10QSB 1 pcktprt10qsb043007.txt PACKETPORT.COM, INC. FORM 10-QSB APRIL 30, 2007 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2007 COMMISSION FILE NUMBER 0-19705 PACKETPORT.COM, INC. -------------------- (Exact name of small business issuer as specified in its charter) NEVADA 13-3469932 ------------------------------- --------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 587 CONNECTICUT AVENUE NORWALK, CT 06854 (Address of Principal Executive Offices) (203) 831-2214 (Issuer's Telephone Number, including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter 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 is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes /X/ No / / State the number of shares outstanding of each of the issuer's Classes of Common Equity, as of the latest practicable date. Number of shares outstanding of the issuer's Common Stock as of June 8, 2007 was 21,933,520. Traditional Small Business Disclosure Format (check one): Yes / / No /X/ PACKETPORT.COM, INC. FORM 10-QSB QUARTERLY REPORT FOR THE THREE MONTHS ENDED APRIL 30, 2007 PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheets-April 30, 2007 (Unaudited) and January 31, 2007..........3 Statements of Operations (Unaudited)-Three Months ended April 30, 2007 and 2006................................................4 Statements of Cash Flows (Unaudited)-Three months ended April 30, 2007 and 2006................................................5 Notes to Financial Statements (Unaudited).............................6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................10-16 Item 3. Controls and Procedures......................................... 16 PART II. OTHER INFORMATION.................................................. 17 Item 1. Legal Proceedings............................................... 17 Item 2. Changes in Securities........................................... 18 Item 3. Defaults Upon Senior Securities..................................18 Item 4. Submission of Matters to a Vote of Security Holders..............18 Item 6. Exhibits and Reports on Form 8-K.................................18 Signatures...............................................................19 PACKETPORT.COM, INC. BALANCE SHEETS APRIL 30, JANUARY 31, 2007 2007 ------------ ------------ (Unaudited) ASSETS Cash $ 372 $ 249 ------------ ---------- Total Current Assets 372 249 ------------ ---------- Machinery & equipment: Machinery & Equipment, at cost 7,549 7,549 Less: Accumulated Depreciation (7,549) (7,549) ------------ ---------- Machinery & Equipment, net - - ------------ ---------- Total Assets $ 372 $ 249 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts Payable $ 95,598 $ 90,936 Taxes Payable 1,000 1,000 Accrued Expenses 168,769 169,769 Note Payable - Stockholder 980,055 958,307 Note Payable - Microphase Corporation 3,956,485 3,844,675 ------------ ---------- Total Current Liabilities 5,201,907 5,064,687 ------------ ---------- Total Liabilities 5,201,907 5,064,687 ------------ ---------- Stockholders' Deficit: Common Stock, $.003 Par Value, 149,000,000 shares authorized, 21,933,520 shares issued and outstanding at April 30, 2007 and January 31, 2007, respectively. 65,801 65,801 Capital in Excess of Par Value 22,211,517 22,211,517 Accumulated Deficit (27,478,853) (27,341,756) ------------ ---------- Total Stockholders' Deficit (5,201,535) (5,064,438) ------------ ---------- Total Liabilities and Stockholders' Deficit $ 372 $ 249 ============ ========== See Notes to Financial Statements. -3- PACKETPORT.COM, INC. STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 30, -------------------------- 2007 2006 ------------ ---------- Revenues $ - $ - ------------ ---------- Cost of Goods Sold: -Product - - -Software Amortization - - ------------ ---------- Total Cost of Goods Sold - - ------------ ---------- Gross Margin on Sales - - ------------ ---------- Selling, General and Administrative Expenses 31,886 32,932 Research and Development Expenses - - ------------ ---------- 31,886 32,932 ------------ ---------- Operating Loss (31,886) (32,932) ------------ ---------- Other Expenses: Interest Expense (105,211) (92,692) ------------ ---------- (105,211) (92,692) ------------ ---------- Net Loss $ (137,097) $(125,624) ============ ========== Net loss per share $ (.01) $ (.01) ============ ========== Weighted Average Number of Shares Outstanding 21,933,520 21,933,520 ============ ============ See Notes to Financial Statements. -4- PACKETPORT.COM, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 30, ------------------------ 2007 2006 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(137,097) $(125,624) Add: Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: - - Changes in Assets and Liabilities: Accounts Payable 4,662 (1,620) Accrued Expenses (1,000) 4,000 Accrued Interest Note Payable - Stockholder 21,748 17,814 Accrued Interest Note Payable - Microphase 83,464 74,878 --------- --------- Net Cash (Used in) Operating Activities (28,223) (30,552) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Notes Payable - Microphase 28,346 30,342 --------- --------- Net Cash Provided By Financing Activities 28,346 30,342 --------- --------- Net Decrease in Cash 123 (310) Cash at the Beginning of Period 249 444 --------- --------- Cash at the End of Period $ 372 $ 234 ========= ========= Supplemental Information: Cash paid for interest $ - $ - Cash paid for taxes $ - $ - See Notes to Financial Statements. -5- PACKETPORT.COM, INC. NOTES TO FINANCIAL STATEMENTS APRIL 30, 2007 (UNAUDITED) NOTE 1-BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for full year financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for the three- month period ended April 30, 2007, are not necessarily indicative of the results that may be expected for the full year. These - financial statements should be read in conjunction with the financial statements and the notes thereto that are included in the Company's Annual Report on Form 10-KSB for the fiscal period ended January 31, 2007. Going Concern As shown in the accompanying financial statements, the Company reported a net loss of $137,097 during the three months ended April 30, 2007 and stockholders' deficit was $5,201,535 at that date. In addition, cash available at April 30, 2007 is not sufficient to support the Company's operations for the next year. The Company needs to raise more capital through public or private financing. The Company does not know if additional financing will be available or, if available, whether it will be available on attractive terms. If the Company does raise more capital in the future, it is probable that it will result in substantial dilution to its stockholders. These factors create substantial doubt as to the Company's ability to continue as a going concern. The Company intends to continue its efforts to complete the necessary steps in order to meet its cash flow requirements throughout fiscal 2008 and to continue its commercialization efforts. Management's plans in this regard include, but are not limited to, the following: 1. Evaluate new directions and business opportunities for the Company. 2. Raise additional working capital through borrowing or through issuing equity securities. Management is uncertain if it will be successful in executing the above plans. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Business Operations PacketPort.com, Inc.'s business was an Internet centric business program geared for delivery of Internet Protocol (IP) based phone services. The business program resulted from the convergence of several worldwide trends in technology, international communications policy, and international regulation, as well as the fundamental dynamics of global economics of telecommunications. The Company was unsuccessful in executing its business program and is now evaluating new directions and business opportunities. -6- PACKETPORT.COM, INC. NOTES TO FINANCIAL STATEMENTS APRIL 30, 2007 (UNAUDITED) NOTE 2-LOSS PER SHARE The Company has adopted SFAS No.128, "Earnings per Share." Earnings per common share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. The earnings per common share computation, assuming dilution, gives effect to all dilutive potential common shares during the period. The computation assumes that the outstanding stock options and warrants were exercised and that the proceeds were used to purchase common shares of the Company. Common equivalent shares have been excluded from the computation of diluted earnings per share since their effect is antidilutive. NOTE 3-RELATED PARTY INFORMATION The Company has leased approximately 1,000 square feet for $2,500 per month since July 1, 2005 on a month-to-month basis from Microphase Corporation, a company that concurrently employs the Company's president and vice president. The monthly rent also includes certain administrative support services supplied by Microphase. The Company's president is the 100% owner of PacketPort, Inc. The Company owed the Company president $980,055 and $958,307 at April 30, 2007 and January 31, 2007, respectively, including accrued interest. These amounts, which are included in notes payable-stockholder, consist of unpaid executive consulting fees, cash advances from the Company president and accrued interest. The note is subject to interest at prime plus 3%. The principal plus accrued interest is payable to the Company's President upon demand. The Company incurred interest expense to the Company's president of $21,748 and $17,814 which are included in interest expense in the three-month periods ended April 30, 2007 and 2006, respectively. The Company owed Microphase Corporation $3,956,485 and $3,844,675 at April 30, 2007 and January 31, 2007, respectively, as a result of cash advances, unpaid rent, payments made by Microphase Corporation on behalf of the Company and accrued interest. The note is subject to interest at prime plus 3%. The principal plus accrued interest is payable to Microphase upon demand. Additional advances made by Microphase during the three-month period ended April 30, 2007 totaled $28,346. The Company incurred interest expense to Microphase Corporation of $83,464 and $74,878 for the three-month periods ended April 30, 2007 and 2006, respectively. These amounts are included in interest expense for the two periods. NOTE 4-EQUITY TRANSACTIONS There were no equity transactions during the three-month periods ended April 30, 2007 and 2006. -7- PACKETPORT.COM, INC. NOTES TO FINANCIAL STATEMENTS APRIL 30, 2007 (UNAUDITED) NOTE 5-CONTINGENCIES SEC Investigation In April 2000, the Securities and Exchange Commission initiated an investigation relating to fluctuations in the price of the Company's common stock subsequent to the change in name from Linkon Corporation to PacketPort.com, Inc. on December 9, 1999. The Company was advised in April 2002 that following an investigation by the staff of the Securities and Exchange Commission, the staff intended to recommend that the Commission file a civil injunctive action against Packetport.com, Inc. ("Packetport") and its Officer's and Directors. Such recommendation related to alleged civil violations by Packetport and such Officers and Directors of various sections of the Federal Securities Laws. The staff has alleged civil violations of Sections 5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(d) of the Securities Exchanges Act of 1934. On November 15, 2005, the Commission filed a civil enforcement action against 6 individuals and 4 companies as a result of its investigation, in federal district court in the State of Connecticut, alleging various violations of the Securities Act of 1933 including Sections 5, Section 17(a) and the Securities Exchange Act of 1934 including Sections 10b, Rule 10b-5, Section 12, Section 13, Section 16 in connection with the purchase and sale of stock of Packetport in the period on or about December 14, 1999 into February of 2000. The defendants include the CEO and COO of PacketPort as well as Microphase Corporation, a privately held Connecticut corporation that shares common management with PacketPort. The CEO and COO of PacketPort and Microphase Corporation deny any violation of the law by each or any of them and intend to vigorously contest all charges set forth in such enforcement action by the Commission. In a ruling (3:05 CV 1747 (PCD)) dated March 21, 2007, the United States District Court for the District of Connecticut granted a motion by the defendants to dismiss, under Federal Rule 41(b) of the Federal Rules of Civil Procedure, the civil lawsuit filed on November 15, 2005 by the Securities and Exchange Commission against PacketPort.com, Inc. et. al. for lack of prosecution. On April 4, 2007, the Securities and Exchange Commission filed a motion for reconsideration, asking the District Court to reconsider, alter or amend its prior Order dismissing the action. In a ruling (3:05 CV 1749(PCD)) dated May 23, 2007, the United States District Court for the District of Connecticut granted a Motion, pursuant to Rule 59(e) of the Federal Rules of Civil Procedure, by the SEC for reconsideration and reversal of the earlier ruling made on March 21, 2007 by the Court granting a Motion made by defendants Ronald A. Durando and Packetport, Inc., joined by defendants Gustave T. Dotoli, Microphase Corporation and Packetport.com, Inc. to dismiss under Rule 41(b) the civil lawsuit filed November 15, 2005 for dismissal of the case for failure to prosecute. -8- PACKETPORT.COM, INC. NOTES TO FINANCIAL STATEMENTS APRIL 30, 2007 (UNAUDITED) Legal Proceedings From time to time the Company may be involved in various legal proceedings and other matters arising in the normal course of business. The Company believes no such actions would result in liabilities in excess of amounts accrued in the financial statements. NOTE 6-SUBSEQUENT EVENTS The Company has engaged Source Capital Group, an investment banking firm specializing in the placement of private equity to raise up to $10 million for strategic acquisitions. Source Capital Group, Inc. was founded in 1994 as a boutique firm specializing in small to medium sized investment banking transactions. In addition, the Company has signed a letter of intent dated June 6, 2007 with YFONGLOBAL LLC ("YFONG") under which "YFONG" will acquire Packetport.com, Inc. "YFONG" tailors and hosts a turnkey social networking platform for Internet use and has recently added voice over IP to its product line. The letter of intent provides for the current shareholders of Packetport.com, Inc. to own 8% of the common stock of the new combined company. In addition each shareholder of Packetport.com, Inc. will receive a warrant to purchase one share of the new company for 10 cents for each share held by such shareholder for a period of 60 days following the closing. -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected the Company's financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of the Company's management. FORWARD-LOOKING INFORMATION The statements in this Report on Form 10-QSB that are not statements of historical fact constitute "forward-looking statements." Said forward-looking statements involve risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performances or achievements, expressly predicted or implied by such forward-looking statements. These forward-looking statements are identified by their use of forms of such terms and phrases as "expects," "intends," "goals," "estimates," "projects," "plans," "anticipates," "should," "future," "believes," and "scheduled." The important factors which may cause actual results to differ from the forward-looking statements contained herein include, but are not limited to, the following: general economic and business conditions; competition; success of operating initiatives; operating costs; advertising and promotional efforts; the existence or absence of adverse publicity; changes in business strategy or development plans; the ability to retain key management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employee benefit costs; availability and costs of raw materials and supplies; and changes in, or failure to comply with, government regulations. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this filing will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and expectations of the Company will be achieved. -10- RESULTS OF OPERATIONS Three months ended April 30, 2007 vs. April 30, 2006: NET LOSS The Company reported a net loss of $137,097 for the three months ended April 30, 2007 as compared to a net loss of $125,624 for the three months ended April 30, 2006. This represents a loss per share of $(.01) for both three month periods. The $11,473 increase in net loss for the three months ended April 30, 2007 compared to the three months ended April 30, 2006 was primarily due to the following factors: INTEREST EXPENSE TO RELATED PARTIES Interest expense to related parties increased $12,519 for the three-month periods ended April 30, 2007 and 2006 to $105,211 from $92,692, respectively. This is due to higher interest rates and a higher borrowing base on the Microphase loan due to additional advances to the Company over the year. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by an insignificant $1,046 for the three months ended April 30, 2007 and 2006 to $31,886 from $32,932, respectively. NET LOSS PER SHARE For both three month periods ended April 30, 2007 and 2006, the Company reported a net loss per share of $(.01), based upon weighted average shares outstanding of 21,933,520 for both three month periods. -11- CONTINGENCIES SEC Investigation In April 2000, the Securities and Exchange Commission initiated an investigation relating to fluctuations in the price of the Company's common stock subsequent to the change in name from Linkon Corporation to PacketPort.com, Inc. on December 9, 1999. The Company was advised in April 2002 that following an investigation by the staff of the Securities and Exchange Commission, the staff intended to recommend that the Commission file a civil injunctive action against Packetport.com, Inc. ("Packetport") and its Officer's and Directors. Such recommendation related to alleged civil violations by Packetport and such Officers and Directors of various sections of the Federal Securities Laws. The staff has alleged civil violations of Sections 5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(d) of the Securities Exchanges Act of 1934. On November 15, 2005, the Commission filed a civil enforcement action against 6 individuals and 4 companies as a result of its investigation, in federal district court in the State of Connecticut, alleging various violations of the Securities Act of 1933 including Sections 5, Section 17(a) and the Securities Exchange Act of 1934 including Sections 10b, Rule 10b-5, Section 12, Section 13, Section 16 in connection with the purchase and sale of stock of Packetport in the period on or about December 14, 1999 into February of 2000. The defendants include the CEO and COO of PacketPort as well as Microphase Corporation, a privately held Connecticut corporation that shares common management with PacketPort. The CEO and COO of PacketPort and Microphase Corporation deny any violation of the law by each or any of them and intend to vigorously contest all charges set forth in such enforcement action by the Commission. In a ruling (3:05 CV 1747 (PCD)) dated March 21, 2007, the United States District Court for the District of Connecticut granted a motion by the defendants to dismiss, under Federal Rule 41(b) of the Federal Rules of Civil Procedure, the civil lawsuit filed on November 15, 2005 by the Securities and Exchange Commission against PacketPort.com, Inc. et. al. for lack of prosecution. On April 4, 2007, the Securities and Exchange Commission filed a motion for reconsideration, asking the District Court to reconsider, alter or amend its prior Order dismissing the action. In a ruling (3:05 CV 1749(PCD)) dated May 23, 2007, the United States District Court for the District of Connecticut granted a Motion, pursuant to Rule 59(e) of the Federal Rules of Civil Procedure, by the SEC for reconsideration and reversal of the earlier ruling made on March 21, 2007 by the Court granting a Motion made by defendants Ronald A. Durando and Packetport, Inc., joined by defendants Gustave T. Dotoli, Microphase Corporation and Packetport.com, Inc. to dismiss under Rule 41(b) the civil lawsuit filed November 15, 2005 for dismissal of the case for failure to prosecute. -12- INCOME TAXES The Company has adopted Financial Accounting Standards Board Statement No.109, "Accounting for Income Taxes," which requires an asset and liability approach to accounting for income taxes. Deferred income taxes are recorded for temporary differences between taxable income and pretax financial income and the tax bases of assets or liabilities and their reported amounts in the financial statements. Because of the uncertainty regarding the Company's future profitability, the future tax benefits of its losses have not been recorded in the accompanying consolidated financial statements. NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS The Company does not anticipate that the adoption of recently issued accounting pronouncements will have a significant effect on its Results of Operations, Financial Position or its Cash Flows. RESEARCH AND DEVELOPMENT The Company had no research and development expenses for the three-month periods ended April 30, 2007 and 2006. Research and development programs have been suspended while the Company evaluates new business opportunities. MARKETING The Company is currently evaluating new directions and business opportunities. SALES The Company has had no sales or revenues in over two years. BACKLOG As of April 30, 2007 the Company had no backlog. -13- COMPETITION Management believes that given the competitive nature of the industry and our limited resources, no assurance can be given that the Company can achieve a commercially successful market for its products or that its competitors will not develop similar or better products. The Company does not presently possess a meaningful market share and the company's competitors have greater resources and more substantial marketing and research capabilities than the Company. EMPLOYEES As of April 30, 2007, the Company has two executive officers and one administration personnel, for a total of three employees. LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2007 the Company had a working capital deficit of $5,201,535 as compared to a working capital deficit of $5,064,438 at January 31, 2007. The $137,097 increase in working capital deficit for the three-month period was due to the current period loss. At April 30, 2007 the Company had cash of $372 and no accounts receivable. Cash used in operating activities of $28,223 for the three-month period ended April 30, 2007 primarily consisted of the net loss and decreased accrued expenses, offset by increased accounts payable and accrued interest to Microphase and Stockholder. The Company received advances of $28,346 from Microphase during the three-month period. During both three-month periods ended April 30, 2007 and 2006, the Company has had no revenue. During the recent three-month period ended April 30, 2007, the Company reported a net loss of $137,097 and stockholders' deficit was $5,201,535 as of that date. The Company's Independent Registered Public Accountant's prior year report on the Company's Financial Statements expressed doubt whether the Company has the ability to continue as a going concern. There can be no assurance the Company can realign its present level of operations to attain economic viability. Furthermore, the Company's operations for the three-month periods ended April 30, 2007 and 2006 have been subsidized with loans from a related party that has no obligation to continue such financing. (See also Risk Factors). The outcome of the above contingencies and uncertainties will be determined by several factors including: 1. Evaluate new directions for the Company. 2. Raise additional working capital through borrowing or through issuing equity securities. Management is uncertain if it will be successful in executing the above plans. -14- RISK FACTORS WE EXPECT TO INCUR SUBSTANTIAL NET LOSSES FOR THE FORESEEABLE FUTURE. We expect operating losses and negative cash flow for the foreseeable future. We cannot be certain when and if we will achieve sufficient revenues, in relation to expenses, to become profitable. Our future profitability depends on generating and sustaining high revenue growth while maintaining reasonable expense levels. Having slower revenue growth than we anticipate or operating expenses that exceed our expectations would harm our business. If we achieve profitability, we cannot be certain that we would be able to sustain or increase profitability in the future. WE WILL NEED ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS IF WE DO NOT GENERATE ENOUGH REVENUE. We require substantial working capital to fund our business and will need more in the future. We will likely experience negative cash flow from operations for the foreseeable future. If we need to raise additional funds through the issuance of equity, equity-related or debt securities, your rights may be subordinate to other investors and your stock ownership percentage may be diluted. We cannot be certain that additional financing will be available to us. OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Our revenues and operating results may vary significantly from quarter to quarter due to several factors. Many of these factors are outside of our control and include: our ability to create and deploy quality products with competitive features; fluctuations in customer purchasing patterns and advertising spending; actions of our competitors; the timing and amount of costs relating to the expansion of our operations and acquisitions of technology or businesses; and general economic and market conditions. Because we have a limited operating history, our future revenues are difficult to forecast. A shortfall in revenues will damage our business and would likely affect the market price of our common stock. Our limited operating history and the new and rapidly evolving Internet market make it difficult to ascertain the effects of seasonality on our business. If seasonal and cyclical patterns emerge in Internet purchasing, our results of operations from quarter to quarter may vary greatly and may cause our business to suffer. -15- GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN OUR BUSINESS. The adoption or modification of laws or regulations applicable to the Internet could harm our business. The U.S. Congress recently passed laws regarding online children's privacy, copyrights and taxation. The law governing the Internet, however, remains largely unsettled. New laws may impose burdens on companies conducting business over the Internet. It may take years to determine whether and how existing laws governing intellectual property, privacy, libel and taxation apply to the Internet and online advertising. In addition, the growth and development of online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad. We also may be subject to regulation not specifically related to the Internet, including laws affecting direct marketers. OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AS IS TYPICAL OF TELEPHONIC AND INTERNET-RELATED COMPANIES. Our stock price has been volatile and is likely to continue to be volatile. The stock market has experienced significant price and volume fluctuations, and the market prices of securities of technology companies, particularly Internet-related companies, have been highly volatile. The market price for PacketPort.com common stock is likely to be highly volatile and subject to wide fluctuations in response to the following factors: actual or anticipated variations in our quarterly operating results; announcements of technological innovations or new products or services by us or our competitors; changes in financial estimates by securities analysts; conditions or trends in telecommunications and e-commerce; announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; release of lock-up or other transfer restrictions on our outstanding shares of common stock or sales of additional shares of common stock; and potential litigation. ITEM 3. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our President and Chief Executive Officer, and our Senior Vice President, Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, our President and Chief Executive Officer, and our Senior Vice President, Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. -16- PACKETPORT.COM, INC. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In April 2000, the Securities and Exchange Commission initiated an investigation relating to fluctuations in the price of the Company's common stock subsequent to the change in name from Linkon Corporation to PacketPort.com, Inc. on December 9, 1999. The Company was advised in April 2002 that following an investigation by the staff of the Securities and Exchange Commission, the staff intended to recommend that the Commission file a civil injunctive action against Packetport.com, Inc. ("Packetport") and its Officer's and Directors. Such recommendation related to alleged civil violations by Packetport and such Officers and Directors of various sections of the Federal Securities Laws. The staff has alleged civil violations of Sections 5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(d) of the Securities Exchanges Act of 1934. On November 15, 2005, the Commission filed a civil enforcement action against 6 individuals and 4 companies as a result of its investigation, in federal district court in the State of Connecticut, alleging various violations of the Securities Act of 1933 including Sections 5, Section 17(a) and the Securities Exchange Act of 1934 including Sections 10b, Rule 10b-5, Section 12, Section 13, Section 16 in connection with the purchase and sale of stock of Packetport in the period on or about December 14, 1999 into February of 2000. The defendants include the CEO and COO of PacketPort as well as Microphase Corporation, a privately held Connecticut corporation that shares common management with PacketPort. The CEO and COO of PacketPort and Microphase Corporation deny any violation of the law by each or any of them and intend to vigorously contest all charges set forth in such enforcement action by the Commission. In a ruling (3:05 CV 1747 (PCD)) dated March 21, 2007, the United States District Court for the District of Connecticut granted a motion by the defendants to dismiss, under Federal Rule 41(b) of the Federal Rules of Civil Procedure, the civil lawsuit filed on November 15, 2005 by the Securities and Exchange Commission against PacketPort.com, Inc. et. al. for lack of prosecution. On April 4, 2007, the Securities and Exchange Commission filed a motion for reconsideration, asking the District Court to reconsider, alter or amend its prior Order dismissing the action. In a ruling (3:05 CV 1749(PCD)) dated May 23, 2007, the United States District Court for the District of Connecticut granted a Motion, pursuant to Rule 59(e) of the Federal Rules of Civil Procedure, by the SEC for reconsideration and reversal of the earlier ruling made on March 21, 2007 by the Court granting a Motion made by defendants Ronald A. Durando and Packetport, Inc., joined by defendants Gustave T. Dotoli, Microphase Corporation and Packetport.com, Inc. to dismiss under Rule 41(b) the civil lawsuit filed November 15, 2005 for dismissal of the case for failure to prosecute. Litigation From time to time the Company may be involved in various legal proceedings and other matters arising in the normal course of business. The Company believes no such actions would result in liabilities in excess of amounts accrued in the financial statements. -17- ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS NONE. ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 31.1 - Rule 13a-14(a) Certification (Chief Executive Officer) Exhibit 31.2 - Rule 13a-14(a) Certification (Chief Financial Officer) Exhibit 31.3 - Rule 13a-14(a) Certification (Director) Exhibit 32.1 - Section 1350 Certification of Chief Executive Officer Exhibit 32.2 - Section 1350 Certification of Chief Financial Officer Exhibit 32.3 - Section 1350 Certification of Director REPORTS ON FORM 8-K: 1. On May 25, 2007, the Company filed a Form 8K with the SEC reporting that on May 23, 2007 the District Court Judge for the District of Connecticut granted a motion by the Securities and Exchange Commission reversing an earlier motion granted by the Judge dismissing the Civil Case filed November 15, 2007 by the SEC against the Company, its officers and directors and others for failure to prosecute. The Judge's action effectively reinstates the Case for trial. 2. On June 8, 2007, the Company filed a Form 8K with the SEC announcing that the Company had entered into an engagement letter with Source Capital, an investment banking firm specializing in the placement of private equity to institutional and accredited investors to raise up to $10 million for the Company for strategic investments. In addition, the Company announced the signing of a Letter of Intent with YFonGlobal, LLC for the acquisition of the Company by YFonGlobal, LLC that will result in the shareholders of the Company owning 8% of the outstanding stock of the combined entity. -18- PACKETPORT.COM, INC. In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly executed on this 12th day of June 2007. PACKETPORT.COM, INC. By: /s/ RONALD A. DURANDO ------------------------- Ronald A. Durando CHAIRMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. NAME TITLE DATE /s/ RONALD A. DURANDO Chairman, Chief Executive June 12, 2007 --------------------- Officer, President Ronald A. Durando /s/ GUSTAVE T. DOTOLI Director, Chief Operating June 12, 2007 --------------------- Officer, Chief Financial Gustave T. Dotoli Officer /s/ EDWARD J. SUOZZO Director June 12, 2007 --------------------- Edward J. Suozzo -19- --------------------------------------------------------------------------------