited, a provider of telecommunications products and services in Samoa. Additionally, on May 31, 2011, we completed the acquisition of Medidata Informatica, S.A. (“Medidata”), a provider of integrated communications solutions to telecommunications operators, corporations, financial clients and governments in Brazil.

Our company enables innovative technology solutions that empower our customers and help them increase efficiency, improve business agility, decrease costs, and maximize their existing ICT investments while enhancing their competitive advantages. Our solutions portfolio currently consists of three core Technology Solutions, three Business Practice Solutions and a complete array of professional services to ensure our customers achieve the full benefits of their technology investments. We also hold more than 38 company accreditations and specializations from leading technology vendors, including Cisco Systems, Inc. (“Cisco”), VMware, Ciena, Microsoft Corporation (“Microsoft”) and many others.

eLandia corporate headquarters are located at 8333 NW 53^rd Street, Miami, Florida 33166. The telephone number is (305) 415-8830.

Recent Developments

Acquisition of SamoaTel

On March 31, 2011, we consummated the closing under a Share Sale and Purchase Agreement with The Government of the Independent State of Samoa pursuant to which Bluesky SamoaTel Investments Limited (“BSI”), a subsidiary of AST, acquired 75% of the issued and outstanding capital shares of SamoaTel Limited (“SamoaTel”) in exchange for $11 million. We own approximately 75% of BSI and the remaining 25% is owned by other investors. SamoaTel is a provider of telecommunications products and services in Samoa and offers a full range of services including fixed line, mobile, data and calling card services for homes and businesses in Samoa.

Contribution Agreement - Amper

On July 29, 2010, we entered into a Contribution Agreement (the “Contribution Agreement”) with Amper, S.A. (“Amper”). Pursuant to this Contribution Agreement, Amper agreed to acquire 150,745,913 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 Brasil, S.L. (“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 Contribution Agreement as the “Contributed Entities.” The shares of our common stock issued to Amper under the Contribution Agreement represented approximately 85% of our issued and outstanding shares of common stock following the closing of the transactions contemplated by the Contribution Agreement.

On March 31, 2011, we executed and delivered certain closing documents under the Contribution Agreement subject to the closing documents being held in escrow pending the receipt from our transfer agent of a stock certificate representing 150,745,913 shares of our common stock issued in the name of Amper and stock certificates representing the 5,223,517 capital shares of Hemisferio transferred to the name of the Company, which transfer required registration with certain Spanish and Brazilian authorities, and certain other related legal opinions. The closing of the transactions contemplated by the Contribution Agreement was subject to various conditions, all of which were satisfied, waived or deferred pursuant to the escrow arrangement prior to the closing, including: (i) obtaining the consent of the FCC, (ii) receipt of a fairness opinion from our investment bank, (iii) receipt of waivers executed by our chief executive officer and chief financial officer with respect to any severance obligations of the Company which may be triggered by the closing of the Contribution Agreement transactions, and (iv) receipt of a consent of the receiver for Stanford International Bank Ltd. (“SIBL”) to the transactions contemplated by the Contribution Agreement.

Medidata offers integrated communications solutions to telecommunications operators, corporations, financial clients and governments in Brazil. With headquarters in Rio de Janeiro, Medidata has branches in Săo Paulo, Brasília and Belo Horizonte, support centers in Vitória and Barueri and more than 200 employees. The transaction under the Contribution Agreement will increase our regional footprint, providing us market entry into Brazil and will enable the combined company to service large domestic and multi-national customers throughout the Latin America region. We believe that the increased scale of the combined company will improve our negotiating power with vendors and create cost saving opportunities, allow for servicing of clients across larger geographies and multiple products and services, and diversify customer concentration risk, country risk and currency or devaluation risk.

Proposed Going Private Transaction

Amper has proposed to enter into agreements with each shareholder holding more than 150,000 shares of our common stock which qualify as “accredited investors” (the “Exchanging Shareholders”) pursuant to which the Exchanging Shareholders will receive 0.1265 shares of Amper stock in exchange for each share of our common stock held by the Exchanging Shareholders immediately prior to the reverse stock split. The exchange agreements will provide that on the second anniversary of the date of the exchange, if the market value of Amper stock is less than €3.68 per share, Amper will issue to each Exchanging Shareholder an additional amount of Amper shares so that the market value of Amper shares issued and held in respect of each exchanged Company share shall have a market value equal to €3.68 using the weighted average trading price per share of Amper common stock during the 30 days prior to the second anniversary of the exchange.

The shares of Amper issued to the Exchanging Shareholders will be freely tradable on the Madrid stock exchange. The Exchanging Shareholders will be subject to certain lock-up provisions prohibiting them from selling more than 5% of the total Amper shares issued in the exchange to such Exchanging Shareholders during any of the first four quarters following the exchange and more than 10% of the total Amper shares issued in the exchange per quarter during the fifth through eighth quarters following the exchange.

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 valuation of SamoaTel, 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, the valuation of derivatives, the 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, 2010 filed with the SEC for a discussion of our critical accounting policies. During the nine months ended September 30, 2011, there were no material changes to these policies.

Results of Operations – Overview

Revenues for the quarter ended September 30, 2011 increased $49.1 million, or 167%, compared to the same period in 2010. The increases reflect improvements in our Latin American and South Pacific segments, as well as the effects of our acquisitions of Medidata in Brazil on May 31, 2011 and SamoaTel in Samoa on March 31, 2011. The results of operations for these two acquisitions have been included in the consolidated financial statements from their respective dates of acquisitions. Operations in our Latin American segment, representing mainly emerging market economies, achieved significant growth in the quarter with a 175% increase in revenues. Our South Pacific segment revenues grew by 111% during the quarter ended September 30, 2011, compared with the same period in 2010. Operating income and net loss from continuing operations for the third quarter of 2011 was $0.7 million and $3.4 million, respectively, compared with an operating loss and net loss from continuing operations in the third quarter of 2010 of $3.8 million and $4.1 million, respectively.

We experienced a 78% increase in revenues for the nine months ended September 30, 2011, compared to the same period in 2010. The increase is mainly attributable to an increase in our product revenues of $62.8 million, or 112%, and an increase in our services revenues of $18.7 million, or 38%. The acquisitions of Medidata and SamoaTel, as well as organic growth in both our Latin American and South Pacific segments, contributed to the overall increase in revenues.

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.

•

Gross margin increased by $18.1 million during the nine months ended September 30, 2011, as compared to the same period in 2010. This is mainly attributable to our acquisitions of Medidata and SamoaTel, as well as our organic growth in the Latin America and South Pacific regions. As a percentage of consolidated net sales, our gross margin decreased from 32% for the nine months ended September 30, 2010 to 27% for the nine months ended September 30, 2011.

•

Operating income for the nine months ended September 30, 2011 was $2.3 million, compared to an operating loss of $8.1 million for the nine months ended September 30, 2010. The improvement in our operating income is mainly the result of our increased gross margin, offset to some extent by higher operating expenses. Included in operating income for the nine months ended September 30, 2011 is negative goodwill of $2.9 million related to our acquisition of SamoaTel on March 31, 2011. Excluding this effect, operating income improved by $7.5 million for the nine months ended September 30, 2011, compared to the same period in 2010.

•

Net loss attributable to eLandia for the nine months ended September 30, 2011 was $6.8 million, compared to $7.3 million for the same period in 2010. The decrease in net loss is primarily due to operating income for the nine months ended September 30, 2011, compared to an operating loss for the nine months ended September 30, 2010, offset by higher other non-operating expenses. Other non-operating expenses for the nine months ended September 30, 2011 includes foreign currency exchange losses of $3.6 million, compared to $0.4 million for the nine months ended September 30, 2010. Additionally, other non-operating expenses for the nine months ended September 30, 2010 includes a gain on the extinguishment of debt of $2.0 million.

•

Net loss per share improved from ($0.26) for the nine months ended September 30, 2010 to ($0.07) for the nine months ended September 30, 2011.

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 solution offerings, which are structured into three core competencies:

•

Technology Solutions: We capitalize on the investments and experience accumulated in our group companies to offer a broad array of solutions in the areas of borderless networks, cloud solutions, and virtual workspace.

•

Business Practices: We focus on our goal of assisting customers transform their enterprises using technology. We have invested in building a series of Business Practice Solutions that help us build deeper relationships with customers and serve them more efficiently and effectively.

•

Advanced Services Portfolio: Complementing our Technology and Business Solutions, we provide a complete lifecycle services offering that ensures realization of the full benefits of our value proposition.

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.

Acquisition of Medidata

We used the acquisition method of accounting in connection with this acquisition and, accordingly, our consolidated financial statements include the results of operations of Medidata from the date of acquisition of May 31, 2011. Summarized results for Medidata for the three and nine months ended September 30, 2011 included in our consolidated financial statements are as follows:


	Three Months Ended Sept. 30, 2011			Nine Months Ended Sept. 30, 2011
Revenue
Product Sales	$	20,135,000		$	26,361,000
Services		6,410,000			10,160,000

Total Revenue		26,545,000			36,521,000
Cost of Revenue
Product Sales		15,257,000			21,182,000
Services		8,895,000			11,441,000

Total Cost of Revenue		24,152,000			32,623,000

Gross Profit		2,393,000			3,898,000
		9.0	%		10.7	%
Expenses
Sales, Marketing and Customer Support		79,000			84,000
General and Administrative		4,657,000			6,134,000
Depreciation and Amortization		126,000			171,000

Total Expenses		4,862,000			6,389,000

Operating Income (Loss)		(2,469,000	)		(2,491,000	)
Interest (Expense) Income, Net		39,000			131,000
Other Income (Expense)		(1,477,000	)		(386,000	)
Income Tax Expense		1,591,000			1,060,000

Net Income (Loss)	$	(2,316,000	)	$	(1,686,000	)

Venezuela

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 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.

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.

For the nine months ended September 30, 2011, our Venezuelan subsidiary represented 13% of our consolidated net sales, as compared to 14% for the nine months ended September 30, 2010.

Revenues for our Venezuelan operations for the three months ended September 30, 2011, remeasured at the bond rate, were $13.5 million, compared to $4.1 million for the three months ended September 30, 2010, remeasured at the SITME rate. Gross profit for Venezuela for the three months ended September 30, 2011 was $5.5 million, representing a gross margin of 41%, compared to gross profit of $2.1 million, or a gross margin of 51%, for the three months ended September 30, 2010. Operating expenses for our Venezuelan operations for the three months ended September 30, 2011 were $2.4 million, compared to $1.8 million for the three months ended September 30, 2010.

Revenues for our Venezuelan operations for the nine months ended September 30, 2011, remeasured at the bond rate, were $24.4 million, compared to $14.6 million for the nine months ended September 30, 2010, remeasured at the parallel rate through May 2010 and the SITME rate thereafter. Gross profit for Venezuela for the nine months ended September 30, 2011 was $8.6 million, representing gross margin of 35%, compared to gross profit of $5.2 million, or a gross margin of 36%, for the nine months ended September 30, 2010. Operating expenses for our Venezuelan operations for the nine months ended September 30, 2011 were $5.3 million, compared to $4.7 million for the nine months ended September 30, 2010.

There will be an ongoing impact related to measuring the statement of operations for our Venezuelan operations at the bond rate. Our net sales and operating income in Venezuela are subject to a highly inflationary environment, which as of September 30, 2011, 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, 2011 to the Three Months Ended September 30, 2010

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,
	2011			2010			$ Change			% Change
Revenue
Product Sales	$	52,315,958		$	13,301,944		$	39,014,014			293.3	%
Services		18,145,766			12,309,123			5,836,643			47.4	%

Total Revenue		70,461,724			25,611,067			44,850,657			175.1	%
Cost of Revenue
Product Sales		37,631,907			10,520,187			27,111,720			257.7	%
Services		17,269,310			7,759,915			9,509,395			122.5	%

Total Cost of Revenue		54,901,217			18,280,102			36,621,115			200.3	%

Gross Profit		15,560,507			7,330,965			8,229,542			112.3	%
		22.1	%		28.6	%					(6.5	)%
Expenses
Sales, Marketing and Customer Support		5,275,718			4,701,807			573,911			12.2	%
General and Administrative		9,550,430			4,694,117			4,856,313			103.5	%
Depreciation and Amortization		707,591			650,881			56,710			8.7	%

Total Expenses		15,533,739			10,046,805			5,486,934			54.6	%

Operating Income (Loss)		26,768			(2,715,840	)		2,742,608			(101.0	)%
Interest (Expense) Income, Net		(1,263,520	)		(618,377	)		(645,143	)		104.3	%
Other Income (Expense)		(2,683,676	)		1,002,772			(3,686,448	)		(367.6	)%
Income Tax Expense		1,341,419			(10,788	)		1,352,207			(12534.6	)%

Net Income (Loss)	$	(2,579,009	)	$	(2,342,233	)	$	(236,776	)		10.1	%

Product Sales

Year over year increase in product sales was $39.0 million, or 293%. Excluding revenues from Medidata for the three months ending September 30, 2011, product sales increased $18.9 million, or 142%, over the same period in 2010. The sales growth in our Latin American segment is partly attributable to our investment in sales force recruiting, retention and development, the impact of brand building activities and the continued focus on entering into more profitable arrangements with our customers and vendors.

Product gross margin increased from 21% for the three months ended September 30, 2010 to 28% for the three months ended September 30, 2011. Excluding Medidata, product gross margin increased from 21% for the three months ended September 30, 2010 to 30% for the three months ended September 30, 2011. The increase in our gross margin mainly results from a combination of higher vendor discounts, rebates, favorable product pricing, and cost beneficial negotiations with our vendors.

Services

Year over year increase in revenue from the provision of professional ICT services was $5.8 million, or 47%. Excluding revenues from Medidata for the three months ending September 30, 2011, services revenues decreased $0.6 million, or 5%, over the same period in 2010.

Excluding Medidata’s results, service gross margin decreased from 37% for the three months ended September 30, 2010 to 29% for the three months ended September 30, 2011 primarily as a result of aggressive pricing strategies implemented in order to stimulate growth in our services-related portfolio. We expect our margins to improve as we strengthen our presence in the market and build our customer base.

Overall, we experienced a significant growth in the majority of our markets compared to the prior year, reflecting the results of our continued focus in our core technology solutions centered on the virtual workspace, cloud computing and borderless networks. We are offering products and services to our customers which we believe enhance their productivity and communication, and deploying robust, scalable network infrastructures to support their critical business applications. We are also leveraging our relationship with our primary vendor which we expect will expand our customer portfolio, particularly in the financial services, government and telecommunication sectors.

Expenses

Our overall operating expenses during the three months ended September 30, 2011 increased $5.5 million, or 55%, compared to the same period in the prior year. Excluding the effects of Medidata, operating expenses increased $0.6 million, or 6% over the prior year.

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. The increase in sales, marketing and customer support expenses for the three months ended September 30, 2011 is primarily attributable to the investment in the recruiting, retention and development of our sales force and related compensation costs.

Excluding the effects of Medidata, general and administrative expenses, which 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 American operations, increased $200,000, compared to the same period in 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. The increase in net interest expense is primarily the result of higher average outstanding debt balances as of September 30, 2011, compared to September 30, 2010.

Other income and expense is comprised of non-operating items. Other (expense)/income, excluding Medidata, for the three months ended September 30, 2011 and 2010 is mainly comprised of foreign currency exchange (losses)/gains, primarily related to our Venezuelan operations.

Income tax expense, excluding Medidata, for the three months ended September 30, 2011 amounted to approximately $250,000. Excluding Medidata, we continue to maintain a full valuation allowance on our deferred tax assets.

Comparison of the Nine Months Ended September 30, 2011 to the Nine Months Ended September 30, 2010

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,
	2011			2010			$ Change			% Change
Revenue
Product Sales	$	118,038,499		$	55,508,574		$	62,529,925			112.6	%
Services		48,214,957			37,778,163			10,436,794			27.6	%

Total Revenue		166,253,456			93,286,737			72,966,719			78.2	%
Cost of Revenue
Product Sales		89,548,140			44,886,814			44,661,326			99.5	%
Services		38,342,141			22,738,619			15,603,522			68.6	%

Total Cost of Revenue		127,890,281			67,625,433			60,264,848			89.1	%

Gross Profit		38,363,175			25,661,304			12,701,871			49.5	%
		23.1	%		27.5	%					(4.4	)%
Expenses
Sales, Marketing and Customer Support		14,335,925			13,955,479			380,446			2.7	%
General and Administrative		20,490,078			12,774,773			7,715,305			60.4	%
Depreciation and Amortization		1,744,337			1,867,561			(123,224	)		(6.6	)%

Total Expenses		36,570,340			28,597,813			7,972,527			27.9	%

Operating Income (Loss)		1,792,835			(2,936,509	)		4,729,344			(161.1	)%
Interest (Expense) Income, Net		(3,470,484	)		(1,872,643	)		(1,597,841	)		85.3	%
Gain on Extinguishment of Debt		—			2,037,500			(2,037,500	)		(100.0	)%
Other Income (Expense)		(2,881,518	)		(925,108	)		(1,956,410	)		211.5	%
Income Tax Expense		394,076			(10,797	)		404,873			(3749.9	)%

Net Income (Loss)	$	(4,165,091	)	$	(3,707,557	)	$	(457,534	)		12.3	%

Product Sales

Year over year increase in product sales was $62.5 million, or 113%. Excluding revenues from Medidata, product sales increased $36.2 million, or 65%, over the same period in 2010. The sales growth in our Latin American segment is partly attributable to our investment in sales force recruiting, retention and development, the impact of brand building activities and the continued focus on entering into more profitable arrangements with our customers and vendors.

Product gross margin increased from 19% for the nine months ended September 30, 2010 to 24% for the nine months ended September 30, 2011. Excluding Medidata, product gross margin increased to 25% for the nine months ended September 30, 2011. The increase in our gross margin mainly results from a combination of higher vendor discounts, rebates, favorable product pricing, and cost beneficial negotiations with our vendors. Additionally, during the nine months ended September 30, 2010, we incurred certain one-time charges in connection with the completion of several contracts, thereby resulting in a lower gross margin during that period.

Services

Year over year growth in revenue from the provision of professional ICT services was $10 million, or 28%. Excluding revenues from Medidata, services revenues increased slightly by $277,000, or 1%, over the same period in 2010.

Service gross margin decreased from 40% for the nine months ended September 30, 2010 to 20% for the nine months ended September 30, 2011. Excluding Medidata, service gross margin decreased to 29% for the nine months ended September 30, 2011. The decrease is primarily a result of aggressive pricing strategies implemented in order to stimulate the growth in our services-related portfolio. Additionally, during the nine months ended September 30, 2011, gross margin from education services was impacted as a result of significant pricing pressures and overall costs which we were not able to pass along to our customers. We expect our margins to improve as we strengthen our presence in the market and build our customer base.

Expenses

Our overall operating expenses during the nine months ended September 30, 2011 increased $8.0 million, or 28%, compared to the same period in the prior year. Excluding the effects of Medidata, operating expenses increased $1.6 million, or 6%, over the prior year. The increase in operating expenses mainly results from an investment in the recruiting, retention and development of our sales force, in addition to the cost relating to the settlement of an outstanding receivable with a customer in Colombia. Offsetting the increase are the results of cost-cutting measures implemented during 2009 and 2010 in response to the overall weakened economy in Latin America.

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. The increase in sales, marketing and customer support expenses for the nine months ended September 30, 2011 primarily reflects the investment during 2011 in our sales force and related compensation costs to develop and retain sales force leaders.

Excluding the effects of Medidata, general and administrative expenses increased $1.6 million, or 12%. General and administrative expenses, which 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 American operations, increased mainly as a result of the cost relating to the settlement of an outstanding receivable with a customer in Colombia.

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.

Other income and expense is comprised of non-operating items. Excluding Medidata, other expense increased by $1.6 million for the nine months ended September 30, 2011, compared to 2010. Other expense for the nine months ended September 30, 2011 and 2010 is mainly comprised of foreign currency exchange losses, primarily related to our Venezuelan operations.

Income tax expense, excluding Medidata, for the nine months ended September 30, 2011 amounted to approximately $666,000. Excluding Medidata, we continue to maintain a full valuation allowance on our deferred tax assets.

Results of Operations – South Pacific

We offer mobile communications, Internet, calling card 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 ASH Cable in partnership with the American Samoa Government, providing high-speed networking connections between the territory of American Samoa and Hawaii. Our services revenue includes telecommunications services including internet and data services as well as support provided to our clients by our systems engineers, IT support, and technical staff for new or existing software, hardware, systems, or applications. 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.

On March 31, 2011, BSI acquired 75% of the issued and outstanding capital shares of SamoaTel in exchange for $11 million. AST owns approximately 75% of BSI and the remaining 25% is owned by other investors. SamoaTel is a provider of telecommunications products and services in Samoa and offers a full range of services including fixed telephony, mobile communications, internet and calling card services for homes and businesses in Samoa. AST had no operations in Samoa, which is approximately 80 miles away from America Samoa, where AST operates. We believe that this acquisition will provide us with access to market-leading Samoa customers, and with the combination of SamoaTel operations with our own, will provide us with valuable synergies, highly complementary products, customers and geographic regions.

We used the acquisition method of accounting in connection with this acquisition and accordingly, our consolidated financial statements include the results of operations of SamoaTel from the date of acquisition of March 31, 2011.

Comparison of the Three Months Ended September 30, 2011 to the Three Months Ended September 30, 2010

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,
	2011			2010			$ Change			% Change
Revenue
Product Sales	$	272,151		$	102,921		$	169,230			164.4	%
Services		7,838,251			3,734,586			4,103,665			109.9	%

Total Revenue		8,110,402			3,837,507			4,272,895			111.3	%
Cost of Revenue
Product Sales		271,674			96,226			175,448			182.3	%
Services		2,631,831			1,176,195			1,455,636			123.8	%

Total Cost of Revenue		2,903,505			1,272,421			1,631,084			128.2	%

Gross Profit		5,206,897			2,565,086			2,641,811			103.0	%
		64.2	%		66.8	%					(2.6	)%
Expenses
Sales, Marketing and Customer Support		651,377			207,956			443,421			213.2	%
General and Administrative		1,826,794			727,920			1,098,874			151.0	%
Depreciation and Amortization		1,352,953			934,830			418,123			44.7	%
Amortization – Intangible Assets		65,468			79,018			(13,550	)		(17.1	)%

Total Expenses		3,896,592			1,949,724			1,946,868			99.9	%

Operating Income (Loss)		1,310,305			615,362			694,943			112.9	%
Interest (Expense) Income, Net		(402,945	)		(344,938	)		(58,007	)		16.8	%
Other Income (Expense)		(116,791	)		57,629			(174,420	)		(302.7	)%
Income Tax Expense		(196,945	)		—			(196,945	)		(100.0	)%

Net Income (Loss)	$	593,624		$	328,053		$	265,571			81.0	%

Product Sales

Excluding the effect of our acquisition, revenues from product sales during the three months ended September 30, 2011 remained relatively consistent compared to the same period in 2010, increasing $23,000, or 23%, with a corresponding increase in cost of revenues of $30,000, or 31%. We continue to expand our supplier base in order to maintain competitive pricing and products within our markets.

Services

Year over year increase in services revenues was $4.1 million, or 110%. Excluding the revenues from the acquisition, services revenues decreased $141,000, or 4%, over the same period in 2010, while cost of revenues decreased $297,000, or 25%. The cost of revenue from services decreased at a higher rate than the corresponding revenue, thereby improving our service gross margin, due to improved mix of higher margin products and services combined with increased marketing efforts and promotions offered to our customers during the 2011 period.

Service gross margin decreased from 69% for the three months ended September 30, 2010 to 66% for the three months ended September 30, 2011. Excluding the effect of the acquisition, gross margin increased to 76% during the three months ended September 30, 2011. The increase is primarily attributable to the execution of promotions offered to our customers during the three months ended September 30, 2011 which increased our revenues, while maintaining a consistent level of costs. Offsetting the improvement in our service gross margin is an increase in costs related to the communication services provided by our data services and our undersea cable operations provided to our large broadband customers.

Expenses

Sales, marketing and customer support expenses increased $443,000, or 213%, for the three months ended September 30, 2011, compared to the same period in 2010. Excluding the effect of the acquisition, sales, marketing and customer support expenses increased slightly by $57,000, or 27%, over the same period in the prior year.

Excluding the general and administrative expenses related to our acquired subsidiary, general and administrative expenses increased slightly by $69,000, or 10%, during the three months ended September 30, 2011, compared to the same period in 2010.

Other income (expense), net for the three months ended September 30, 2011 and 2010 is mainly comprised of the noncontrolling interest in BSI, SamoaTel and 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, 2011 to the Nine Months Ended September 30, 2010

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,
	2011			2010			$ Change			% Change
Revenue
Product Sales	$	678,733		$	388,533		$	290,200			74.7	%
Services		19,319,058			11,065,031			8,254,027			74.6	%

Total Revenue		19,997,791			11,453,564			8,544,227			74.6	%
Cost of Revenue
Product Sales		662,740			391,911			270,829			69.1	%
Services		6,582,125			3,672,915			2,909,210			79.2	%

Total Cost of Revenue		7,244,865			4,064,826			3,180,039			78.2	%

Gross Profit		12,752,926			7,388,738			5,364,188			72.6	%
		63.8	%		64.5	%					(0.7	)%
Expenses
Sales, Marketing and Customer Support		1,451,827			659,843			791,984			120.0	%
General and Administrative		4,411,798			2,198,708			2,213,090			100.7	%
Negative Goodwill		(2,907,114	)		—			(2,907,114	)		(100.0	)%
Depreciation and Amortization		3,439,862			2,810,448			629,414			22.4	%
Amortization – Intangible Assets		200,925			256,802			(55,877	)		(21.8	)%

Total Expenses		6,597,298			5,925,801			671,497			11.3	%

Operating Income (Loss)		6,155,628			1,462,937			4,692,691			320.8	%
Interest (Expense) Income, Net		(1,124,075	)		(1,039,670	)		(84,405	)		8.1	%
Other Income (Expense)		(1,013,059	)		360,210			(1,373,269	)		(381.2	)%
Income Tax Expense		(397,835	)		—			(397,835	)		(100.0	)%

Net Income (Loss)	$	3,620,659		$	783,477		$	2,837,182			362.1	%

Product Sales

Excluding the effect of our acquisition, revenues from product sales during the nine months ended September 30, 2011 remained relatively consistent compared to the same period in 2010, increasing $15,000, or 4%, while cost of revenues decreased $41,000, or 10%. The cost of revenue from product sales decreased at a higher rate than the corresponding revenue, thereby improving our product margin, due to increased efforts in controlling our discounts so as to increase our net revenues. Cost of revenue for the nine months ended September 30, 2010 includes the effects of a write-off of obsolete inventory, which did not occur during the nine months ended September 30, 2011. We continue to expand our supplier base in order to maintain competitive pricing and products within our markets.

Services

Year over year increase in services revenues was $8.3 million, or 75%. Excluding the revenues from the acquisition, services revenues increased $107,000, or 1%, over the same period in 2010, while cost of revenues decreased $499,000, or 14%. The cost of revenue from services decreased at a higher rate than the corresponding revenue, thereby improving our service gross margin, due to improved mix of higher margin products and services combined with increased marketing efforts and promotions offered to our customers during the 2011 period.

Service gross margin remained consistent at 66% for the nine months ended September 30, 2011, compared to 67% for the nine months ended September 30, 2010. Excluding the effect of the acquisition, gross margin increased to 72% during the nine months ended September 30, 2011. The increase is primarily attributable to the successful execution of promotions offered to our customers during the nine months ended September 30, 2011, which increased our revenues, while maintaining a consistent level of costs. Offsetting the improvement in our service gross margin is an increase in costs related to the communication services provided by our data services and our undersea cable operations provided to our large broadband customers.

Expenses

Sales, marketing and customer support expenses increased $792,000, or 120%, for the nine months ended September 30, 2011, compared to the same period in 2010. Excluding the effect of our acquisition, sales, marketing and customer support expenses remained relatively consistent compared to the prior year.

Excluding the effect of general and administrative expenses related to our acquired subsidiary, general and administrative expenses increased $375,000, or 17%, during the nine months ended September 30, 2011, compared to the same period in 2010. The increase is mainly due to legal, professional and management fees incurred in connection with our acquisition of SamoaTel.

We realized preliminary negative goodwill of $2.9 million resulting from the acquisition of SamoaTel during the nine months ended September 30, 2011. Our preliminary review of SamoaTel’s assets on the balance sheet reflects a higher value than the purchase price, thus resulting in negative goodwill. However, we find that the value of the balance sheet assets is not an accurate reflection of the value of the overall business given deteriorating market share and an eroding revenue base. To combat this, we are planning to replace a portion of the assets in the coming months to enable the company to better compete in the market. We expect significant investments in infrastructure and complementary services to allow the company to deliver competitive products and services in the marketplace and therefore improve service and market position as well as offer value-added services to our customers.

Other income (expense), net for the nine months ended September 30, 2011 and 2010 is mainly comprised of the noncontrolling interest in BSI, SamoaTel and 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, 2011 to the Three and Nine Months Ended September 30, 2010

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

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.

		000000000			000000000			000000000			000000000
	For the Three Months Ended September 30,
	2011			2010			$ Change			% Change
Expenses
General and Administrative	$	576,747		$	1,257,467		$	(680,720	)		(54.1	)%
Transaction Related Expenses		—			414,066			(414,066	)		(100.0	)%
Depreciation and Amortization		33,957			36,136			(2,179	)		(6.0	)%

Total Expenses		610,704			1,707,669			(1,096,965	)		(64.2	)%

Operating Income (Loss)		(610,704	)		(1,707,669	)		1,096,965			(64.2	)%
Interest (Expense) Income, Net		(181,623	)		(177,087	)		(4,536	)		2.6	%
Other Income (Expense)		(63,124	)		376			(63,500	)		(16888.4	)%
Income (Loss) from Discontinued Operations		—			2,444,505			(2,444,505	)		(100.0	)%

Net Income (Loss)	$	(855,451	)	$	560,125		$	(1,415,576	)		(252.7	)%

		000000000			000000000			000000000			000000000
	For the Nine Months Ended September 30,
	2011			2010			$ Change			% Change
Expenses
Sales, Marketing and Customer Support
General and Administrative	$	4,532,727		$	5,608,814		$	(1,076,087	)		(19.2	)%
Transaction Related Expenses		1,047,598			946,505			101,093			10.7	%
Depreciation and Amortization		100,727			102,030			(1,303	)		(1.3	)%

Total Expenses		5,681,052			6,657,349			(976,297	)		(14.7	)%

Operating Income (Loss)		(5,681,052	)		(6,657,349	)		976,297			(14.7	)%
Interest (Expense) Income, Net		(570,355	)		(266,896	)		(303,459	)		113.7	%
Other Income (Expense)		(27,417	)		128,462			(155,879	)		(121.3	)%
Income (Loss) from Discontinued Operations		—			2,414,819			(2,414,819	)		(100.0	)%

Net Income (Loss)	$	(6,278,824	)	$	(4,380,964	)	$	(1,897,860	)		43.3	%

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, 2011, compared to the same period in 2010, was primarily the result of overall lower professional fees, as well as overall lower compensation costs, offset by higher compensation costs resulting from performance-based incentives granted to management. Non-cash share-based compensation expense amounted to $46,000 and $752,000 for the three and nine months ended September 30, 2011, respectively, compared to $284,000 and $910,000 for the three and nine months ended September 30, 2010, respectively. The decrease in compensation costs is mainly attributable to a reduction in corporate headcount and lower salary and salary-related expenses, offset by performance-based incentives granted to management.

Transaction related expenses mainly represent legal, professional, travel and other expenses incurred in connection with our transaction with Amper. The expenses are comprised of due diligence fees, contract negotiations and review, in-country visits, and investor presentations. In addition, transaction related expenses include the cash consideration granted to executive management, as well as the value of the shares issued to executive management in connection with the closing of the Contribution Agreement with Amper.

The increase in interest expense for the three and nine months ended September 30, 2011 is primarily due to the interest expense incurred in connection with the $5.0 million Exclusivity Advance from Amper.

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 Investments Ltd. and Datec Group Ltd., as plaintiffs, among others, pursuant to which

150,000 shares of our common stock were transferred to us in exchange for our interests in Datec Fiji and Datec Australia. As a result of this transaction, we re-measured the value of the net liabilities 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 returned to us was deminimus. Accordingly, we recorded a gain in discontinued operations, which includes the results of operations for the 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

Our principal source of liquidity has been the Exclusivity Advance from Amper in the amount of $5 million. Additionally, the acquisitions of Medidata and SamoaTel contributed an additional $26.7 million in working capital as of September 30, 2011.

Overall Cash Inflows and Outflows

We generated $2.3 million of income from continuing operations and $13.1 million of cash in operating activities for the nine months ended September 30, 2011. As of September 30, 2011, we have working capital of $22.7 million.

Operating Activities. We generated $13.1 million of cash from operations during the nine months ended September 30, 2011. For the nine months ended September 30, 2011, our net loss amounted to $6.4 million, which included net non-cash expenses of $9.2 million. Changes in operating assets and liabilities provided $10.3 million in cash.

Investing Activities. Cash paid for the acquisition of SamoaTel, net of the cash acquired, amounted to $4.6 million during the nine months ended September 30, 2011. Net cash acquired in connection with the acquisition of Medidata amounted to $10.7 million. We paid $0.6 million for investments in capital assets and decreased our restricted cash balances by $0.9 million during the nine months ended September 30, 2011.

Financing Activities. We received $1.8 million in cash from financing activities during the nine months ended September 30, 2011. During the nine months ended September 30, 2011, we paid an aggregate of $1.2 million on our lines of credit, long-term debt and capital leases. We received $3.1 million in proceeds from noncontrolling interests in connection with the funding of BSI.

In connection with our acquisition of SamoaTel on March 31, 2011, BSI paid $11 million, of which $5.5 million was funded through debt, $1.9 million was funded through cash paid by AST and $3.6 million was funded through cash paid by other financial investors. BSI issued the other investors debt and preferred stock in BSI in exchange for the $3.6 million of proceeds received.

Additionally, in connection with the acquisition of SamoaTel, AST entered into a loan agreement (the “Loan Agreement”) with ANZ Finance America Samoa, Inc. and ANZ Amerika Samoa Bank (jointly, “ANZ”), pursuant to which ANZ committed to provide financing of up to $5,500,000 in the form of a five year term loan (the “Loan”). In addition, ANZ committed to provide up to $3,500,000 in a two year letter of credit facility which AST may use to issue letters of credit to various vendors (the “Facility”) to fund future capital expenditures. AST is the borrower under the Loan Agreement and the Facility. The Loan and the Facility are principally secured by substantially all of the assets and operations of AST. The Loan bears interest at the rate of 2.5% above the prime rate. AST paid ANZ a fee of $82,500 at closing. At closing, AST borrowed the full amount available under the Loan and used the proceeds for the purchase of SamoaTel. In connection with the Loan Agreement and the Facility, we increased our existing guaranty and security agreements in favor of ANZ (respectively, the “Guaranty”) to include the amounts borrowed under the Loan Agreement and the Facility. Pursuant to the Guaranty, we have unconditionally guaranteed the repayment and other obligations of AST under the Loan Agreement and the Facility. In connection with the Loan Agreement and the Facility, AST executed a stock pledge agreement of all of its interest in the issued and outstanding shares of capital stock of BSI.

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. Excluding the effect of Medidata, as well as $12.1 million in receivables for which we recognized the related revenues in prior years, our consolidated annualized DSO was 113 days at September 30, 2011, compared with 140 days at December 31, 2010. The improvement in DSO reflects our concerted efforts and focus to collect outstanding receivables on a more timely basis, as well as our focus on the collection of older receivables, thereby resulting in an improved cash flow position.

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 Fuerte and the U.S. Dollar, and have had the effect of restricting the ability to exchange Bolivar Fuertes for U.S. 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 Bolivar Fuertes 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 Bolivar Fuertes to U.S. Dollars at rates which were unfavorable to the official exchange rate.

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. 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.

We have working capital of $22.7 million at September 30, 2011. We believe that we will have sufficient working capital to sustain our current operations and service our debt obligations through at least October 1, 2012. The acquisition of Medidata and SamoaTel are expected to provide us with significant working capital surplus in the future. 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.

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/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, 2010.

In light of the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2010, 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, 2010, 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, 2011 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

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. 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

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

REMOVED AND RESERVED

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS


Exhibit No.	Description of Document	Method of Filing

31.1	Chief Executive Officer and 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 and 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.

Exhibit Index


Exhibit No.	Description of Document	Method of Filing

31.1	Chief Executive Officer and 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 and 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

ELANDIA INTERNATIONAL INC. 10-Q