10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2012

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-51384

InterMetro Communications, Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada	88-0476779
(State of Incorporation)	(IRS Employer Identification No.)

2685 Park Center Drive, Building A,

Simi Valley, California 93065

(Address of Principal Executive Offices) (Zip Code)

(805) 433-8000

(Registrant’s Telephone Number,

(Including Area Code)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 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 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 (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer       □   Accelerated Filer       □Non-accelerated filer    □   Smaller reporting company    x

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

State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

As of August 10, 2012 there were 70,262,798 shares outstanding of the registrant’s only class of common stock. 

TABLE OF CONTENTS

Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2012 (unaudited) and December 31, 2011	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)	3
	Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Six Months Ended June 30, 2012 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II. Other Information
Item 1.	Legal Proceedings	33
Item 1 A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signatures		35

1

PART I - FINANCIAL INFORMATION

 Item 1. Financial Statements

INTERMETRO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, except par value)

	June 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Cash	$	557		$	390
Accounts receivable, net of allowance for doubtful accounts of $195 and $401 at June 30, 2012  and December 31, 2011, respectively		1,855			1,637
Deposits		47			46
Prepayments and other current assets		230			338
Total current assets		2,689			2,411
Property and equipment, net		134			118
Goodwill		450			450
Other assets		4			4
Total Assets	$	3,277		$	2,983
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable net of dispute reserve of $61 at June 30, 2012 and December 31, 2011	$	2,547		$	2,833
Accrued expenses		5,070			4,561
Deferred revenues and customer deposits		396			195
Borrowings under line of credit facilities net of debt discount of $0 and $5 at June 30, 2012 and  December 31, 2011, respectively		2,073			2,167
Current portion of note payable to former ATI shareholder		40			30
Current portion of vendor settlements		2,052			2,204
Secured promissory notes, including $875 from related parties net of debt discount of $0 and $4  at June 30, 2012 and December 31, 2011, respectively		2,383			2,380
Liability for warrant put feature		737			737
Total current liabilities		15,298			15,107
Long-term vendor settlements		931			980
Long-term portion of note payable to former ATI shareholder		147			170
Total liabilities		16,376			16,257
Commitments and contingencies (Note 12 )
Stockholders’ Deficit
Preferred stock — $0.001 par value; 10,000,000 shares authorized;  25,000 shares issued and outstanding at June 30, 2012 and December 31, 2011		—			—
Common stock — $0.001 par value; 150,000,000 shares authorized;  70,262,798 and 74,352,728 shares issued and outstanding at June 30, 2012 and December 31, 2011		70			74
Additional paid-in capital		29,272			29,089
Accumulated deficit		(42,441	)		(42,437	)
Total stockholders’ deficit		(13,099	)		(13,274	)
Total Liabilities and Stockholders’ Deficit	$	3,277		$	2,983

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

2

INTERMETRO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net revenues	$	4,947		$	5,359		$	9,338		$	11,616
Network costs		3,783			4,081			7,054			8,601
Gross profit		1,164			1,278			2,284			3,015
Operating expenses
Sales and marketing		160			204			322			437
General and administrative  (includes stock-based compensation of $36 and $0 for the three months ended June 30, 2012 and 2011, respectively, and $178 and $0 for the six months ended June 30, 2012 and 2011, respectively)		804			877			1,796			1,876
Total operating expenses		964			1,081			2,118			2,313
Operating income		200			197			166			702
Interest expense, net (includes amortization of debt discount  of $3 and $4 for the three months ended June 30, 2012 and 2011, respectively and $10 and $86 for the six months ended June 30, 2012 and 2011, respectively)		294			212			576			590
Accounts payable write-off		(285	)		(152	)		(293	)		(338	)
Gain on forgiveness of debt		—			(208	)		(113	)		(1,922	)
Net income (loss)	$	191		$	345		$	(4	)	$	2,372
Basic net income (loss) per common share	$	0.00		$	0.00		$	0.00		$	0.03
Diluted net income (loss) per common share	$	0.00		$	0.00		$	0.00		$	0.03
Shares used to calculate basic net income (loss) per common share (in thousands)		70,262			74,208			71,926			73,806
Shares used to calculate diluted net income (loss) per common share (in thousands)		90,886			87,683			71,926			87,281

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

3

INTERMETRO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(Dollars in Thousands)

(Unaudited)

	Preferred Stock				Common Stock						Additional					Total
	Shares		Amount		Shares			Amount			Paid-In Capital		Accumulated Deficit			Stockholders’ Deficit
Balance at January 1, 2012		25,000	$	—		74,352,728		$	74		$	29,089	$	(42,437	)	$	(13,274	)
Amortization of stock based compensation		—		—		—			—			178		—			178
Warrants issued in connection with line of credit financing		—		—		—			—			1		—			1
Common stock cancelled on settlement of lawsuit		—		—		(4,089,930	)		(4	)		4		—			—
Net loss for the six months ended June 30, 2012		—		—		—			—			—		(4	)		(4	)
Balance at June 30, 2012		25,000	$	—		70,262,798		$	70		$	29,272	$	(42,441	)	$	(13,099	)

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

4

INTERMETRO COMMUNICATIONS, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net (loss) income	$	(4	)	$	2,372
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		17			25
Stock based compensation		178			—
Amortization of debt discount		10			86
Provision for doubtful accounts		—			42
Accounts payable write-off		(293	)		(338	)
Gain on forgiveness of debt		(113	)		(1,922	)
(Increase) decrease in assets:
Accounts receivable		(218	)		1,341
Other current assets		107			(177	)
Increase (decrease) in liabilities:
Accounts payable		115			(729	)
Accrued expenses		793			35
Vendor settlements		(480	)		(601	)
Deferred revenues and customer deposits		201			(38	)
Net cash provided by operating activities		313			96
Cash flows from investing activities:
Purchase of property and equipment		(33	)		(30	)
Cash flows from financing activities:
Principal payments on lines of credit		(100	)		(7	)
Principal payment on note payable to former shareholder		(13	)		—
Proceeds from exercise of warrants		—			10
Net cash (used in) provided by financing activities		(113	)		3
Net increase in cash		167			69
Cash at beginning of period		390			428
Cash at end of period	$	557		$	497

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

5

INTERMETRO COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1 — Nature of Operations and Summary of Significant Accounting Policies

Company Background - InterMetro Communications, Inc., (hereinafter, “InterMetro” or the “Company”) is a Nevada corporation which, through its wholly owned subsidiary, InterMetro Communications, Inc. (Delaware) (hereinafter, “InterMetro Delaware”), is engaged in the business of providing voice over Internet Protocol (“VoIP”) communications services. The Company owns and operates state-of-the-art VoIP switching equipment and network facilities that are utilized to provide traditional phone companies, wireless phone companies, calling card companies and marketers of calling cards with wholesale voice and data services, and voice-enabled application services. The Company’s customers pay the Company for minutes of utilization or bandwidth utilization on its national voice and data network and the Company’s calling card marketing customers pay per calling card sold. The Company’s headquarters is located in Simi Valley, California.

Basis of Presentation -  The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for the three and six month period ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011 which are included in Form 10-K filed by the Company on March 30, 2012.

Going Concern - The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. The Company had a working capital deficit of $12,609,000 and had a total stockholders’ deficit of $13,099,000 as of June 30, 2012.  The Company had a net loss of $4,000 for the six months ended June 30, 2012. The Company’s ability to continue as a going concern will require additional financings if its ability to generate cash from operations does not fund required payments on its debt obligations.  Obligations to the Company’s debt holders include interest and principal payments to its secured note holders (see Note 7), principal and interest due on its revolving line of credit (see Note 11) and settlement payments due (see Note 6). The loan under the revolving line of credit is secured by substantially all of the Company’s assets. The Company has other significant matters of importance, including contingencies such as vendor disputes and lawsuits discussed in Note 12 that could have material adverse consequences, including cessation of operations at any time.

   The Company anticipates it will not have sufficient cash flows to fund its operations through 2012, or earlier, depending on the results of the negotiations with Moriah Capital, L.P. (“Moriah”) regarding the Company’s indebtedness to Moriah discussed in Note 11. If the Company were to require additional financings in order to fund ongoing operations there can be no assurance that it will be successful in completing the required financings, that could ultimately cause the Company to cease operations.   The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.  There are many claims and obligations that could ultimately cause the Company to cease operations. The report from the Company’s independent registered public accounting firm relating to the year ended December 31, 2011 states that there is substantial doubt about the Company’s ability to continue as a going concern.

As discussed in Note 11, the Company entered into agreements with Moriah under which it could borrow up to $2,400,000.  At June 30, 2012, the Company had borrowed $2,025,000. The availability of loan amounts under the agreements expires on August 16, 2012 and all amounts are due at that time.

Management believes that the losses in past years were primarily attributable to costs related to building out and supporting a telecommunications infrastructure, and the requirement for continued expansion of the customer base, in order for the Company to become profitable. This resulted in the Company taking on debt and delaying payment to certain vendors.  The Company may be required to obtain other financing during the next twelve months or thereafter as a result of future business developments, including any acquisitions of business assets or any shortfall of cash flows generated by future operations in meeting the Company’s ongoing cash requirements. Such financing alternatives could include selling additional equity or debt securities, obtaining long or short-term credit facilities, or selling operating assets. Management continues to work with its historical vendors in order to secure the continued extension of credit. Management believes that cash flows from operations and additional debt conversions are integral to management’s plan to retire past due obligations and be positioned for growth.  No assurance can be given, however, that the Company will be successful in restructuring its debt on terms favorable to the Company or at all. Should the Company be unsuccessful in this restructuring, material adverse consequences to the Company could occur such as cessation of its operations.  Any sale of additional common stock or convertible equity or debt securities would result in additional dilution to the Company’s stockholders.

6

Principles of Consolidation - The consolidated financial statements include the accounts of InterMetro, InterMetro Delaware, and InterMetro Delaware’s wholly owned subsidiary, Advanced Tel, Inc. (“ATI”). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates - In the normal course of preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   

Revenue Recognition - VoIP services are recognized as revenue when services are provided primarily based on usage. Revenues derived from sales of calling cards through retail distribution partners are deferred upon sale of the cards. These deferred revenues are recognized as revenue generally at the time card minutes are expended. The Company has revenue sharing agreements based on successful collections.  The company recognizes revenue from these customers at time of invoicing based on the history of collections with such customers. The Company recognizes revenue in the period that services are delivered and when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant Company obligations remain and collection is reasonably assured. Deferred revenue consists of fees received or billed in advance of the delivery of the services or services performed in which collection is not reasonably assured. This revenue is recognized when the services are provided and no significant Company obligations remain. Management of the Company assesses the likelihood of collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. Generally, management of the Company does not request collateral from customers. If management of the Company determines that collection of revenues are not reasonably assured, amounts are deferred and recognized as revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

Accounts Receivable - Accounts receivable consist of trade receivables arising in the normal course of business. The Company does not charge interest on its trade receivables. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. The Company determines the allowance based upon historical write-off experience, payment history and by reviewing significant past due balances for individual collectibility. If estimated allowances for uncollectible accounts subsequently prove insufficient, additional allowances may be required.  Bad debt expense for the three months ended June 30, 2012 and 2011 amounted to $0 and $21,000, respectively, and for the six months ended June 30, 2012 and 2011 amounted to $0 and $42,000, respectively.

Network Costs - The Company’s network costs consist of telecommunication costs, leasing collocation facilities and certain build-outs, and depreciation of equipment related to the Company’s network infrastructure.  It is not unusual in the Company’s industry to occasionally have disagreements with vendors relating to the amounts billed for services provided between the recipient of those services and the vendor. As a result, the Company currently has disputes with vendors that it believes did not bill certain network charges correctly.  The Company’s policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company’s favor.

Depreciation and Amortization - Depreciation and amortization of property and equipment is computed using the straight-line method based on the following estimated useful lives:

Telecommunications equipment	2-3 years
Telecommunications software	18 months to 2 years
Computer equipment	2 years
Office equipment and furniture	3 years
Leasehold improvements	Useful life or remaining lease term, which ever is shorter

7

Impairment of Long-Lived Assets - The Company assesses impairment of its other long-lived assets in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”.  An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered by the Company include:

· significant underperformance relative to expected historical or projected future operating results;

· significant changes in the manner of use of the acquired assets or the strategy for the Company’s overall business; and

· significant negative industry or economic trends.

When management of the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, an estimate is made of the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows if not. To date, the Company has not had an impairment of long-lived assets and is not aware of the existence of any indicators of impairment.

Goodwill and Intangible Assets - The Company records goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. The Company accounts for goodwill and intangible assets in accordance with FASB ASC 350 “Goodwill and Other”. FASB ASC 350 requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment. FASB ASC 350 also requires the Company to amortize intangible assets over their respective finite lives up to their estimated residual values.  At June 30, 2012, management does not believe there is any impairment in the value of goodwill.

Vendor Disputes -The Company’s policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company’s favor.

Stock-Based Compensation - The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on the historical volatility of a peer group of publicly traded entities.  The expected term of the options granted is derived from the average midpoint between vesting and the contractual term, as described in the SEC’s Staff Accounting Bulletin No. 107, “Share-Based Payment.”  The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company granted options under its 2007 plan during the six months ended June 30, 2012 and did not grant any options during the six months ended June 30, 2011 (see Note 10).

Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, accounts payable, accrued expenses, and short term debt. The Company maintains its cash with a major financial institution located in the United States. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. Periodically throughout the year the Company maintained balances in excess of federally insured limits. The Company encounters a certain amount of risk as a result of a concentration of revenue from a few significant customers and services provided from vendors. Credit is extended to customers based on an evaluation of their financial condition. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and records an allowance for potential bad debts based on available information. To date, such losses, if any, have been within management’s expectations.

The Company had ten customers which accounted for 75% and 79% of net revenues for the six months ended June 30, 2012 and 2011, respectively.  The Company had accounts receivable balances from one customer and two customers that accounted for 48% and 41% of total accounts receivable at June 30, 2012 and December 31, 2011, respectively. 

Income Taxes - The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

8

Segment and Geographic Information - The Company operates in one principal business segment primarily in the United States. All of the operating results and identified assets are located in the United States.

Basic and Diluted Net Income (Loss) per Common Share - Basic net income (loss) per common share excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share includes dilution for potential common stock issuances when the warrants, options or common stock conversion rights underlying those potential issuances are below the then fair market value of the Company’s common stock and have intrinsic value.  A total of 20,623,550 potential common stock issuances were included in the calculation of diluted net income for the three months ended June 30, 2012. As the Company reported a net loss for the six months ended June 30, 2012, the conversion of promissory notes and the exercise of stock options and warrants were not considered in the computation of diluted net loss per common share because their effect is anti-dilutive. A total of 13,475,018 potential common stock issuances were included in the calculation of diluted net income per share for the three and six months ended June 30, 2011.

.  

Recent Accounting Pronouncements - Management does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

2 — Acquisition and Intangible Assets

On March 31, 2011, the Company was notified that the seller and the former president of Advanced Tel, Inc, (“ATI”) the Company’s wholly owned subsidiary, had filed suit against the Company asserting, among other things, that the Company owed said seller certain amounts related to the agreement entered into by the parties (“Purchase Agreement”) when the Company purchased ATI in 2006.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in the first quarter of 2012, conditions that were met on March 14, 2012 resulting in dismissal of the suit on March 14, 2012.  As part of the settlement the Company will void the disputed 4,089,930 shares originally issued to the seller in 2008 as part of the stock compensation in the Purchase Agreement and the seller will return to the Company the 308,079 shares issued to him in 2006 also originally part of the Purchase Agreement.  All shares will return to the Company’s Treasury.   The Company will pay the seller a total of $200,000, of which $187,000 remains unpaid at June 30, 2012 and subject to timely monthly payments through March 2017.
 

The Company has developed an integration plan for utilizing the Company’s network to carry the ATI customer traffic. The execution of this plan is expected to result in a significant cost savings that was used in the present value of net cash flows analysis that supports the carrying value of ATI Goodwill which was $450,000 at June 30, 2012 and December 31, 2011.

3 — Prepayments and Other Current Assets

The following is a summary of the Company’s prepayments and other current assets (in thousands):

	June 30, 2012		December 31, 2011
	(unaudited)
Employee advances	$	69	$	69
Deferred loan costs		—		72
Prepaid expenses		161		197
	$	230	$	338

9

4 — Property and Equipment

The following is a summary of the Company’s property and equipment (in thousands):

	June 30, 2012			December 31, 2011
	(unaudited)
Telecommunications equipment	$	3,373			$	3,340
Computer equipment		203				203
Telecommunications software		107				107
Leasehold improvements, office equipment and furniture		86				86
Total property and equipment		3,769				3,736
Less: accumulated depreciation and amortization		(3,635	)			(3,618	)
	$	134			$	118

Depreciation expense included in network costs was $6,000 and $9,000 for the three months ended June 30, 2012 and 2011, respectively and $12,000 and $18,000 for the six months ended June 30, 2012 and 2011, respectively. Depreciation and amortization expense included in general and administrative expenses was $2,000 and $0 for the three months ended June 30, 2012 and 2011, respectively and $5,000 and $7,000 for the six months ended June 30, 2012 and 2011, respectively.

In May 2006, the Company entered into a strategic agreement with Cantata Technology, Inc. (“Cantata”), a VoIP equipment and support services provider. Under the terms of this agreement, the Company obtained VoIP equipment to expand its operations. In January 2010, the Company settled a lawsuit brought by Cantata regarding the agreement for $500,000. The settlement contains a long-term payment plan and is subject to timely payments by the Company. As of June 30, 2012, the remaining amount due under the settlement agreement was $197,000.

5 — Accrued Expenses

The following is a summary of the Company’s accrued expenses (in thousands):

	June 30, 2012		December 31, 2011
	(unaudited)
Commissions, network costs and other general accruals	$	1,870	$	1,374
Accrued USF and sales tax		1,070		878
Deferred payroll and other payroll related liabilities		534		554
Interest due on convertible promissory notes and other debt		1,490		1,243
Payments due to third party providers		106		512
	$	5,070	$	4,561

10

6 — Vendor Settlements, Contingent Gains and Gain of Forgiveness of Debt

During the six months ended June 30, 2012, the Company entered into cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $0 and $113,000 for the three and six months ended June 30, 2012, respectively.  Also, the Company has a policy, based on the statute of limitations, as prescribed by law, to write-off accounts payable with written contract more than four years old with no current activity and two years when there is no written agreement. The Company recorded a gain of $285,000 and $293,000 for the three and six months ended June 30, 2012, respectively, related to these write-offs which is included in accounts payable write-off.  At June 30, 2012, the balance in vendor settlements payable was $2,983,000 including $1,052,000 of deferred gains subject to timely payments.  The settlements will be paid in periods ranging from one to thirty months with an aggregate monthly payment of approximately $100,000.   The Company may continue to approach vendors to enter into similar agreements as well as continuing to write-off certain accounts payable under statute of limitations.

During the six months ended June 30, 2011, the Company entered into numerous cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $208,000 and $1,922,000 for the three and six months ended June 30, 2011, respectively.  In addition, the Company wrote-off certain accounts payable for Competitive Local Exchange Carriers (“CLEC”) that resulted in a gain of $152,000 and $338,000 for the same periods, and is included in accounts payable write-off.  The CLEC accounts payable were written off based on a two year statute of limitations on such accounts payable balances.

7 — Secured Promissory Notes and Advances

2008 Bridge Loan - In November and December 2007, the Company received $600,000 in advance payments, pursuant to the sale of secured notes with individual investors, including $330,000 from related parties.  In 2008 the Company received an additional $1,320,000, including $170,000 from related parties, pursuant to the sale of additional secured notes with individual investors, for a total of $1,920,000.  The secured notes were issued on January 16, 2008 and were scheduled to mature 13 to 18 months after issuance (“2008 Bridge Loan”).  The 2008 Bridge Loan was extended in 2009 to July 15, 2010, and then modified on October 5, 2010 (“2008 Bridge Loan Modification”)  to be paid in quarterly installments, of interest, fees and principal, commencing March 31, 2011 and concluding on July 15, 2012. A partial interest-only payment of $42,600 was made on March 31, 2011 and the June 30, 2011 and September 30, 2011 installment payments on principal and interest were not made. Partial interest-only payments of $6,625, $6,411, $6,624 and $3,277 were also made on November 23, 2011, December 16, 2011, January 31, 2012 and February 17, 2012, respectively.  The 2008 Bridge Loan bears interest at a rate of 13% per annum and contain an origination and documentation fee equal to 3% and 2.5%, respectively, of the original principal amount of the note.  All amounts from the installment payment schedule of the 2008 Bridge Loan Modification that became overdue and remain unpaid, bear interest at a rate of 13% per annum. The holder of each note has the right, at any time to (i) assert a default and pursue repayment in accordance with the loan documents, or (ii) convert the entire principal plus accrued interest and origination and documentation fee, or any portion thereof, into shares of common stock by dividing the conversion amount by $0.25. The 2008 Bridge Loan is collateralized by substantially all of the assets of the Company.  Since inception, the Company has incurred $1,274,000 in interest and fees, including $83,000 and $165,000 during the three and six months ended June 30, 2012, respectively.

In connection with the notes, the Company originally issued two common stock purchase warrants for every dollar received or 3.84 million common stock purchase warrants with an exercise price of $1.00, (the “Initial Warrants” and the “Additional Warrants”, collectively the “2008 Bridge Origination Warrants”).  These 2008 Bridge Origination Warrants contained terms which resulted in 3.84 million shares of common stock being issued in 2009, in accordance with those terms, to extinguish the 2008 Bridge Origination Warrants.  In exchange for the first extension of the due date from July 15, 2009 to July 15, 2010, the holder received a common stock purchase warrant (“Extension Warrants”) for each dollar of principal with an exercise price of $0.50 per share that were set to expire on July 14, 2016.  The 2008 Bridge Loan Modification extends the term of Extension Warrants to July 14, 2018. In exchange for the 2008 Bridge Loan Modification the holder received a common stock purchase warrant (“2010 Extension Warrants”) for each dollar of principal with an exercise price of $0.01 per share that will expire on October 5, 2017.  The value associated with the 2010 Extension Warrants was $11,000 and was recorded as an offset to the principal balance of the secured notes and was amortized into interest expenses over the term of the notes using the effective interest method.  The warrants were valued using the Black-Scholes formula.

The “Initial Warrants” also contained a put feature which gave the holder the option to put the warrant back to the Company for $0.15 per share and had been carried as a liability in the Company’s financial statements. The put feature was eliminated pursuant to the 2008 Bridge Loan Modification and the $288,000 related liability was reclassified to equity.

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2009 Bridge Loan- In November and December 2008, two related party secured note holders advanced an additional $310,000 and in 2009 there were advances of an additional $152,500 from existing note holders, including $65,000 from related parties, paying 13% interest per annum.  On June 12, 2009, the Company entered into a Short Term Loan and Security Agreement (“2009 Bridge Loan”) with the advance lenders.  Per the 2009 Bridge Loan, the maturity date of the loans was extended from June 30, 2009 to February 28, 2010, and then subsequently modified on October 5, 2010 (“2009 Bridge Loan Modification”)  to be paid in quarterly installments, of interest, fees and principal, commencing November 30, 2010 and concluding February 28, 2012.  On November 30, 2010 the note holders waived their initial installment payment for 60 days to receive their first installment payment as of January 31, 2011.  The first installment of $59,300 in interest only was made and then the February 28, 2011, May 31, 2011, August 31, 2011, November 30, 2011, and February 28, 2012 installment payments on principal and interest were not made. The 2009 Bridge Loan accrues interest at 13% per annum and contains an origination and documentation fee equal to 3% and 2.5%, respectively, of the original principal amount of the note.  All amounts from the installment payment schedule of the 2009 Bridge Loan Modification that become over and remain unpaid, bear interest at a rate of 13% per annum. The holder of each note has the right, at any time and from time to time, to (i) assert a default and pursue repayment in accordance with the loan documents, or (ii) convert the entire principal plus accrued interest and origination and documentation fee, or any portion thereof, into shares of common stock by dividing the conversion amount by $0.25.  The 2009 Bridge Loan is collateralized by substantially all of the assets of the Company.   Since inception, the Company has incurred $252,000 in interest and fees, including $21,000 and $39,000 during the three and six months ended June 30, 2012, respectively.

As was the case for the 2008 Bridge Loan warrants, the provisions of the 2009 Bridge Loan warrants included terms that resulted in the Company providing shares of common stock in lieu of exercise under certain conditions, which conditions occurred on June 12, 2009 and resulted in the issuance of 1,387,500 common stock to extinguish the 2009 Bridge Original Warrants.  In exchange for the 2009 Bridge Loan Modification the holder received a common stock purchase warrant (“2010 Extension Warrants”) for each dollar of principal with an exercise price of $0.01 per share that expire on October 5, 2017.  The value associated with the 2010 Extension Warrants was $3,000 and was recorded as an offset to the principal balance of the secured notes and was amortized into interest expenses over the term of the notes using the effective interest method.  The warrants were valued using the Black-Scholes formula.

The total expense recorded by the Company for amortization of the debt discount related to all warrants was $1,000 for the three months ended June 30, 2012 and 2011 and $3,000 for the six months ended June 30, 2012 and 2011.  The net amount of the notes was $2,383,000 and $2,380,000 as of June 30, 2012 and December 31, 2011, respectively.  The Company did not make certain scheduled interest and principal payments on both the 2008 and 2009 Bridge Loans during the three and six months ended June 30, 2012.   It has not received a notice of cure or default from any of the note holders in response to the non-payments.

8 — Long-Term Debt

The Company’s long-term debt consists of the following:

	June 30, 2012			December 31, 2011
	(unaudited)
Vendor settlements	$	2,983		$	3,184
Secured promissory notes		2,383			2,380
Note payable to former shareholder		187			200
Less: Current portion of long-term debt		(4,475	)		(4,614	)
Long-term debt	$	1,078		$	1,150

A summary of future maturities of long-term debt for the twelve months ending June 30th are as follows:

2013	$	4,475
2014		355
2015		298
2016		279
2017		146
	$	5,553

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9 — Common and Preferred Stock

Preferred Stock – The Company’s Amended and Restated Articles of Incorporation authorize 10,000,000 shares of preferred stock, par value $0.001 per share. On November 19, 2009, the Company filed a Certificate of Designation (“C.D.”) and designated a Series A Preferred stock by resolution of the board of directors.  The C.D. authorized the sale of 250,000 shares of Series A preferred stock at $1.00 per share, with additional rights, preferences, restrictions and privileges as filed with the Nevada Secretary of State. As of June 30, 2012 and December 31, 2011, 25,000 shares of Series A Preferred stock were issued and outstanding at $1.00 per share to a stockholder and secured note holder.

Common Stock - As of June 30, 2012 and December 31, 2011, the total number of authorized shares of common stock, par value $0.001 per share, was 150,000,000 of which 70,262,798 and 74,352,728 shares, respectively, were issued and outstanding.  In the first quarter of 2012 the Company cancelled 4,089,930 shares of its common stock pursuant to the settlement of a lawsuit with a former shareholder (See Note 12).

10 — Stock Options and Warrants

2004 Stock Option Plan - Effective January 1, 2004, the Company’s Board of Directors adopted the 2004 Stock Option Plan for Directors, Officers, and Employees of and Consultants to InterMetro Communications, Inc. (the “2004 Plan”).  A total of 5,730,222 shares of the Company’s common stock had been reserved for issuance under the 2004 Plan. Upon shareholder ratification of the 2004 Plan pursuant to the definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on March 6, 2007, the Company froze any further grants of stock options under the 2004 Plan. Any shares reserved for issuance under the 2004 Plan that are not needed for outstanding options granted under that plan will be cancelled and returned to treasury shares.

The Company had granted a total of 5,714,819 stock options under the 2004 Plan to the officers, directors, and employees, and consultants of the Company, of which 308,077 expired in September 2007, an additional 523,734 expired during the year ended December 31, 2008 and 429,607 options expired subsequently.  In the three months ended March 31, 2008, the Company issued 1,143,165 shares of common stock on the cashless exercise of 1,232,320 stock purchase options.  The remaining 3,221,081 are fully vested at June 30, 2012 and were originally granted with exercise prices ranging from $0.04 to $0.97 per share.  On November 15, 2010, in order to provide continued economic incentive to option holders, most of whose options were issued at prices that were “out of the money”, the Board of Directors authorized a re-pricing of all the stock options under the 2004 Plan to $0.01, the closing price of the Company’s common stock on that day.

Omnibus Stock and Incentive Plan – Effective January 19, 2007, the Board of Directors approved the 2007 Omnibus Stock and Incentive Plan (the “2007 Plan”) for directors, officers, employees, and consultants. The shareholders ratified the 2007 Plan pursuant to the Schedule 14C Information Statement filed with the Securities and Exchange Commission which was declared effective on May 10, 2007.   Any employee or director of, or consultant for, us or any of the Company’s subsidiaries or other affiliates will be eligible to receive awards under the 2007 Plan. The Company has reserved 26,099,040 shares of common stock for awards under the 2007 Plan. The 2007 Plan specifically prohibits the re-pricing of any stock options awarded under this plan.

In November 2007, the Company granted 2,350,000 stock options to purchase shares of common stock under the 2007 Plan at an average exercise price of $0.25 per share to employees and directors. 1,095,000 of the shares granted were immediately vested at the date of grant. 1,050,000 of such options have expired as of June 30, 2012.  In October 2008, InterMetro granted 600,000 stock options to purchase shares of common stock under the 2007 Plan at an average exercise price of $0.25 per share to employees and directors. 30% vested at date of grant with the remaining vesting 1/12 per subsequent quarter over the succeeding 3 years expiring 5 years from date of grant.

On March 22, 2012, the Company granted 13,500,000 stock options to purchase shares of common stock under the 2007 Plan at an average exercise price of $0.04 per share to employees and directors. 6,750,000 of the options granted were immediately vested at the date of grant. The remaining 6,750,000 options vest 25% per quarter beginning with the quarter ending June 30, 2012.  The Company recognized $142,028 in compensation expense related to the immediate vesting of the stock option grants and an additional $36,000 in the three months ended June 30, 2012. The remaining fair value is being recognized on a straight line basis over the vesting term. No options to purchase shares of common stock were granted under the 2007 plan in the six months ended June 30, 2011.  As of June 30, 2012 none of the Company’s outstanding stock options under the 2007 Plan have been exercised.

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The following presents a summary of activity under the Company’s 2004 and 2007 Plans for the six months ended June 30, 2012 (unaudited):

	Number of Shares			Price per Share		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at December 31, 2011		6,600,688		$	—	$	0.12		4.16	$	146,028
Granted		13,500,000		0.04 to 0.044			0.04
Exercised		—			—		—
Forfeited/expired		(1,479,607	)		—		0.18
Options outstanding at June 30, 2012		18,621,081		$		$	0.06		4.41	$	598,265
Options vested and expected to vest in the future at June 30, 2012		18,621,081		$		$	0.06		4.41	$	598,265
Options exercisable at June 30, 2012		13,558,581		$		$	0.06		4.28	$	446,390

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last day of the six month period ended June 30, 2012 and the exercises price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012. This amount changes based on the fair market value of the Company’s stock.  As of June 30, 2012 there remain 10,699,040 shares available for grant.

Additional information with respect to the outstanding options at June 30, 2012 is as follows:

		Options Outstanding						Options Exercisable
Exercise Prices		Number of Shares		Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	0.01		1,049,141		1.50	$	0.01		1,049,141	$	0.01
	0.01		154,039		1.75		0.01		154,039		0.01
	0.01		431,307		2.00		0.01		431,307		0.01
	0.01		123,231		2.50		0.01		123,231		0.01
	0.01		277,269		3.25		0.01		277,269		0.01
	0.25		1,900,000		5.25		0.25		1,900,000		0.25
	0.04		13,500,000		4.75		0.04		8,437,500		0.04
	0.01		338,884		3.25		0.01		338,884		0.01
	0.01		643,880		3.50		0.01		643,880		0.01
	0.01		110,907		3.50		0.01		110,907		0.01
	0.01		92,423		3.75		0.01		92,423		0.01
			18,621,081						13,558,581

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As of June 30, 2012, there was $106,521 unrecognized compensation cost related to unvested share based compensation arrangements granted under the 2004 and 2007 option plans.  This cost will be amortized on a straight-line basis over the next three quarters.

Warrants – Historically, the Company has issued warrants to providers of equipment financing.  For a detailed description of the warrants issued in connection with equipment financing arrangements, see Note 4.

On April 30, 2008, the Company negotiated a revolving line of credit which allows the Company to borrow up to $2.4 million.  Warrants to purchase 14,233,503 shares of the Company’s common stock at an exercise price of $0.01 to $0.05 per share were granted in connection with securing and amending this credit facility.  See Note 11 for a detail of the warrants issued in connection with this credit facility.

The Company has issued warrants to its secured note holders in connection with the execution of the loan agreements and subsequent amendments.  Warrants to purchase an aggregate of 4,302,500 shares of the Company’s common stock with exercise prices ranging from $0.01 to $0.50 were outstanding with these note holders as of June 30, 2012 and December 31, 2011.  See Note 7 for further details of these warrants.

 11 — Credit Facilities

ATI Bank Lines of Credit – ATI had two $100,000 lines of credit.  The line of credit with Bank of America has an interest rate of 7.13% per annum.  The line of credit with Wells Fargo Bank had an interest rate of 6.75 % per annum.   The lines of credit had been personally guaranteed by the former stockholder of ATI. On March 31, 2011 the former stockholder of ATI filed a lawsuit against the Company.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in March 2012, which resulted in the payoff of one line for $99,000 and the refinance of the other (see Note 12). Borrowing under the remaining line of credit amounted to approximately $48,000 at June 30, 2012.

Revolving Credit Facility - The Company entered into certain agreements, including a Loan and Security Agreement (as subsequently amended, the “Agreement”), effective as of April 30, 2008 with Moriah Capital, L.P. (“Moriah”), pursuant to which the Company could borrow up to $2,400,000 which was subsequently increased to $2,575,000. The Agreement has been amended several times (the “Amendments”) as summarized below.

Pursuant to the Agreement, the Company was permitted to borrow an amount not to exceed 80% of its eligible accounts (as defined in the Agreement), net of all discounts, allowances and credits given or claimed. Pursuant to the Amendments, from September 10, 2008 through November 4, 2008 this borrowing base increased to 110% of eligible accounts, from November 5, 2008 through December 15, 2008 increased to 135% of eligible accounts, from December 16, 2008 to January 15, 2009 decreased to 120% of eligible accounts, from January 16, 2009 through May 1, 2009 decreased to 110% of the eligible accounts, from May 1, 2009 to July 31, 2009 increased to 120% of eligible accounts, from August 1, 2009 to September 30, 2009 decreased to 100% and thereafter decreased to 85%.  The Company's obligations under the loans are secured by all of the assets of the Company, including but not limited to accounts receivable; provided, however, that Moriah’s lien on the collateral other than accounts receivable (as such terms are defined in the Agreement) are subject to the prior lien of the holders of the Company’s outstanding secured notes.  The Agreement includes covenants that the Company must maintain including financial covenants pertaining to cash flow coverage of interest and fixed charges, limitations on the ratio of debt to cash flow and a minimum ratio of current assets to current liabilities. The Company is not in compliance with the financial covenants as of June 30, 2012.  Amendment No. 8 extended the term to June 30, 2011, Amendment No. 9 extended the term to September 30, 2011, Amendment No. 10 extended the term to November 30, 2011, Amendment No. 11 extended the term to March 30, 2012 and Amendment No. 12 extended the term to May 30, 2012 and Amendment No. 13 extended the term to August 16, 2012.

Annual interest on the credit facility is equal to the greater of (i) the sum of (A) the Prime Rate as reported in the “Money Rates” column of The Wall Street Journal, adjusted as and when such Prime Rate changes plus (B) 4% or (ii) 15%, and is payable in arrears prior to the maturity date, on the first business day of each calendar month, and in full on August 16, 2012.  (See Note 1.)

In accordance with the Agreement, the outstanding amount of the loan at any given time may be converted into shares of the Company's common stock at the option of the lender. The conversion price was $1.00, subject to adjustments and limitations as provided in the Agreements.

The Company has also agreed to register the resale of shares of the Company's common stock issuable under the Agreement and the shares issuable upon conversion of the convertible note if the Company files a registration statement for its own account or for the account of any holder of the Company’s common stock.

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As part of the original transaction, Moriah received Warrant #1 to purchase 2,000,000 shares of the Company’s common stock with an exercise price of $1.00 which expire on April 30, 2015.  As part of the Amendments No.1 and No. 2, Moriah received warrants to purchase an additional 1,000,000 and 3,000,000 shares, respectively, of the Company’s common stock under the same terms as the original 2,000,000 warrants.   The Company accounts for the issuance of detachable stock purchase warrants in accordance with FASB ASC 470-20 “Debt With Conversion and Other Options”, whereby it separately measures the fair value of the debt and the detachable warrants, and in the case of detachable warrants with put features to the Company for cash, it also values the put feature as a separate component of the detachable warrant, and allocates the proceeds from the debt on a pro-rata basis to each. The resulting discount from the fair value of the debt allocated to the warrant and put feature for cash, which are accounted for as paid-in capital and a liability, respectively, is amortized over the estimated life of the debt.   The warrants were valued using the Black-Scholes option-pricing model using the assumptions noted in the table below.  The value associated with the 6,000,000 warrants was $928,000 and was recorded as an offset to the principal balance of the revolving credit facility and was amortized on a straight-line basis through April 2009.  As discussed below, the put option liability was $250,000 and the $678,000 difference was credited to Additional Paid in Capital.

Pursuant to Amendment No. 4 dated May 22, 2009, effective as of April 30, 2009, Moriah received 1,000,000 seven year warrants with an exercise price of $0.01. The warrants were valued using the Black-Scholes option-pricing model using assumptions in the table below.  The value associated with the 1,000,000 warrants was $45,000 and was recorded as an offset to the principal balance of the revolving credit facility and was amortized on a straight-line basis through January 2010.  The warrant put option liability was increased to $437,500 and the $187,500 increase in the liability was recorded as an offset to the principal balance of the revolving credit facility and was amortized on a straight-line basis through January 2010.  In addition, Amendment No. 4 reduced the exercise price per share of the previous 6,000,000 warrants from $1.00 to $0.25.  As a result of re-pricing, incremental cost of $19,000 was recorded as debt discount and was fully amortized as of December 31, 2010.

Pursuant to Amendment No. 5 effective January 31, 2010, Moriah received 2,000,000 seven year warrants with an exercise price of $0.01.  The warrants have been valued using the Black-Scholes option-pricing model.  The value associated with the 2,000,000 warrants was $11,800 and was amortized on a straight-line basis in full during 2010. Also pursuant to Amendment No.5, the previously issued 6,000,000 warrants were restated with the exercise price reduced to $0.05 from $0.25 thereby resulting in an incremental cost of $8,400 amortized fully during 2010.  In addition, pursuant to Amendment No. 5 the interest rate for the facility was increased from 10% to 11%.

Pursuant to Amendment No. 6 entered into September 29, 2010 and effective April 30, 2010, the Company agreed to make regular principal reductions that would permanently reduce the maximum amount borrowed to $1,450,000 by December 31, 2010. As previously amended, the Company had issued to Moriah Warrants #1 to #6 to purchase a total of 9,000,000 shares of the Company's common stock, 6,000,000 of which have an exercise price of $0.05 and 3,000,000 of which have an exercise price of $0.01 and which collectively expire on various dates between April 30, 2015 and February 28, 2017.   The Company had also previously granted Moriah an option, as part of the Agreement, pursuant to which Moriah could sell the 2,000,000 shares subject to Warrant #1 back to the Company for $437,500.  The Company, as part of Amendment No. 6, issued to Moriah an additional warrant (Warrant #8) to purchase 1,500,000 shares of common stock with an exercise price of $0.01 and a term of seven years, which, in combination with the aforementioned Warrant #1 (exercisable for a total of 3,500,000 shares) could be sold back to the Company for $437,500 between July 1, 2011 and July 30, 2011.  In addition, as part of Amendment No. 6, the Company issued to Moriah a warrant (Warrant #7) to purchase 2,000,000 shares of the Company's common stock with an exercise price of $0.01 and a term of seven years and also granted Moriah an option to sell this warrant (Warrant #7) back to the Company for $280,000 between July 1, 2011 and July 30, 2011.  The warrants issued pursuant to Amendment No. 6 have been valued using the Black-Scholes option-pricing model.  The value associated with the 3,500,000 warrants is $20,400 and was amortized on a straight-line basis over the extended term of the agreement.

Pursuant to Amendment No. 7 entered into in March 2011 and effective December 31, 2010, the maximum amount that could be borrowed at December 31, 2010 is $2,400,000.  The Company has made payments on the line of credit that have reduced the outstanding advances to $2,025,000 at June 30, 2012.  Also pursuant to Amendment No. 7, the term of all warrants issued to Moriah was extended by two years.  The extension of the warrants has been valued using the Black-Scholes option-pricing model. The value associated with the extension was $14,000 and was charged to interest expense.

Pursuant to Amendment No. 8 entered into in May 2011 and effective March 30, 2011, the term of the Agreement was extended to June 30, 2011 and the Company incurred loan costs of $30,000 that was amortized in 2011.

Pursuant to Amendment No. 9 entered into in August 2011 and effective June 30, 2011, the term of the Agreement was extended to September 30, 2011 and the Company incurred loan costs of $36,000 that were amortized during the three months ended September 30, 2011. Also pursuant to Amendment No. 9, the Company issued to Moriah warrants to purchase 1,000,000 and 500,000 shares of the Company’s common stock at July 31, 2011 and August 31, 2011, respectively, (Warrant #9 and Warrant #10). The warrants have an exercise price of $0.10 and will expire on July 31, 2020 and August 31, 2020, respectively. The aggregate value associated with the Warrant #9 and #10 issuance was $30,000 and was amortized during the three months ended September 30, 2011.

In connection with Amendment No. 9, Moriah exercised its put option related to Warrant #1 and surrendered 766,497 shares subject to Warrant #1 for an amount of $100,000. Further, in consideration for inclusion of the put interest for Warrants #9 and #10 in the Warrant #7 put interest, the Warrant #7 put price was increased from $280,000 to $350,000.

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Pursuant to Amendment No. 10 entered into in November 2011 and effective September 30, 2011, the term of the Agreement was extended to November 30, 2011 and the Company incurred loan costs of $24,000 that were amortized over the extended term of the agreement. Also pursuant to Amendment No. 10, the Company issued to Moriah warrants to purchase 600,000 shares of the Company’s common stock (Warrant #11). The warrant had an exercise price of $0.05 and will expire on September 30, 2020. The value associated with the Warrant #11issuance was $15,000 and was amortized over the extended term of the agreement.  In consideration for inclusion of the put interest for Warrant #11 in the Warrant #7 put interest, the Warrant #7 put price, as previously modified in Amendment No. 9, was increased from $350,000 to $400,000.

 Pursuant to Amendment No. 11 entered into in January 2012 and effective November 30, 2011, the term of the Agreement was extended to March 30, 2012 and the Company incurred loan costs of $96,000 that were amortized over the extended term of the agreement. Also pursuant to Amendment No. 11, the Company issued to Moriah warrants to purchase 300,000 shares of the Company’s common stock (Warrant #12). The warrant has an exercise price of $0.05 and will expire on November 29, 2020. The value associated with the Warrant #12 issuance is $6,900 and was amortized on a straight-line basis over the extended term of the agreement.  Seventy five percent (75%) of the put interest for Warrant #12 is to be included in the Warrant #7 put interest.

Pursuant to Amendment No. 12 entered into in April 2012 and effective March 30, 2012, the term of the Agreement was extended to May 30, 2012 and the Company incurred loan costs of $48,000 that were amortized over the extended term of the agreement. Also pursuant to Amendment No. 12, the Company issued to Moriah warrants to purchase 100,000 shares of the Company’s common stock (Warrant #13). The warrant has an exercise price of $0.05 and will expire on March 30, 2021. The value associated with the Warrant #13 issuance was $1,555 and was amortized on a straight-line basis over the extended term of the agreement.  Fifty five percent (55%) of the put interest for Warrant #13 was to be included in the Warrant #7 put interest. The availability of loan amounts under the Agreement expired on May 30, 2012.

Pursuant to Amendment No. 13 entered into in August 2012 and effective June 1, 2012, the term of the Agreement was extended to August 16, 2012 and the Company incurred loan costs of $48,000 of which $24,000 was amortized during the three months ended June 30, 2012. The availability of loan amounts under the Agreement expires on August 16, 2012.

The expense recognized by the Company in the three months ended June 30, 2012 and 2011 from the amortization of the debt discount related to the warrants was $3,000 and $2,000, respectively. The expense recognized by the Company in the six months ended June 30, 2012 and 2011 from the amortization of the debt discount related to the warrants was $7,000 and $4,000, respectively.   The Company calculated the fair value of the warrants using the following assumptions:

	March 31, 2012			December 31, 2011
Risk-free interest rate		0.42	%	0.4% to 2.7 %
Expected lives (in years)	4.5 years			3.2 to 4.5 years
Dividend yield		0	%		0	%
Expected volatility		82.0	%		82.0	%
Forfeiture rate		0	%		0	%

Pursuant to the Agreement and Amendments Moriah may sell certain warrants back to the Company for $437,500 at any time during the 30 day period commencing on the earlier of the prepayment in full of all loans or January 31, 2010. As noted above, as part of Amendment No. 6 the Company granted Moriah an additional option pursuant to which Moriah can sell warrants back to the Company for $280,000, subsequently increased to $400,000 by Amendment No. 10.  The Company has determined that the put options associated with the warrants causes the instrument to contain a net cash settlement feature. In accordance with FASB ASC 480 “Distinguishing Liabilities from Equity,” the put option requires liability treatment.  As a result, the put warrant liability was recorded at the warrant purchase price of $737,500 as of June 30, 2012 and December 31, 2011.  The debt discount associated with the put liability for the warrant put feature was amortized over the extended terms of the agreement.  An amount of $0 and $82,000 was amortized during the three and six months ended June 30, 2012 and 2011, respectively.

The Company recognized interest expense in connection with the Agreement and Amendments of $76,000 and $75,000 for the three months ended June 30, 2012 and 2011, respectively and $152,000 and $150,000 for the six months ended June 30, 2012 and 2011 respectively. The Company recognized amortization of loan costs of $72,000 and $96,000 for the three months ended June 30, 2012 and 2011, respectively and $144,000 and $96,000 for the six months ended June 30, 2012 and 2011, respectively.  At June 30, 2012 and December 31, 2011, the Company recorded deferred loan costs of $0 and $72,000, respectively.

12 — Commitments and Contingencies

Facility Lease – The Company leases its facilities under a non-cancelable operating lease that expires on March 31, 2013 at an annual expense of  $168,000.  Rent expense for the Company’s facilities for the six months ended June 30, 2012 and 2011 was $96,000.

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Vendor Disputes – It is not unusual in the Company’s industry to occasionally have disagreements with vendors relating to the amounts billed for services provided between the recipient of those services and the vendor, or in some cases, to receive invoices from companies that the Company does not consider a vendor. The Company currently has disputes with a vendor that it believes did not bill certain charges correctly or should not have billed any charges at all. The Company’s policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company’s favor.  As of June 30, 2012, there were approximately $61,000 of disputed payables that were recorded as an offset to accounts payable at June 30, 2012. The Company is in discussion with the significant vendor that has sent invoices regarding these charges. Management does not believe that any settlement would have a material adverse effect on the Company’s financial position or results of operations.

The Company has periodically received “credit hold” and disconnect notices from major telecommunications carriers.  Suspension of service by any major carrier could have a material adverse effect on the Company’s operations and financial condition.  These disconnect notices were generated primarily due to the non-payment of charges claimed by each carrier, including some amounts disputed by the Company.  Service has been maintained with each carrier, although further notices are possible if the Company is unable to make timely payments to its counterparties or to resolve the disputed amounts.  Such payments would be in addition to current charges generated with such carriers.

The Company has received several notices from state and local regulatory and taxing authorities for its possible failure to file certain documents pertaining to the Company’s wholly-owned subsidiary ATI.  The amounts at issue with these potential filings are de minimis.

Legal Proceedings

A Network Service Provider – On October 12, 2010, the Company was served a complaint filed by a network service provider (“NSP”) against the Company asserting various causes of action.  The NSP claimed that the Company owed various charges totaling $505,583. The Company denied that it owed this amount.  The Company and NSP settle the complaint on August 12, 2011 for $100,000, subject to timely payment through January 2013. The remaining amount due under the settlement was $45,000 at June 30, 2012.

On March 31, 2011, the Company was notified that the seller and the former president of Advanced Tel, Inc, (“ATI”) the Company’s wholly owned subsidiary, had filed suit against the Company asserting, among other things, that the Company owed said seller certain amounts related to the agreement entered into by the parties (“Purchase Agreement”) when the Company purchased ATI in 2006.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in the first quarter of 2012, conditions that were met on March 14, 2012 resulting in dismissal of the suit on March 14, 2012.  As part of the settlement the Company voided the disputed 4,089,930 shares originally issued to the seller in 2008 as part of the stock compensation in the Purchase Agreement and the seller returned to the Company the 308,079 shares issued to him in 2006 also originally part of the Purchase Agreement.  The Company will pay the seller a total of $200,000, of which $187,000 remains unpaid at June 30, 2012 and subject to timely monthly payments through March 2017.

A Network Service Provider – On October 26, 2011, the Company was served a complaint filed by a network service provider (“NSP”) against the Company asserting various causes of action.  The NSP claimed that the Company owed various charges totaling $150,926. The Company denied that it owed this amount and believes the NSP owes the Company higher amounts which offset this claim.   The Company filed a cross-complaint against the NSP on December 1, 2011 for charges owed the Company totaling $280,403. The Company and the NSP are in the process of settling the complaint and cross-complaint and the Company believes it is fully reserved for the outcome.

Universal Service Administrative Company – The Universal Service Administrative Company (USAC) administers the Universal Service Fund (USF).  In 2009 and 2010, the Company did not make all of the payments claimed by the USAC in a timely manner and USAC transferred these unpaid amounts to the Federal Communications Commission (FCC) for collection.  The FCC has transferred some of these unpaid amounts to the Department of the Treasury which worked with the Company to establish long term payment plans.   Should any of the remaining unpaid amounts with the FCC transfer from the FCC to Treasury, additional fees, surcharges and penalties will be added to the amount due.  As of June 30, 2012, the Company has recorded an aggregate $1.1 million in connection with the USF.  The Company continues to work with the FCC and the Department of the Treasury to resolve these amounts in long term payment programs.  Failure to finalize any significant proposed payment plan would likely have a material adverse effect on the Company.

Consulting Agreement – Commencing in December 2006, the Company entered into a three-year consulting agreement with an affiliate of a stockholder and debt holder pursuant to which the Company received services related to strategic planning, investor relations, acquisitions, and corporate governance.  The Company was obligated to pay $13,000 a month for these services, subject to annual increases.  In June 2008, the parties orally agreed to cancel the agreement and any future obligation.  Included in accrued expense is $182,000 at June 30, 2012 and December 31, 2011 for unpaid amounts.

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13 — Income Taxes

At June 30, 2012, the Company had net operating loss carryforwards to offset future taxable income, if any, of approximately $39 million for Federal and State taxes. The Federal net operating loss carryforwards begin to expire in 2021. The State net operating loss carryforwards began to expire in 2008.

The following is a summary of the Company’s deferred tax assets and liabilities (in thousands):

	June 30, 2012			December 31, 2011
	(unaudited)
Current assets and liabilities:
Current assets and liabilities:
Deferred revenue	$	159		$	78
Stock based compensation		71			—
Bad debt		78			160
Accrued expenses		809			668
		1,117			906
Valuation allowance		(1,117	)		(906	)
Net current deferred tax asset	$	—		$	—
Non-current assets and liabilities:
Depreciation and amortization	$	124		$	127
Net operating loss carryforward		15,742			15,956
		15,866			16,083
Valuation allowance		(15,866	)		(16,083	)
Net non-current deferred tax asset	$	—		$	—

The reconciliation between the statutory income tax rate and the effective rate is as follows:  

	For the Six Months Ended June 30,
	2012			2011
	(unaudited)
Federal statutory tax rate		(34	)%		(34	)%
State and local taxes		(6	)		(6	)
Valuation reserve for income taxes		40			40
Effective tax rate		—	%		—	%

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Management has concluded that it is more likely than not that the Company will not have sufficient taxable income of an appropriate character within the carryforward period permitted by current law to allow for the utilization of certain of the deductible amounts generating the deferred tax assets; therefore, a full valuation allowance has been established to reduce the net deferred tax assets to zero at June 30, 2012 and December 31, 2011.

The Company has applied the provision of FASB ASC 740, “Income Taxes” which clarifies the accounting for uncertainty in tax positions.  FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position.  At June 30, 2012 and December 31, 2011, the Company had no unrecognized tax benefits.

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively.  As of June 30, 2012 and December 31, 2011, the Company has no accrued interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the United States of America (“U.S.”) and files tax returns in the U.S. federal jurisdiction and California (or various) state jurisdiction (s). The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2007. The Company currently is not under examination by any tax authority.

14 — Cash Flow Disclosures

The table following presents a summary of the Company’s supplemental cash flow information (in thousands):

	Six Months Ended June 30,
	2012		2011
	(unaudited)
Cash paid:
Interest	$	258	$	329
Non-cash information:
Fair value of warrant issued	$	1	$	—
Liability for warrant put feature	$	—	$	70

15 — Consulting Fee

Effective September 1, 2009, the Company entered into a consulting agreement with one of its board members to provide consulting services.  The Company was obligated to pay $6,250 per month plus out of pocket expenses for these services for the period September 1, 2009 to October 31, 2009, then $10,000 per month plus out of pocket expense and $15,000 per month beginning in February 2011.

The Company incurred consulting fees under this agreement in the amount of $90,000 and $85,000 for the six months ended June 30, 2012 and 2011, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements

This Report contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others: statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Report. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Report. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to, the risks and uncertainties discussed in the “Business” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections, as applicable, of our Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 10-K”) as well as the following:

(a) our success in renegotiating and settling the terms of our indebtedness and other liabilities;

(b) Our ability to raise additional financing to the extent necessary to continue to operate our business;

(c) volatility or decline of our stock price;

(d) potential fluctuation in quarterly results;

(e) our failure to earn revenues or profits;

(f) inadequate capital and barriers to raising capital or to obtaining the financing needed to implement our business plans;

(g) changes in demand for our products and services;

(h) rapid and significant changes in markets;

(i) litigation with or legal claims and allegations by outside parties;

(j) insufficient revenues to cover operating costs;

(k) the possibility we may be unable to manage our growth;

(l) extensive competition;

(m) loss of members of our senior management;

(n) our dependence on local exchange carriers;

(o) our need to effectively integrate businesses we acquire;

(p) risks related to acceptance, changes in, and failure and security of, technology; and

(q) regulatory interpretations and changes.

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We caution you not to place undue reliance on forward looking statements, which speak only as of the date of this Report. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on behalf of us may issue. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes to those statements.

Background

InterMetro Communications, Inc., (hereinafter, “we,” “us,”  “InterMetro” or the “Company”) is a Nevada corporation which through its wholly owned subsidiary, InterMetro Communications, Inc. (Delaware) (hereinafter, “InterMetro Delaware”), is engaged in the business of providing voice over Internet Protocol (“VoIP”) communications services.

General

We have built a national, private, proprietary voice-over Internet Protocol, or VoIP, network infrastructure offering an alternative to traditional long distance network providers. We use our network infrastructure to deliver voice calling services to traditional long distance carriers, broadband phone companies, VoIP service providers, wireless providers, other communications companies and end users. Our VoIP network utilizes proprietary software, configurations and processes, advanced Internet Protocol, or IP, switching equipment and fiber-optic lines to deliver carrier-quality VoIP services that can be substituted transparently for traditional long distance services. We believe VoIP technology is generally more cost efficient than the circuit-based technologies predominantly used in existing long distance networks and is easier to integrate with enhanced IP communications services such as web-enabled phone call dialing, unified messaging and video conferencing services.

We focus on providing the national transport component of voice services over our private VoIP infrastructure. This entails connecting phone calls of carriers or end users, such as wireless subscribers, residential customers and broadband phone users, in one metropolitan market to carriers or end users in a second metropolitan market by carrying them over our VoIP infrastructure. We compress and dynamically route the phone calls on our network allowing us to carry up to approximately eight times the number of calls carried by a traditional long distance company over an equivalent amount of bandwidth. In addition, we believe our VoIP equipment costs significantly less than traditional long distance equipment and is less expensive to operate and maintain. Our proprietary network configuration enables us to quickly, without modifying the existing network, add equipment that increases our geographic coverage and calling capacity.

We enhanced our network’s functionality by implementing Signaling System 7, or SS-7, technology. SS-7 allows access to customers of the local telephone companies, as well as customers of wireless carriers. SS-7 is the established industry standard for reliable call completion, and it also provides interoperability between our VoIP infrastructure and traditional telephone company networks.  While we expect to continue to add to capacity, as of June 30, 2012 and 2011, the SS-7 network expansion was a fully operating and revenue generating component of our VoIP infrastructure.  A key aspect of our current business strategy is to focus on sales to increase these voice minutes.

Overview

History.  InterMetro began business as a VoIP on December 29, 2006 and began generating revenue at that time. Since then, we have increased our revenue to approximately $21 million for the year ended December 31, 2011.

Trends in Our Industry and Business

A number of trends in our industry and business could have a significant effect on our operations and our financial results. These trends include:

Increased competition for end users of voice services. We believe there are an increasing number of companies competing for the end users of voice services that have traditionally been serviced by the large incumbent carriers. The competition has come from wireless carriers, competitive local exchange carriers, or CLECs, and interexchange carriers, or IXCs, and more recently from broadband VoIP providers, including cable companies and DSL companies offering broadband VoIP services over their own IP networks. All of these companies provide national calling capabilities as part of their service offerings, however, most of them do not operate complete national network infrastructures. These companies previously purchased national transport services exclusively from traditional carriers, but are increasingly purchasing transport services from us.

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Regulation. Our business has developed in an environment largely free from regulation. However, the Federal Communications Commission (“FCC”) and many state regulatory agencies have begun to examine how VoIP services could be regulated, and a number of initiatives could have an impact on our business. These regulatory initiatives include, but are not limited to, proposed reforms for universal service, the intercarrier compensation system, FCC rulemaking regarding emergency calling services related to broadband IP devices, and the assertion of state regulatory authority over us. Complying with regulatory developments may impact our business by increasing our operating expenses, including legal fees, requiring us to make significant capital expenditures or increasing the taxes and regulatory fees applicable to our services. One of the benefits of our implementation of SS-7 technology is to enable us to purchase facilities from incumbent local exchange carriers under switched access tariffs. By purchasing these traditional access services, we help mitigate the risk of potential new regulation related to VoIP.

Our Business Model

Historically, we have been successful in implementing our business plan through the expansion of our VoIP infrastructure. Since our inception, we have grown our customer base to include over 200 customers, including several large publicly-traded telecommunications companies and retail distribution partners. In connection with the addition of customers and the provision of related voice services, we have expanded our national VoIP infrastructure.

Revenue. We generate revenue primarily from the sale of voice minutes that are transported across our VoIP infrastructure. In addition, ATI, as a reseller, generates revenues from the sale of voice minutes that are currently transported across other telecom service providers’ networks. However, we have migrated a significant amount of these revenues on to our VoIP infrastructure and continue to migrate ATI’s revenues. We negotiate rates per minute with our carrier customers on a case-by-case basis. The voice minutes that we sell through our retail distribution partners are typically priced at per minute rates, are packaged as calling cards and are competitive with traditional calling cards and prepaid services. Our carrier customer services agreements and our retail distribution partner agreements are typically one year in length with automatic renewals. We generally bill our customers on a weekly or monthly basis with either a prepaid balance required at the beginning of the week or month of service delivery or with net terms determined by the customers’ creditworthiness. Factors that affect our ability to increase revenue include:

· Changes in the average rate per minute that we charge our customers.

Our voice services are sold on a price per minute basis. The rate per minute for each customer varies based on several factors, including volume of voice services purchased, a customer’s creditworthiness, and, increasingly, use of our SS-7 based services, which are priced higher than our other voice transport services.

· Increasing the net number of customers utilizing our VoIP services.

Our ability to increase revenue is primarily based on the number of carrier customers and retail distribution partners that we are able to attract and retain, as revenue is generated on a recurring basis from our customer base. We expect increases in our customer base primarily through the expansion of our direct sales force and our marketing programs. Our customer retention efforts are primarily based on providing high quality voice services and superior customer service. We expect that the addition of SS-7 based services to our network will significantly increase the universe of potential customers for our services because many customers will only connect to a voice service provider through SS-7 based interconnections.

· Increasing the average revenue we generate per customer.

We increase the revenue generated from existing customers by expanding the number of geographic markets connected to our VoIP infrastructure. Also, we are typically one of several providers of voice transport services for our larger customers, and can gain a greater share of a customer’s revenue by consistently providing high quality voice service.

· Acquisitions.

We expect to expand our revenue base through the acquisition of other voice service providers. We plan to continue to acquire businesses whose primary cost component is voice services or whose technologies expand or enhance our VoIP service offerings.

We expect that our revenue will increase in the future primarily through the addition of new customers gained from our direct sales and marketing activities and from acquisitions.

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Network Costs. Our network, or operating, costs are primarily comprised of fixed cost and usage based network components. In addition, ATI incurs usage based costs from its underlying telecom service providers. We generally pay our fixed network component providers at the beginning or end of the month in which the service is provided and we pay for usage based components on a weekly or monthly basis after the delivery of services. Some of our vendors require a prepayment or a deposit based on recurring monthly expenditures or anticipated usage volumes. Our fixed network costs include:

· SS-7 based interconnection costs.

During the first nine months of 2006, we added a significant amount of capacity, measured by the number of simultaneous phone calls our VoIP infrastructure can connect in a geographic market, by connecting directly to local phone companies through SS-7 based interconnections purchased on a monthly recurring fixed cost basis. As we expand our network capacity and expand our network to new geographic markets, SS-7 based interconnection capacity will be the primary component of our fixed network costs. Until we are able to increase revenues based on our SS-7 services, these fixed costs significantly reduce the gross profit earned on our revenue.

· Other fixed costs.

Other significant fixed costs components of our VoIP infrastructure include private fiber-optic circuits and private managed IP bandwidth that interconnect our geographic markets, monthly leasing costs for the collocation space used to house our networking equipment in various geographic markets, local loop circuits that are purchased to connect our VoIP infrastructure to our customers and usage based vendors within each geographic market. Other fixed network costs include depreciation expense on our network equipment and monthly subscription fees paid to various network administrative services.

The usage-based cost components of our network include:

· Off-net costs.

In order to provide services to our customers in geographic areas where we do not have existing or sufficient VoIP infrastructure capacity, we purchase transport services from traditional long distance providers and resellers, as well as from other VoIP infrastructure companies. We refer to these costs as “off-net” costs. Off-net costs are billed on a per minute basis with rates that vary significantly based on the particular geographic area to which a call is being connected.

· SS-7 based interconnections with local carriers.

The SS-7 based interconnection services that are purchased from the local exchange carriers, include a usage based, per minute cost component. The rates per minute for this usage based component are significantly lower than the per minute rates for off-net services. The usage based costs for SS-7 services continue to be the largest cost component of our network as we grow revenue utilizing SS-7 technology.

Our fixed-cost network components generally do not experience significant price fluctuations. Factors that affect these network components include:

· Efficient utilization of fixed-cost network components.

Our customers utilize our services in identifiable fixed daily and weekly patterns. Customer usage patterns are characterized by relatively short periods of high volume usage, leaving a significant amount of time during each day where the network components remain idle.

Our ability to attract customers with different traffic patterns, such as customers who cater to residential calling services, which typically spike during evening hours, with customers who sell enterprise services primarily for use during business hours, increases the overall utilization of our fixed-cost network components. This decreases our overall cost of operations as a percentage of revenues.

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· Strategic purchase of fixed-cost network components.

Our ability to purchase the appropriate amount of fixed-cost network capacity to (1) adequately accommodate periods of higher call volume from existing customers, (2) anticipate future revenue growth attributed to new customers, and (3) expand services for new and existing customers in new geographic markets is a key factor in managing the percentage of fixed costs we incur as a percentage of revenue.

From time to time, we also make strategic decisions to add capacity with newly deployed technologies, such as the SS-7 based services, which require purchasing a large amount of network capacity in many geographic markets prior to the initiation of customer revenue.

We expect that both our fixed-cost and usage-based network costs will increase in the future primarily due to the expansion of our VoIP infrastructure and use of off-net providers related to the expected growth in our revenues.

Our usage-based network components costs are affected by:

· Fluctuations in per minute rates of off-net service providers.

Increasing the volume of services we purchase from our vendors typically lowers our average off-net rate per minute, based on volume discounts. Another factor in the determination of our average rate per minute is the mix of voice services we use by carrier type, with large fluctuations based on the carrier type of the end user which can be local exchange carriers, wireless providers or other voice service providers.

· Sales mix of our VoIP infrastructure capacity versus off-net services.

Our ability to sell services connecting our on-net geographic markets, rather than off-net areas, affects the volume of usage based off-net services we purchase as a percentage of revenue.

· Acquisitions of telecommunications businesses.

Longer term, we expect to continue to make acquisitions of telecommunications companies. As we complete these acquisitions and add an acquired company’s traffic and revenue to our operations, we may incur increased usage-based network costs. These increased costs will come from traffic that remains with the acquired company’s pre-existing carrier and from any of the acquired company’s traffic that we migrate to our SS-7 services or our off-net carriers. We may also experience decreases in usage based charges for traffic of the acquired company that we migrate to our network. The migration of traffic onto our network requires network construction to the acquired company’s customer base, which may take several months or longer to complete.

Sales and Marketing Expense . Sales and marketing expenses include salaries, sales commissions, benefits, travel and related expenses for our direct sales force, marketing and sales support functions. Our sales and marketing expenses also include payments to our agents that source carrier customers and retail distribution partners. Agents are primarily paid commissions based on a percentage of the revenues that their customer relationships generate. In addition, from time to time we may cover a portion or all of the expenses related to printing physical cards and related posters and other marketing collateral. All marketing costs associated with increasing our retail consumer user base are expensed in the period in which they are incurred. We expect that our sales and marketing expenses will increase in the future primarily due to increases in our direct sales force.

General and Administrative Expense . General and administrative expenses include salaries, benefits and expenses for our executive, finance, legal and human resources personnel. In addition, general and administrative expenses include fees for professional services, occupancy costs and our insurance costs, and depreciation expense on our non-network depreciable assets. Our general and administrative expenses also include stock-based compensation on option grants to our employees and options and warrant grants to non-employees for goods and services received.

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Results of Operations for the Three Months Ended June 30, 2012 and 2011

The following table sets forth, for the periods indicated, the results of our operations expressed as a percentage of revenue:

	Three Months Ended June 30,
	2012			2011
Net revenues		100	%	100	%
Network costs		77		76
Gross profit		23		24
Operating expenses:
Sales and marketing		3		4
General and administrative		16		16
Total operating expenses		19		20
Operating income		4		4
Gain on forgiveness of debt		6		6
Interest expense		(6	)	(4	)
Net income		4	%	6	%

Net Revenues. Net revenues decreased $412,000, or 7.7%, to $4.9 million for the three months ended June 30, 2012 from $5.3 million for the three months ended June 30, 2011. Though we have continued to increase new customers, this has been offset by the loss of certain low-margin customers combined with decreased revenues from existing customers.  Specifically, while the addition of new customers and increased revenues from existing customers contributed approximately $2.3 million to revenue in the three months ended June 30, 2012 these revenue gains were offset by an approximate $2.7 million decrease in revenue attributable to the loss of customers or decreased revenue from existing customers.

 Network Costs. Network costs decreased $298,000, or 7.3%, to $3.8 million for the three months ended June 30, 2012 from $4.1 million for the three months ended June 30, 2011.  Included within total network costs, variable network costs decreased by $75,000 to $3.5 million (71.8% of revenues) for the three months ended June 30, 2012 from $3.6 million (67.6% of revenues) for the three months ended June 30, 2011. Fixed network costs decreased by $223,000 to $233,000 for the three months ended June 30, 2012 from $456,000 for the three months ended June 30, 2011.  There were reductions to fixed network expenses during the three months ended June 30, 2012 as part of streamlining the use of fixed cost facilities. Gross margin decreased to 23.5% for the three months ended June 30, 2012 from a gross margin of 23.8% for the three months ended June 30, 2011.  The increase in variable costs as a percentage of revenues and the decrease in gross margin were related primarily to changes in traffic patterns during the three months ended June 30, 2012.

Sales and Marketing. Sales and marketing expenses decreased $44,000, or 21.6% to $160,000 for the three months ended June 30, 2012 from $204,000 for the three months ended June 30, 2011. Sales and marketing expenses as a percentage of net revenues were 3.2% and 3.8% for the three months ended June 30, 2012 and 2011, respectively.  The decrease is primarily attributable to the decrease in ATI revenues from which agent commissions are paid.  In addition, a change in product mix resulted in a decrease in certain high percentage commissions.

General and Administrative. General and administrative expenses decreased $73,000 or 8.3% to $804,000 for the three months ended June 30, 2012 from $877,000 for the three months ended June 30, 2011. General and administrative expenses as a percentage of net revenues were 16.3% and 16.4% for the three months ended June 30, 2012 and 2011, respectively. General and administrative expenses for the three months ended June 30, 2012 included stock-based compensation of $36,000.

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Accounts Payable Write Off and Gain on Forgiveness of Debt.  During the three months ended June 30, 2012, the Company recorded a gain of $285,000 related to accounts payable write-offs. The Company has a policy, based on the statute of limitations, as prescribed by law, to write-off accounts payable with written contracts more than four years old with no current activity and two years when there is no written agreement. During the three months ended June 30, 2011, the Company entered into numerous cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $208,000 for the three months ended June 30, 2011.  In addition, the Company wrote-off certain accounts payable for Competitive Local Exchange Carriers (“CLEC”) that resulted in a gain of $152,000 for the same period and was included in accounts payable write-off.  The CLEC accounts payable were written off based on a two year statute of limitations on such accounts payable balances.

Interest Expense, net. Interest expense, net increased $82,000, or 38.7%, to $294,000 for the three months ended June 30, 2012 from $212,000 for the three months ended June 30, 2011. The most significant factor in the increase of interest expense was fees paid in connection with the Moriah credit facility that are accounted for as interest expense.  Interest expense related to the secured promissory notes was $103,000 and $92,000 for the three months ended June 30, 2012 and 2011, respectively. 

Results of Operations for the Six Months Ended June 30, 2012 and 2011

The following table sets forth, for the periods indicated, the results of our operations expressed as a percentage of revenue:

	Six Months Ended June 30,
	2012			2011
Net revenues		100	%	100	%
Network costs		75		74
Gross profit		25		26
Operating expenses:
Sales and marketing		4		4
General and administrative		19		16
Total operating expenses		23		20
Operating income		2		6
Gain on forgiveness of debt		6		19
Interest expense		(4	)	(5	)
Net income		0	%	20	%

Net Revenues. Net revenues decreased approximately $2.3 million, or 19.6%, to $9.3 million for the six months ended June 30, 2012 from $11.6 million for the six months ended June 30, 2011. Though we have continued to increase new customers, this has been offset by a reduction in offering third party low margin services and attributable to both decreasing revenues from existing customers in certain areas and the loss of certain customers.   The addition of new customers and increased revenues from existing customers contributed approximately $2.7 million to revenue in the six months ended June 30, 2012. These gains were offset by an approximate $5.0 million decrease in revenue attributable to the loss of customers or decreased revenue from existing customers.

Network Costs. Network costs decreased $1.5 million, or 18.0%, to $7.1 million for the six months ended June 30, 2012 from $8.6 million for the six months ended June 30, 2011.  Included within total network costs, variable network costs decreased by $1.2 million to $6.6 million (70.4% of revenues) for the six months ended June 30, 2012 from $7.8 million (67.4% of revenues) for the six months ended June 30, 2011.  Fixed network costs decreased by $290,000 to $480,000 for the six months ended June 30, 2012 from $770,000 for the six months ended June 30, 2011, with the decrease coming primarily from the elimination of underutilized network components that were in operation during six months ended June 30, 2011.  Gross margin decreased to 24.5% for the six months ended June 30, 2012 from a gross margin of 26.0% for the six months ended June 30, 2011. The increase in variable cost as a percentage of revenues and the decrease in gross margin were related primarily to changes in traffic patterns during the six months ended June 30, 2012.  .

27

Sales and Marketing. Sales and marketing expenses decreased $115,000, or 26.3% to $322,000 for the six months ended June 30, 2011 from $437,000 for the six months ended June 30, 2011. Sales and marketing expenses as a percentage of net revenues were 3.4% and 3.8% for the six months ended June 30, 2012 and 2011, respectively.  The decrease is primarily attributable to the decrease in ATI revenues from which agent commissions are paid.  In addition, a change in product mix resulted in a decrease in certain high percentage commissions.

General and Administrative. General and administrative expenses decreased $80,000 or 4.3% to $1.8 million for the six months ended June 30, 2012 from $1.9 million for the six months ended June 30, 2011. General and administrative expenses as a percentage of net revenues were 19.2% and 16.2% for the six months ended June 30, 2012 and 2011, respectively. General and administrative expenses for the six months ended June 30, 2012 included stock-based compensation of $178,000.

 Accounts Payable Write Off and Gain on Forgiveness of Debt.  During the six months ended June 30, 2012, the Company entered into cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $113,000 for the six months ended June 30, 2012.  Also, the Company has a policy, based on the statute of limitations, as prescribed by law, to write-off accounts payable with a written contract more than four years old with no current activity and two years when there is no written agreement. The Company recorded a gain of $293,000 for the six months ended June 30, 2012 related to these write-offs which is included in accounts payable write-off. During the six months ended June 30, 2011, the Company entered into numerous cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $1,922,000 for the six months ended June 30, 2011.  In addition, the Company wrote-off certain accounts payable for Competitive Local Exchange Carriers (“CLEC”) that resulted in a gain of $338,000 for the same period and is included in accounts payable write-off.  The CLEC accounts payable were written off based on a two year statute of limitations on such accounts payable balances.

Interest Expense, net.  Interest expense, net decreased $14,000, or 2.4%, to $576,000 for the six months ended June 30, 2012 from $590,000 for the six months ended June 30, 2011. Interest expense for the six months ended June 30, 2012 includes $7,000 from the amortization of debt discount related to the Moriah credit facility as compared to $82,000 in the six months ended June 30, 2011.  Interest expense related to the secured promissory notes was $203,000 and $169,000 for the six months ended June 30, 2012 and 2011, respectively.  

Liquidity and Capital Resources

At June 30, 2012, we had $557,000 in cash as compared to cash of $390,000 at December 31, 2011.  The Company’s working capital position, defined as current assets less current liabilities, has historically been negative and was negative $12.6 million at June 30, 2012 and negative $12.7 million at December 31, 2011.

Significant changes in cash flows from June 30, 2012 as compared to June 30, 2011:

Net cash provided by operating activities was $313,000 for the six months ended June 30, 2012 as compared to $96,000 for the six months ended June 30, 2011. The most significant component of the change that contributed to an increase in cash from operating activities was an increase in accrued expense and accounts payable of $908,000 and non-cash stock based compensation of $178,000.  These reconciling additions to cash from operations were offset by non-cash gains of $406,000.

Net cash used in investing activities for the six months ended June 30, 2012 was $33,000 which was attributable to the purchase of computers and network-related equipment. Purchases of network-related equipment were $30,000 in the six months ended June 30, 2011.

Net cash used in financing activities for the six months ended June 30, 2012 was $113,000 as compared to cash provided by financing activities of $3,000 for the six months ended June 30, 2011. The uses of cash in financing activities for the six months ended June 30, 2012 were $100,000 in payments on a line of credit and the $13,000 in payments on a note payable to a former shareholder.

The Company had a working capital deficit of $12,609,000 and had a total stockholders’ deficit of $13,099,000 as of June 30, 2012.  The Company had a net loss of $4,000 for the six months ended June 30, 2012. The Company’s ability to continue as a going concern will require additional financings if its ability to generate cash from operations does not fund required payments on its debt obligations.  Obligations to the Company’s debt holders include interest and principal payments to its secured note holders (see Note 7), principal and interest due on its revolving line of credit (see Note 11) and settlement payments due (see Note 6). The loan under the revolving line of credit is secured by substantially all of the Company’s assets. The Company has other significant matters of importance, including contingencies such as vendor disputes and lawsuits discussed in Note 12 that could have material adverse consequences, including cessation of operations, to the Company at any time.

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The Company anticipates it will not have sufficient cash flows to fund its operations through fiscal 2012, or earlier, depending on the results of the negotiations with Moriah Capital, L.P. (“Moriah”) regarding the Company’s indebtedness to Moriah discussed in Note 11. If the Company were to require additional financings in order to fund ongoing operations there can be no assurance that it will be successful in completing the required financings, that could ultimately cause the Company to cease operations.   The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.  There are many claims and obligations that could ultimately cause the Company to cease operations. The report from the Company’s independent registered public accounting firm relating to the year ended December 31, 2011 states that there is substantial doubt about the Company’s ability to continue as a going concern.

As discussed in Note 11, the Company entered into agreements with Moriah under which it could borrow up to $2,400,000.  At June 30, 2012, the Company had borrowed $2,025,000. The availability of loan amounts under the agreements expires on August 16, 2012 and all amounts are due at that time.

Management believes that the losses in past years were primarily attributable to costs related to building out and supporting a telecommunications infrastructure, and the requirement for continued expansion of the customer base, in order for the Company to become profitable. This resulted in the Company taking on debt and delaying payment to certain vendors.  The Company may be required to obtain other financing during the next twelve months or thereafter as a result of future business developments, including any acquisitions of business assets or any shortfall of cash flows generated by future operations in meeting the Company’s ongoing cash requirements. Such financing alternatives could include selling additional equity or debt securities, obtaining long or short-term credit facilities, or selling operating assets. Management continues to work with its historical vendors in order to secure the continued extension of credit. Management believes that cash flows from operations and additional debt conversions are integral to management’s plan to retire past due obligations and be positioned for growth.  No assurance can be given, however, that the Company will be successful in restructuring its debt on terms favorable to the Company or at all. Should the Company be unsuccessful in this restructuring, material adverse consequences to the Company could occur such as cessation of its operations.  Any sale of additional common stock or convertible equity or debt securities would result in additional dilution to the Company’s stockholders.

Credit Facilities

Revolving Credit Facility – In April 2008, the Company entered into a convertible revolving credit agreement pursuant to which the Company may access funds up to $1.5 million.  In September 2008, the Company entered into Amendment No. 1 to the agreement which increased the access to $2.0 million, in November 2008 the Company entered into Amendment No 2 to the agreement which increased the access to $2.4 million and in May 2009 the Company entered into Amendment No. 4 to the agreement which increased the access to $2.55 million.  The availability of loan amounts at December 31, 2009 under the revolving credit agreement was to expire on April 30, 2009. The Company entered into Amendment No. 5 to the agreement as of January 31, 2010 that extended the expiration to April 30, 2010.  The Company entered into Amendment No. 6 on September 29, 2010, effective April 30, 2010, that extended the expiration to March, 30, 2011and Amendment No. 7 as of December 31, 2010 that lowered the amount of the principal reduction payments required as of December, 31, 2010. The Company entered into Amendment No. 8 as of March 30, 2011 that extended the expiration to June 30, 2011, Amendment No.9 as of June 30, 2011 that extended the expiration to September 30, 2011, Amendment No.10 as of September 30, 2011 that extended the expiration to November 30, 2011, Amendment No. 11 that extended the expiration to March 30, 2012, Amendment No. 12 that extended the expiration to May 30, 2012 and Amendment No. 13 that extended the expiration to August 16, 2012.  As of June 30, 2012, the Company is permitted to borrow an amount not to exceed 85% of its eligible accounts receivable. As of June 30, 2012, the Company had borrowed $2.025 million. The Company's obligations are secured by all of the assets of the Company.  Annual interest on the loans is equal to the greater of (i) the sum of (A) the Prime Rate (B) 4% or (ii) 15%, and shall be payable in arrears prior to the maturity date, on the first business day of each calendar month, and in full on August 16, 2012.  The Agreement includes covenants that the Company must maintain including financial covenants pertaining to cash flow coverage of interest and fixed charges, limitations on the ratio of debt to cash flow and a minimum ratio of current assets to current liabilities. The Company is not in compliance with the financial covenants as of June 30, 2012.   (See Note 11 to the Consolidated Financial Statements for detailed discussion.)

Critical Accounting Policies and the Use of Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following accounting policies involve the greatest degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

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Revenue Recognition

We recognize our VoIP services revenues when services are provided, primarily on usage. Revenues derived from sales of calling cards through related distribution partners are deferred upon the sale of the cards. These deferred revenues are recognized as revenues generally when all usage of the cards occurs. The Company has revenue sharing agreements based on successful collections.  The Company recognizes revenue from these customers at time of invoicing based on the history of collections with such customers. We recognize revenue in the period that services are delivered and when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant performance obligations remain for us and collection of the related receivable is reasonably assured. Our deferred revenues consist of fees received or billed in advance of the delivery of the services or services performed in which cash receipt is not reasonably assured. This revenue is recognized when the services are provided and no significant performance obligations remain or when cash is received for previously performed services. We assess the likelihood of collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. Generally, we do not request collateral from our customers. If we determine that collection of revenues are not reasonably assured, we defer the recognition of revenue until the time collection becomes reasonably assured, which is generally upon receipt of cash.

Stock-Based Compensation

The Company has adopted FASB ASC 718 “Compensation – Stock Compensation”.   The Company is applying the “modified prospective transition method” under which it continues to account for nonvested equity awards outstanding at the date of adoption of FASB ASC 718 in the same manner as they had been accounted for prior to adoption, that is, it would continue to apply APB 25 in future periods to equity awards outstanding at the date it adopted FASB ASC 718, unless the options are modified or amended.

For grants to employees under the 2004 plan and 2007 plan in the year ended December 31, 2008, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes option-pricing model using the assumptions noted in the following table.  Expected volatility is based on the historical volatility of a peer group of publicly traded entities.  The expected term of the options granted is derived from the average midpoint between vesting and the contractual term, as described in the SEC’s Staff Accounting Bulletin No. 107, “Share-Based Payment.”  The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Accounts Receivable and the Allowance for Doubtful Accounts

Accounts receivable consist of trade receivables arising in the normal course of business. We do not charge interest on our trade receivables. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtful accounts monthly. We determine the allowance based upon historical write-off experience, payment history and by reviewing significant past due balances for individual collectibility. If estimated allowances for uncollectible accounts subsequently prove insufficient, additional allowance may be required.

Impairment of Long-Lived Assets

We assess impairment of our other long-lived assets in accordance with the provisions of FASB ASC 360, “Property, Plant and Equipment”. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered by us include:

·   Significant underperformance relative to expected historical or projected future operating results;

·   Significant changes in the manner of use of the acquired assets or the strategy for our overall business; and

·   Significant negative industry or economic trends.

When we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, an estimate is made of the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows if not. To date, we have not had an impairment of long-lived assets and are not aware of the existence of any indicators of impairment.

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Goodwill

We record goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. The Company accounts for goodwill and intangible assets in accordance with FASB ASC 350 “Goodwill and Other”. FASB ASC 350 requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment. FASB ASC 350 also requires the Company to amortize intangible assets over their respective finite lives up to their estimated residual values.  At June 30, 2012, management does not believe there is any impairment in the value of goodwill.

Accounting for Income Taxes

We account for income taxes using the asset and liability method in accordance with FASB ASC 740 “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of the assets and liabilities. We periodically review the likelihood that we will realize the value of our deferred tax assets and liabilities to determine if a valuation allowance is necessary. We have concluded that it is more likely than not that we will not have sufficient taxable income of an appropriate character within the carryforward period permitted by current law to allow for the utilization of certain of the deductible amounts generating deferred tax assets; therefore, a full valuation allowance has been established to reduce the deferred tax assets to zero at June 30, 2012 and 2011. In addition, we operate within multiple domestic taxing jurisdictions and are subject to audit in those jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution. Although we believe that our financial statements reflect a reasonable assessment of our income tax liability, it is possible that the ultimate resolution of these issues could significantly differ from our original estimates.

Net Operating Loss Carryforwards

As of June 30, 2012 and December 31, 2011, our net operating loss carryforwards for federal tax purposes were approximately $39 million and $40 million, respectively.  These net operating losses occurred subsequent to our business combination in December 2006.

Contingencies and Litigation

We evaluate contingent liabilities including threatened or pending litigation in accordance with FASB ASC 450 “Contingencies” and record accruals when the outcome of these matters is deemed probable and the liability is reasonably estimable. We make these assessments based on the facts and circumstances and in some instances based in part on the advice of outside legal counsel.

It is not unusual in our industry to occasionally have disagreements with vendors relating to the amounts billed for services provided. We currently have disputes with vendors that we believe did not bill certain charges correctly. While we have paid the undisputed amounts billed for these non-recurring charges based on rate information provided by these vendors, as of June 30, 2012, there is approximately $61,000 of unresolved charges in dispute. We are in discussion with these vendors regarding these charges and may take additional action as deemed necessary against these vendors in the future as part of the dispute resolution process.

Contractual Obligations

We have no capital lease obligations at June 30, 2012. The operating lease for our corporate offices expires March 31, 2013 with a monthly lease payment of $14,000.  There are no significant provisions in our agreements with our network partners that are likely to create, increase, or accelerate obligations due thereunder other than changes in usage fees that are directly proportional to the volume of activity in the normal course of our business operations.

The following table reflects a summary of our contractual obligations at June 30, 2012:  

	Payments Due by Period (Dollars in Thousands)
Contractual Obligations	Total			Less Than 1 Year			1-3 Years			3-5 Years			More Than 5 Years
Operating lease obligations			126			126			—			—			—
Total		$	126		$	126		$	—		$	—		$	—

31

Recent Accounting Pronouncements

For a discussion of the impact of recently issued accounting pronouncements, see the subsection entitled "Recent Accounting Pronouncements" contained in Note 1 of the Notes to Condensed Consolidated Financial Statements under "Item 1. Financial Statements".

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

The registrant is a smaller reporting company and, therefore, is not required to provide the information under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer.

Deficiencies in the Company’s control over financial reporting have been identified based on the number of error corrections and adjustments to Company prepared schedules made by the Company as part of completing a timely reporting process.  Additionally, the Company identified significant deficiencies surrounding the financial reporting process.  Collectively, these represent a material weakness in the financial reporting process.

It was also identified that the size of the Company’s accounting staff prohibited its ability to properly segregate duties, a material weakness that could lead to the inability of the Company’s internal control system to timely identify and resolve accounting and disclosure matters.

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon their evaluation as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer were not able to conclude that the Company’s disclosure controls and procedures are effective to ensure that information required to be included in the Company’s periodic Securities and Exchange Commission filings is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.  Therefore, under Section 404 of the Sarbanne’s-Oxley Act of 2002, the Company must conclude that these controls and procedures are not effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months  ended June 30, 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 12 to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

 See Risk Factors in the Form 10-K filed by the Company on March 30, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Effective June 1, 2012, the Company entered into Amendment No. 13 to the loan and security agreement with Moriah Capital, L.P. that extended the date of the agreement to August 16, 2012.

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Item 6. Exhibits

Exhibit Number	Description of Exhibits
31.1	Rule 13a-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a) Certification of Principal Accounting Officer
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350
32.2	Certification of Principal Accounting Officer pursuant to 18 U.S.C. 1350

The following financial information from InterMetro Communications, Inc’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows, and (v) the Unaudited Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

34

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	INTERMETRO COMMUNICATIONS, INC.
Dated: August 14, 2012	By:	\s\ Charles Rice                                        Charles Rice, Chairman of the Board,
		Chief Executive Officer, and President
Dated: August 14, 2012	By:	\s\ David Olert                                          David Olert
		Chief Financial Officer

35

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Charles Rice, certify that:

1. I have reviewed this report on Form 10-Q of InterMetro Communications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012

/s/ Charles Rice                                                                    

Charles Rice, Chief Executive Officer and President

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, David Olert, certify that:

1. I have reviewed this report on Form 10-Q of InterMetro Communications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012

/s/ David Olert                                            

David Olert, Chief Financial Officer

(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of InterMetro Communications, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 (the “Report”) I, Charles Rice, Chairman, Chief Executive Officer and President of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 14, 2012

/s/ Charles Rice                                                           

Charles Rice, Chairman, Chief Executive Officer

and President

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of InterMetro Communications, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 (the “Report”) I, David Olert, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 14, 2012

/s/ David Olert                                        

David Olert, Chief Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

XML

5 - Accrued Expenses (Detail) - Schedule of accrued liabilities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Commissions, network costs and other general accruals	$ 1,870	$ 1,374
Accrued USF and sales tax	1,070	878
Deferred payroll and other payroll related liabilities	534	554
Interest due on convertible promissory notes and other debt	1,490	1,243
Payments due to third party providers	106	512
	$ 5,070	$ 4,561

XML

14 - Cash Flow Disclosures (Detail) - Schedule of supplemental cash flow information (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash paid:
Interest	$ 258	$ 329
Non-cash information:
Fair value of warrant issued	1
Liability for warrant put feature		$ 70

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11 - Credit Facilities (Detail) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended				12 Months Ended						3 Months Ended		6 Months Ended							12 Months Ended			12 Months Ended				3 Months Ended	12 Months Ended		3 Months Ended			12 Months Ended	3 Months Ended	7 Months Ended	8 Months Ended	12 Months Ended		12 Months Ended		6 Months Ended		6 Months Ended	3 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2008	Dec. 31, 2011	Nov. 30, 2011	Dec. 31, 2010	Dec. 31, 2008 Borrowing capacity, percentage of eligible accounts September 1, 2008 to November 4, 2008 [Member]	Dec. 31, 2008 Borrowing capacity, percentage of eligible accounts November 5, 2008 to December 15, 2008 [Member]	Dec. 31, 2008 Borrowing capacity, percentage of eligible accounts December 16, 2008 to January 15, 2009 [Member]	Dec. 31, 2008 Borrowing capacity, percentage of eligible accounts January 16, 2009 to May 1, 2009 [Member]	Dec. 31, 2008 Borrowing capacity, percentage of eligible accounts May 1, 2009 to July 31, 2009 [Member]	Dec. 31, 2008 Borrowing capacity, percentage of eligible accounts August 1, 2009 to September 30, 2009 [Member]	Jun. 30, 2012 Warrant discount [Member]	Jun. 30, 2011 Warrant discount [Member]	Jun. 30, 2012 Warrant discount [Member]	Jun. 30, 2011 Warrant discount [Member]	Jun. 30, 2012 Warrant put feature [Member]	Jun. 30, 2011 Warrant put feature [Member]	Jun. 30, 2012 ATI Bank lines of credit [Member]	Jun. 30, 2012 ATI Bank of America line of credit [Member]	Jun. 30, 2012 ATI Wells Fargo line of credit [Member]	Dec. 31, 2008 Moriah Line of credit [Member]	Jun. 30, 2012 Moriah Line of credit [Member]	Apr. 30, 2008 Moriah Line of credit [Member]	Dec. 31, 2008 Moriah Amendment #1 [Member]	Dec. 31, 2008 Moriah Amendment #2 [Member]	Dec. 31, 2009 Moriah Amendment #4 [Member]	Dec. 31, 2010 Moriah Amendment #5 [Member]	Mar. 31, 2010 Moriah Amendment #6 [Member]	Dec. 31, 2010 Moriah Amendment #6 [Member]	Apr. 30, 2010 Moriah Amendment #6 [Member]	Mar. 31, 2011 Moriah Amendment #7 [Member]	Jun. 30, 2011 Moriah Amendment #7 [Member]	Dec. 31, 2010 Moriah Amendment #7 [Member]	Dec. 31, 2011 Moriah Amendment #8 [Member]	Sep. 30, 2011 Moriah Amendment #9 [Member]	Jul. 31, 2011 Moriah Amendment #9 [Member]	Aug. 31, 2011 Moriah Amendment #9 [Member]	Dec. 31, 2011 Moriah Amendment #9 [Member]	Dec. 31, 2010 Moriah Amendment #9 [Member]	Dec. 31, 2011 Moriah Amendment #10 [Member]	Nov. 30, 2011 Moriah Amendment #10 [Member]	Jun. 30, 2012 Moriah Amendment #11 [Member]	Jan. 31, 2012 Moriah Amendment #11 [Member]	Jun. 30, 2012 Moriah Amendment #12 [Member]	Jun. 30, 2012 Moriah Amendment #13 [Member]
Number of lines of credit outstanding																					2
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,400,000		$ 2,400,000		$ 2,400,000																$ 100,000				$ 2,575,000	$ 2,400,000							$ 1,450,000			$ 2,400,000
Line of Credit Facility, Interest Rate During Period																						7.13%	6.75%							10.00%
Line of Credit Facility, Decrease, Repayments																					99,000
Line of Credit Facility, Remaining Borrowing Capacity																					48,000
Line of credit, percentage of eligible accounts					85.00%				110.00%	135.00%	120.00%	110.00%	120.00%	100.00%										80.00%
Line of Credit Facility, Interest Rate Description			Annual interest on the credit facilityis equal to the greater of (i) the sum of (A) the Prime Rate as reported in the "Money Rates" column of The Wall Street Journal, adjusted as and when such Prime Rate changes plus (B)4% or (ii) 15%, and is payable in arrears prior to the maturity date, on the first business day of each calendar month, and in full on August 16, 2012.
Debt Instrument, Convertible, Conversion Price (in Dollars per share)	$ 0.25		$ 0.25		$ 1.00
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted (in Shares)					14,233,503																			2,000,000			1,000,000	3,000,000	1,000,000	2,000,000		2,000,000							1,000,000	500,000			600,000		300,000		100,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)					1.00			0.01																					0.25	0.05											0.10		0.05		0.05		0.05
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number (in Shares)					6,000,000																											9,000,000
Warrants and Rights Outstanding					928,000																								45,000
Liability for warrant put feature	737,000		737,000		250,000	737,000	400,000																						437,500												350,000	280,000		400,000
Adjustments to Additional Paid in Capital, Warrant Issued					678,000																									11,800
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award																													seven year warrants with an exercise price of $0.01	seven year warrants with an exercise price of $0.01		exercise price of $0.01 and a term of seven years and also granted Moriah an option to sell this warrant (Warrant #7) back to the Company for $280,000 between July 1, 2011 and July 30, 2011		term of all warrants issued to Moriah was extended by two years
Debt Instrument, Unamortized Discount	2,000		2,000			4,000		3,000																					187,500			20,400											15,000		6,900		1,555
Debt Instrument, Unamortized Discount (Premium), Net	0		0			5,000																							19,000
Adjustments to Additional Paid in Capital, Other			1,000																											8,400
Line of Credit Facility, Interest Rate at Period End																														11.00%
Warrants exercisable (in Shares)																															3,500,000
Line of Credit Facility, Amount Outstanding	2,025,000		2,025,000																																2,025,000
Interest Expense, Other																																		14,000
Amortization of Financing Costs	72,000	96,000	144,000	96,000																																	30,000	36,000										24,000
Amortization of Debt Discount (Premium)	3,000	4,000	10,000	86,000											3,000	2,000	7,000	4,000	0	82,000																		30,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Forfeitures (in Shares)																																									766,497
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Intrinsic Value (in Dollars per share)																																									$ 100,000
Deferred Finance Costs, Net																																											24,000			96,000	48,000	48,000
Warrant, percentage of put interest included																																													75.00%		55.00%
Warrant put feature, description			30 day period commencing on the earlier of the prepayment in full of all loans or January 31, 2010
Interest Expense, Debt	76,000	75,000
Amortization of Deferred Charges			152,000	150,000
Deferred Costs, Current	$ 0		$ 0			$ 72,000

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15 - Consulting Fee (Detail) (USD $)	6 Months Ended		10 Months Ended	12 Months Ended	15 Months Ended	17 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Oct. 31, 2009	Dec. 31, 2008	Jan. 31, 2011	Jun. 30, 2012
Related Party Transaction, Description of Transaction	consulting agreement with one of its board members to provide consulting services			two related party secured note holders
Related Party Transaction, Amounts of Transaction			$ 6,250		$ 10,000	$ 15,000
Related Party Transaction, Expenses from Transactions with Related Party	$ 90,000	$ 85,000

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10 - Stock Options and Warrants (Detail) - Schedule of option activity (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	6 Months Ended	12 Months Ended			6 Months Ended
	Mar. 31, 2008	Jun. 30, 2012	Dec. 31, 2008	Dec. 31, 2007	Dec. 31, 2004	Jun. 30, 2012 Number of shares [Member]	Jun. 30, 2012 Price per share [Member]	Jun. 30, 2012 Weighted average exercise price [Member]	Jun. 30, 2012 Weighted average remaining contractual term [Member]	Jun. 30, 2012 Aggregate intrinsic value [Member]	Dec. 31, 2011 Aggregate intrinsic value [Member]
Options outstanding at December 31, 2011						6,600,688
Options outstanding at December 31, 2011 (in Dollars per share)								$ 0.12
Options outstanding at December 31, 2011									4 years 58 days
Options outstanding at December 31, 2011 (in Dollars)										$ 598,265	$ 146,028
Options outstanding at June 30, 2012		18,621,081				18,621,081
Options outstanding at June 30, 2012 (in Dollars per share)								$ 0.06
Options outstanding at June 30, 2012									4 years 149 days
Options outstanding at June 30, 2012 (in Dollars)										598,265	146,028
Options vested and expected to vest in the future at June 30, 2012						18,621,081
Options vested and expected to vest in the future at June 30, 2012 (in Dollars per share)								$ 0.06
Options vested and expected to vest in the future at June 30, 2012									4 years 149 days
Options vested and expected to vest in the future at June 30, 2012 (in Dollars)										598,265
Options exercisable at June 30, 2012		13,558,581		1,095,000		13,558,581
Options exercisable at June 30, 2012 (in Dollars per share)								$ 0.06
Options exercisable at June 30, 2012									4 years 102 days
Options exercisable at June 30, 2012 (in Dollars)										$ 446,390
Granted		13,500,000	600,000	2,350,000	5,714,819	13,500,000
Granted							0.04 to 0.044
Granted (in Dollars per share)		$ 0.04	$ 0.25	$ 0.25				$ 0.04
Exercised	1,232,320					0
Forfeited/expired						(1,479,607)
Forfeited/expired (in Dollars per share)								$ 0.18

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1 - Nature of Operations and Summary of Significant Accounting Policies (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2008
Working capital deficit (in Dollars)	$ 12,609,000		$ 12,609,000
Stockholders' Equity Attributable to Parent (in Dollars)	(13,099,000)		(13,099,000)		(13,274,000)
Net Income (Loss) Attributable to Parent (in Dollars)	191,000	345,000	(4,000)	2,372,000
Line of Credit Facility, Maximum Borrowing Capacity (in Dollars)	2,400,000		2,400,000			2,400,000
Line of Credit Facility, Amount Outstanding (in Dollars)	2,025,000		2,025,000
Provision for Doubtful Accounts (in Dollars)	0	21,000	0	42,000
Cash, FDIC Insured Amount (in Dollars)	$ 250,000		$ 250,000
Number of Operating Segments			1
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)	20,623,550	13,475,018		13,475,018
Customer Concentration Risk [Member]
Concentration Risk, Customer			ten customers
Concentration Risk, Percentage			75.00%	79.00%
Credit Concentration Risk [Member]
Concentration Risk, Customer			one customer	two customers
Concentration Risk, Percentage			48.00%	41.00%

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3 - Prepayments and Other Current Assets (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Other Current Assets [Table Text Block]

The following is a summary of the Company’s prepayments and other current assets (in thousands):

	June 30, 2012		December 31, 2011
	(unaudited)
Employee advances	$	69	$	69
Deferred loan costs		—		72
Prepaid expenses		161		197
	$	230	$	338

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12 - Commitments and Contingencies (Detail) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2010	Dec. 31, 2011
Operating Leases, Future Minimum Payments, Next Rolling Twelve Months	$ 168,000
Operating Leases, Rent Expense	96,000
Disputes with Vendors	61,000		61,000
Loss Contingency, Damages Sought, Value	150,926
Litigation Settlement, Gross		500,000
Loss Contingency Accrual, at Carrying Value	1,100,000
Gain Contingency, Unrecorded Amount	280,403
Consulting contract, term	3
Consulting contract, monthly expense	13,000
Accrued Professional Fees	182,000
Litigation, Network Service Provider [Member]
Loss Contingency, Damages Sought, Value	505,583
Litigation Settlement, Gross	100,000
Loss Contingency Accrual, at Carrying Value	45,000
Litigation, Advanced Tel, Inc [Member]
Litigation Settlement, Gross	200,000
Loss Contingency Accrual, at Carrying Value	$ 187,000

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8 - Long-Term Debt (Detail) - Schedule of long-term debt (USD $)	Jun. 30, 2012	Dec. 31, 2011
Vendor settlements	$ 2,983,000	$ 3,184,000
Secured promissory notes	2,383,000	2,380,000
Note payable to former shareholder	187,000	200,000
Less: Current portion of long-term debt	(4,475,000)	(4,614,000)
Long-term debt	$ 1,078,000	$ 1,150,000

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4 - Property and Equipment (Detail) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2010
Cost of Services, Depreciation	$ 6,000	$ 9,000	$ 12,000	$ 18,000
Depreciation, Depletion and Amortization	2,000	0	5,000	7,000
Litigation Settlement, Gross					500,000
Settlement Liabilities, Current	$ 197,000		$ 197,000

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13 - Income Taxes (Detail) - Schedule of deferred tax assets and liabilities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets and liabilities:
Deferred revenue	$ 159	$ 78
Stock based compensation	71
Bad debt	78	160
Accrued expenses	809	668
	1,117	906
Valuation allowance	(1,117)	(906)
Net current deferred tax asset	0	0
Non-current assets and liabilities:
Depreciation and amortization	124	127
Net operating loss carryforward	15,742	15,956
	15,866	16,083
Valuation allowance	(15,866)	(16,083)
Net non-current deferred tax asset	$ 0	$ 0

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10 - Stock Options and Warrants (Detail) - Schedule of options outstanding and exercisable (USD $)			6 Months Ended
	Jun. 30, 2012	Dec. 31, 2007	Jun. 30, 2012 Option Exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.25 [Member]	Jun. 30, 2012 Options exercise price $0.04 [Member]	Jun. 30, 2012 Option exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member]	Jun. 30, 2012 Options exercise price $0.01 [Member}
Exercise price, options outstanding			$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.25	$ 0.04	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Number of shares, options outstanding (in Shares)	18,621,081		1,049,141	154,039	431,307	123,231	277,269	1,900,000	13,500,000	338,884	643,880	110,907	92,423
Average remaining contractual life, options outstanding			1 year 6 months	1 year 9 months	2 years	2 years 6 months	3 years 3 months	5 years 3 months	4 years 9 months	3 years 3 months	3 years 6 months	3 years 6 months	3 years 9 months
Weighted average exercise price			$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.25	$ 0.04	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Number of shares, options exercisable (in Shares)	13,558,581	1,095,000	1,049,141	154,039	431,307	123,231	277,269	1,900,000	8,437,500	338,884	643,880	110,907	92,423
Weighted average exercise price, options exercisable			$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.25	$ 0.04	$ 0.01	$ 0.01	$ 0.01	$ 0.01

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2 - Acquisition and Intangible Assets

6 Months Ended

Jun. 30, 2012

Schedule of Goodwill [Table Text Block]

2 — Acquisition and Intangible Assets

On March 31, 2011, the Company was notified that the seller and the former president of Advanced Tel, Inc, (“ATI”) the Company’s wholly owned subsidiary, had filed suit against the Company asserting, among other things, that the Company owed said seller certain amounts related to the agreement entered into by the parties (“Purchase Agreement”) when the Company purchased ATI in 2006.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in the first quarter of 2012, conditions that were met on March 14, 2012 resulting in dismissal of the suit on March 14, 2012.  As part of the settlement the Company will void the disputed 4,089,930 shares originally issued to the seller in 2008 as part of the stock compensation in the Purchase Agreement and the seller will return to the Company the 308,079 shares issued to him in 2006 also originally part of the Purchase Agreement.  All shares will return to the Company’s Treasury.   The Company will pay the seller a total of $200,000, of which $187,000 remains unpaid at June 30, 2012 and subject to timely monthly payments through March 2017.
 

The Company has developed an integration plan for utilizing the Company’s network to carry the ATI customer traffic. The execution of this plan is expected to result in a significant cost savings that was used in the present value of net cash flows analysis that supports the carrying value of ATI Goodwill which was $450,000 at June 30, 2012 and December 31, 2011.

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8 - Long-Term Debt (Detail) - Schedule of maturities of long-term debt (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
2013	$ 4,475
2014	355
2015	298
2016	279
2017	146
	$ 5,553

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10 - Stock Options and Warrants (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following presents a summary of activity under the Company’s 2004 and 2007 Plans for the three months ended June 30, 2012 (unaudited):

	Number of Shares			Price per Share		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at December 31, 2011		6,600,688		$	—	$	0.12		4.16	$	146,028
Granted		13,500,000		0.04 to 0.044			0.04
Exercised		—			—		—
Forfeited/expired		(1,479,607	)		—		0.18
Options outstanding at June 30, 2012		18,621,081		$		$	0.06		4.41	$	598,265
Options vested and expected to vest in the future at June 30, 2012		18,621,081		$		$	0.06		4.41	$	598,265
Options exercisable at June 30, 2012		13,558,581		$		$	0.06		4.28	$	446,390

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

Additional information with respect to the outstanding options at June 30, 2012 is as follows:

		Options Outstanding						Options Exercisable
Exercise Prices		Number of Shares		Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	0.01		1,049,141		1.50	$	0.01		1,049,141	$	0.01
	0.01		154,039		1.75		0.01		154,039		0.01
	0.01		431,307		2.00		0.01		431,307		0.01
	0.01		123,231		2.50		0.01		123,231		0.01
	0.01		277,269		3.25		0.01		277,269		0.01
	0.25		1,900,000		5.25		0.25		1,900,000		0.25
	0.04		13,500,000		4.75		0.04		8,437,500		0.04
	0.01		338,884		3.25		0.01		338,884		0.01
	0.01		643,880		3.50		0.01		643,880		0.01
	0.01		110,907		3.50		0.01		110,907		0.01
	0.01		92,423		3.75		0.01		92,423		0.01
			18,621,081						13,558,581

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8 - Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Debt [Table Text Block]

The Company’s long-term debt consists of the following:

	June 30, 2012			December 31, 2011
	(unaudited)
Vendor settlements	$	2,983		$	3,184
Secured promissory notes		2,383			2,380
Note payable to former shareholder		187			200
Less: Current portion of long-term debt		(4,475	)		(4,614	)
Long-term debt	$	1,078		$	1,150

Schedule of Maturities of Long-term Debt [Table Text Block]

A summary of future maturities of long-term debt for the twelve months ending June 30th are as follows:

2013	$	4,475
2014		355
2015		298
2016		279
2017		146
	$	5,553

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9 - Common and Preferred Stock (Detail) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2009	Dec. 31, 2011
Preferred Stock, Shares Authorized	10,000,000		10,000,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)	$ 0.001		$ 0.001
Stock Issued During Period, Shares, Issued for Cash		250,000
Sale of Stock, Price Per Share (in Dollars per share)		$ 1.00
Preferred Stock, Shares Issued	25,000		25,000
Preferred Stock, Shares Outstanding	25,000		25,000
Common Stock, Par or Stated Value Per Share (in Dollars per share)	$ 0.001		$ 0.001
Common Stock, Shares Authorized	150,000,000		150,000,000
Common Stock, Shares, Issued	70,262,798		74,352,728
Common Stock, Shares, Outstanding	70,262,798		74,352,728
Stock Repurchased and Retired During Period, Shares	4,089,930

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11 - Credit Facilities (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The Company calculated the fair value of the warrants using the following assumptions:

	March 31, 2012			December 31, 2011
Risk-free interest rate		0.42	%	0.4% to 2.7 %
Expected lives (in years)	4.5 years			3.2 to 4.5 years
Dividend yield		0	%		0	%
Expected volatility		82.0	%		82.0	%
Forfeiture rate		0	%		0	%

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13 - Income Taxes (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

The following is a summary of the Company’s deferred tax assets and liabilities (in thousands):

	June 30, 2012			December 31, 2011
	(unaudited)
Current assets and liabilities:
Current assets and liabilities:
Deferred revenue	$	159		$	78
Stock based compensation		71			—
Bad debt		78			160
Accrued expenses		809			668
		1,117			906
Valuation allowance		(1,117	)		(906	)
Net current deferred tax asset	$	—		$	—
Non-current assets and liabilities:
Depreciation and amortization	$	124		$	127
Net operating loss carryforward		15,742			15,956
		15,866			16,083
Valuation allowance		(15,866	)		(16,083	)
Net non-current deferred tax asset	$	—		$	—

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

The reconciliation between the statutory income tax rate and the effective rate is as follows:

	For the Six Months Ended June 30,
	2012			2011
	(unaudited)
Federal statutory tax rate		(34	)%		(34	)%
State and local taxes		(6	)		(6	)
Valuation reserve for income taxes		40			40
Effective tax rate		—	%		—	%

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1 - Nature of Operations and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1 — Nature of Operations and Summary of Significant Accounting Policies

Company Background - InterMetro Communications, Inc., (hereinafter, “InterMetro” or the “Company”) is a Nevada corporation which, through its wholly owned subsidiary, InterMetro Communications, Inc. (Delaware) (hereinafter, “InterMetro Delaware”), is engaged in the business of providing voice over Internet Protocol (“VoIP”) communications services. The Company owns and operates state-of-the-art VoIP switching equipment and network facilities that are utilized to provide traditional phone companies, wireless phone companies, calling card companies and marketers of calling cards with wholesale voice and data services, and voice-enabled application services. The Company’s customers pay the Company for minutes of utilization or bandwidth utilization on its national voice and data network and the Company’s calling card marketing customers pay per calling card sold. The Company’s headquarters is located in Simi Valley, California.

Basis of Presentation -  The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for the three and six month period ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011 which are included in Form 10-K filed by the Company on March 30, 2012.

Going Concern - The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. The Company had a working capital deficit of $12,609,000 and had a total stockholders’ deficit of $13,099,000 as of June 30, 2012.  The Company had a net loss of $4,000 for the six months ended June 30, 2012. The Company’s ability to continue as a going concern will require additional financings if its ability to generate cash from operations does not fund required payments on its debt obligations.  Obligations to the Company’s debt holders include interest and principal payments to its secured note holders (see Note 7), principal and interest due on its revolving line of credit (see Note 11) and settlement payments due (see Note 6). The loan under the revolving line of credit is secured by substantially all of the Company’s assets. The Company has other significant matters of importance, including contingencies such as vendor disputes and lawsuits discussed in Note 12 that could have material adverse consequences, including cessation of operations at any time.

   The Company anticipates it will not have sufficient cash flows to fund its operations through 2012, or earlier, depending on the results of the negotiations with Moriah Capital, L.P. (“Moriah”) regarding the Company’s indebtedness to Moriah discussed in Note 11. If the Company were to require additional financings in order to fund ongoing operations there can be no assurance that it will be successful in completing the required financings, that could ultimately cause the Company to cease operations.   The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.  There are many claims and obligations that could ultimately cause the Company to cease operations. The report from the Company’s independent registered public accounting firm relating to the year ended December 31, 2011 states that there is substantial doubt about the Company’s ability to continue as a going concern.

As discussed in Note 11, the Company entered into agreements with Moriah under which it could borrow up to $2,400,000.  At June 30, 2012, the Company had borrowed $2,025,000. The availability of loan amounts under the agreements expires on August 16, 2012 and all amounts are due at that time.

Management believes that the losses in past years were primarily attributable to costs related to building out and supporting a telecommunications infrastructure, and the requirement for continued expansion of the customer base, in order for the Company to become profitable. This resulted in the Company taking on debt and delaying payment to certain vendors.  The Company may be required to obtain other financing during the next twelve months or thereafter as a result of future business developments, including any acquisitions of business assets or any shortfall of cash flows generated by future operations in meeting the Company’s ongoing cash requirements. Such financing alternatives could include selling additional equity or debt securities, obtaining long or short-term credit facilities, or selling operating assets. Management continues to work with its historical vendors in order to secure the continued extension of credit. Management believes that cash flows from operations and additional debt conversions are integral to management’s plan to retire past due obligations and be positioned for growth.  No assurance can be given, however, that the Company will be successful in restructuring its debt on terms favorable to the Company or at all. Should the Company be unsuccessful in this restructuring, material adverse consequences to the Company could occur such as cessation of its operations.  Any sale of additional common stock or convertible equity or debt securities would result in additional dilution to the Company’s stockholders.

Principles of Consolidation - The consolidated financial statements include the accounts of InterMetro, InterMetro Delaware, and InterMetro Delaware’s wholly owned subsidiary, Advanced Tel, Inc. (“ATI”). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates - In the normal course of preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   

Revenue Recognition - VoIP services are recognized as revenue when services are provided primarily based on usage. Revenues derived from sales of calling cards through retail distribution partners are deferred upon sale of the cards. These deferred revenues are recognized as revenue generally at the time card minutes are expended. The Company has revenue sharing agreements based on successful collections.  The company recognizes revenue from these customers at time of invoicing based on the history of collections with such customers. The Company recognizes revenue in the period that services are delivered and when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant Company obligations remain and collection is reasonably assured. Deferred revenue consists of fees received or billed in advance of the delivery of the services or services performed in which collection is not reasonably assured. This revenue is recognized when the services are provided and no significant Company obligations remain. Management of the Company assesses the likelihood of collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. Generally, management of the Company does not request collateral from customers. If management of the Company determines that collection of revenues are not reasonably assured, amounts are deferred and recognized as revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

Accounts Receivable - Accounts receivable consist of trade receivables arising in the normal course of business. The Company does not charge interest on its trade receivables. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. The Company determines the allowance based upon historical write-off experience, payment history and by reviewing significant past due balances for individual collectibility. If estimated allowances for uncollectible accounts subsequently prove insufficient, additional allowances may be required.  Bad debt expense for the three months ended June 30, 2012 and 2011 amounted to $0 and $21,000, respectively, and for the six months ended June 30, 2012 and 2011 amounted to $0 and $42,000, respectively.

Network Costs - The Company’s network costs consist of telecommunication costs, leasing collocation facilities and certain build-outs, and depreciation of equipment related to the Company’s network infrastructure.  It is not unusual in the Company’s industry to occasionally have disagreements with vendors relating to the amounts billed for services provided between the recipient of those services and the vendor. As a result, the Company currently has disputes with vendors that it believes did not bill certain network charges correctly.  The Company’s policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company’s favor.

Depreciation and Amortization - Depreciation and amortization of property and equipment is computed using the straight-line method based on the following estimated useful lives:

Telecommunications equipment	2-3 years
Telecommunications software	18 months to 2 years
Computer equipment	2 years
Office equipment and furniture	3 years
Leasehold improvements	Useful life or remaining lease term, which ever is shorter

Impairment of Long-Lived Assets - The Company assesses impairment of its other long-lived assets in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”.  An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered by the Company include:

· significant underperformance relative to expected historical or projected future operating results;

· significant changes in the manner of use of the acquired assets or the strategy for the Company’s overall business; and

· significant negative industry or economic trends.

When management of the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, an estimate is made of the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows if not. To date, the Company has not had an impairment of long-lived assets and is not aware of the existence of any indicators of impairment.

Goodwill and Intangible Assets - The Company records goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. The Company accounts for goodwill and intangible assets in accordance with FASB ASC 350 “Goodwill and Other”. FASB ASC 350 requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment. FASB ASC 350 also requires the Company to amortize intangible assets over their respective finite lives up to their estimated residual values.  At June 30, 2012, management does not believe there is any impairment in the value of goodwill.

Vendor Disputes -The Company’s policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company’s favor.

Stock-Based Compensation - The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on the historical volatility of a peer group of publicly traded entities.  The expected term of the options granted is derived from the average midpoint between vesting and the contractual term, as described in the SEC’s Staff Accounting Bulletin No. 107, “Share-Based Payment.”  The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company granted options under its 2007 plan during the six months ended June 30, 2012 and did not grant any options during the six months ended June 30, 2011 (see Note 10).

Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, accounts payable, accrued expenses, and short term debt. The Company maintains its cash with a major financial institution located in the United States. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. Periodically throughout the year the Company maintained balances in excess of federally insured limits. The Company encounters a certain amount of risk as a result of a concentration of revenue from a few significant customers and services provided from vendors. Credit is extended to customers based on an evaluation of their financial condition. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and records an allowance for potential bad debts based on available information. To date, such losses, if any, have been within management’s expectations.

The Company had ten customers which accounted for 75% and 79% of net revenues for the six months ended June 30, 2012 and 2011, respectively.  The Company had accounts receivable balances from one customer and two customers that accounted for 48% and 41% of total accounts receivable at June 30, 2012 and December 31, 2011, respectively. 

Income Taxes - The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Segment and Geographic Information - The Company operates in one principal business segment primarily in the United States. All of the operating results and identified assets are located in the United States.

Basic and Diluted Net Income (Loss) per Common Share - Basic net income (loss) per common share excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share includes dilution for potential common stock issuances when the warrants, options or common stock conversion rights underlying those potential issuances are below the then fair market value of the Company’s common stock and have intrinsic value.  A total of 20,623,550 potential common stock issuances were included in the calculation of diluted net income for the three months ended June 30, 2012. As the Company reported a net loss for the six months ended June 30, 2012, the conversion of promissory notes and the exercise of stock options and warrants were not considered in the computation of diluted net loss per common share because their effect is anti-dilutive. A total of 13,475,018 potential common stock issuances were included in the calculation of diluted net income per share for the three and six months ended June 30, 2011.

Recent Accounting Pronouncements - Management does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

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14 - Cash Flow Disclosures (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

The table following presents a summary of the Company’s supplemental cash flow information (in thousands):

	Six Months Ended June 30,
	2012		2011
	(unaudited)
Cash paid:
Interest	$	258	$	329
Non-cash information:
Fair value of warrant issued	$	1	$	—
Liability for warrant put feature	$	—	$	70

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6 - Vendor Settlements, Contingent Gains and Gain of Forgiveness of Debt (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Gains (Losses) on Extinguishment of Debt	$ 0	$ 208,000	$ 113,000	$ 1,922,000
Write-off of accounts payable, description			write-off accounts payable with written contract more than four years old with no current activity and two years when there is no written agreement	two
Other Nonoperating Income (Expense)	285,000	152,000	293,000	338,000
Other Liabilities	2,983,000		2,983,000		3,184,000
Loss Contingency			$ 1,052,000
Loss Contingency, Settlement Agreement, Terms			The settlements will be paid in periods ranging from one to thirty months with an aggregate monthly payment of approximately $100,000.

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13 - Income Taxes (Detail) - Schedule of effective income tax rate reconciliation	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Federal statutory tax rate	(34.00%)	(34.00%)
State and local taxes	(6.00%)	(6.00%)
Valuation reserve for income taxes	40.00%	40.00%
Effective tax rate	0.00%	0.00%

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash	$ 557,000	$ 390,000
Accounts receivable, net of allowance for doubtful accounts of $195 and $401 at June 30, 2012 and December 31, 2011, respectively	1,855,000	1,637,000
Deposits	47,000	46,000
Prepayments and other current assets	230,000	338,000
Total current assets	2,689,000	2,411,000
Property and equipment, net	134,000	118,000
Goodwill	450,000	450,000
Other assets	4,000	4,000
Total Assets	3,277,000	2,983,000
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable net of dispute reserve of $61 at June 30, 2012 and December 31, 2011	2,547,000	2,833,000
Accrued expenses	5,070,000	4,561,000
Deferred revenues and customer deposits	396,000	195,000
Borrowings under line of credit facilities net of debt discount of $0 and $5 at June 30, 2012 and December 31, 2011, respectively	2,073,000	2,167,000
Current portion of note payable to former ATI shareholder	40,000	30,000
Current portion of vendor settlements	2,052,000	2,204,000
Secured promissory notes, including $875 from related parties net of debt discount of $0 and $4 at June 30, 2012 and December 31, 2011, respectively	2,383,000	2,380,000
Liability for warrant put feature	737,000	737,000
Total current liabilities	15,298,000	15,107,000
Long-term vendor settlements	931,000	980,000
Long-term portion of note payable to former ATI shareholder	147,000	170,000
Total liabilities	16,376,000	16,257,000
Commitments and contingencies (Note 12 )	0	0
Stockholders’ Deficit
Preferred stock — $0.001 par value; 10,000,000 shares authorized; 25,000 shares issued and outstanding at June 30, 2012 and December 31, 2011	0	0
Common stock — $0.001 par value; 150,000,000 shares authorized; 70,262,798 and 74,352,728 shares issued and outstanding at June 30, 2012 and December 31, 2011	70,000	74,000
Additional paid-in capital	29,272,000	29,089,000
Accumulated deficit	(42,441,000)	(42,437,000)
Total stockholders’ deficit	(13,099,000)	(13,274,000)
Total Liabilities and Stockholders’ Deficit	$ 3,277,000	$ 2,983,000

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10 - Stock Options and Warrants (Detail) (USD $)	3 Months Ended				6 Months Ended		12 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Mar. 31, 2008	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007	Dec. 31, 2004	Mar. 31, 2007
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized											5,730,222	26,099,040
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					13,500,000				600,000	2,350,000	5,714,819
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period					1,050,000			429,607	523,734	308,077
Stock Issued During Period, Shares, Other				1,143,165				1,387,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				1,232,320
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number	3,221,081				3,221,081
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit (in Dollars per share)				$ 0.04
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit (in Dollars per share)				$ 0.97
Share-based compensation, option re-pricing (in Dollars per share)							$ 0.01
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)					$ 0.04				$ 0.25	$ 0.25
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	13,558,581				13,558,581					1,095,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights					6,750,000 of the options granted were immediately vested at the date of grant. The remaining 6,750,000 options vest 25% per quarter beginning with the quarter ending June 30, 2012					30% vested at date of grant with the remaining vesting 1/12 per subsequent quarter over the succeeding 3 years expiring 5 years from date of grant
Share-based Compensation (in Dollars)	$ 36,000	$ 142,028	$ 0		$ 178,000	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	10,699,040				10,699,040
Line of Credit Facility, Maximum Borrowing Capacity (in Dollars)	$ 2,400,000				$ 2,400,000				$ 2,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted (in Shares)									14,233,503
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)							0.01		1.00
Class of Warrant or Right, Outstanding	4,302,500				4,302,500
Minimum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)	0.01				0.01				0.01
Maximum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)	0.50				0.50				0.05

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited) (USD $)	Preferred Stock [Member]	Common Stock [Member] USD ($)	Additional Paid-in Capital [Member] USD ($)	Retained Earnings [Member] USD ($)	Total USD ($)
Balance at Dec. 31, 2011		$ 74,000	$ 29,089,000	$ (42,437,000)	$ (13,274,000)
Balance (in Shares) at Dec. 31, 2011	25,000	74,352,728
Amortization of stock based compensation			178,000		178,000
Warrants issued in connection with line of credit financing			1,000		1,000
Common stock cancelled on settlement of lawsuit		(4,000)	4,000
Common stock cancelled on settlement of lawsuit (in Shares)		(4,089,930)
Net loss for the six months ended June 30, 2012				(4,000)	(4,000)
Balance at Jun. 30, 2012		$ 70,000	$ 29,272,000	$ (42,441,000)	$ (13,099,000)
Balance (in Shares) at Jun. 30, 2012	25,000	70,262,798

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2 - Acquisition and Intangible Assets (Detail) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Number of shares voided, previously issued (in Shares)	4,089,930
Number of shares returned (in Shares)	308,079
Debt Instrument, Face Amount	$ 200,000
Notes Payable	187,000	200,000
Goodwill	$ 450,000	$ 450,000

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15 - Consulting Fee

6 Months Ended

Jun. 30, 2012

Other Expense Disclosure, Nonoperating

15 — Consulting Fee

Effective September 1, 2009, the Company entered into a consulting agreement with one of its board members to provide consulting services.  The Company was obligated to pay $6,250 per month plus out of pocket expenses for these services for the period September 1, 2009 to October 31, 2009, then $10,000 per month plus out of pocket expense and $15,000 per month beginning in February 2011.

The Company incurred consulting fees under this agreement in the amount of $90,000 and $85,000 for the six months ended June 30, 2012 and 2011, respectively.

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3 - Prepayments and Other Current Assets (Detail) - Schedule of prepaid and other current assets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Employee advances	$ 69	$ 69
Deferred loan costs		72
Prepaid expenses	161	197
	$ 230	$ 338

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1 - Nature of Operations and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2012

Property Plant and Equipment, Estimated Useful Lives [Table Text Block]

Depreciation and amortization of property and equipment is computed using the straight-line method based on the following estimated useful lives:

Telecommunications equipment	2-3 years
Telecommunications software	18 months to 2 years
Computer equipment	2 years
Office equipment and furniture	3 years
Leasehold improvements	Useful life or remaining lease term, which ever is shorter

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net (loss) income	$ (4,000)	$ 2,372,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	17,000	25,000
Stock based compensation	178,000	0
Amortization of debt discount	10,000	86,000
Provision for doubtful accounts	0	42,000
Accounts payable write-off	(293,000)	(338,000)
Gain on forgiveness of debt	(113,000)	(1,922,000)
(Increase) decrease in assets:
Accounts receivable	(218,000)	1,341,000
Other current assets	107,000	(177,000)
Accounts payable	115,000	(729,000)
Accrued expenses	793,000	35,000
Vendor settlements	(480,000)	(601,000)
Deferred revenues and customer deposits	201,000	(38,000)
Net cash provided by operating activities	313,000	96,000
Cash flows from investing activities:
Purchase of property and equipment	(33,000)	(30,000)
Cash flows from financing activities:
Principal payments on lines of credit	(100,000)	(7,000)
Principal payment on note payable to former shareholder	(13,000)
Proceeds from exercise of warrants		10,000
Net cash (used in) provided by financing activities	(113,000)	3,000
Net increase in cash	167,000	69,000
Cash at beginning of period	390,000	428,000
Cash at end of period	$ 557,000	$ 497,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars)	$ 195,000	$ 401,000
Dispute reserve (in Dollars)	61,000	61,000
Debt discount (in Dollars)	0	5,000
Debt discount (in Dollars)	2,000	4,000
Related party promissory notes (in Dollars)	$ 875,000	$ 875,000
Preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock , shares authorized (in Shares)	10,000,000	10,000,000
Preferred stock, shares issued (in Shares)	25,000	25,000
Preferred stock, shares outstanding (in Shares)	25,000	25,000
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in Shares)	150,000,000	150,000,000
Common stock, shares issued (in Shares)	70,262,798	74,352,728
Common stock, shares outstanding (in Shares)	70,262,798	74,352,728

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10 - Stock Options and Warrants

6 Months Ended

Jun. 30, 2012

Stockholders' Equity Note Disclosure [Text Block]

10 — Stock Options and Warrants

2004 Stock Option Plan - Effective January 1, 2004, the Company’s Board of Directors adopted the 2004 Stock Option Plan for Directors, Officers, and Employees of and Consultants to InterMetro Communications, Inc. (the “2004 Plan”).  A total of 5,730,222 shares of the Company’s common stock had been reserved for issuance under the 2004 Plan. Upon shareholder ratification of the 2004 Plan pursuant to the definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on March 6, 2007, the Company froze any further grants of stock options under the 2004 Plan. Any shares reserved for issuance under the 2004 Plan that are not needed for outstanding options granted under that plan will be cancelled and returned to treasury shares.

The Company had granted a total of 5,714,819 stock options under the 2004 Plan to the officers, directors, and employees, and consultants of the Company, of which 308,077 expired in September 2007, an additional 523,734 expired during the year ended December 31, 2008 and 429,607 options expired subsequently.  In the three months ended March 31, 2008, the Company issued 1,143,165 shares of common stock on the cashless exercise of 1,232,320 stock purchase options.  The remaining 3,221,081 are fully vested at June 30, 2012 and were originally granted with exercise prices ranging from $0.04 to $0.97 per share.  On November 15, 2010, in order to provide continued economic incentive to option holders, most of whose options were issued at prices that were “out of the money”, the Board of Directors authorized a re-pricing of all the stock options under the 2004 Plan to $0.01, the closing price of the Company’s common stock on that day.

Omnibus Stock and Incentive Plan – Effective January 19, 2007, the Board of Directors approved the 2007 Omnibus Stock and Incentive Plan (the “2007 Plan”) for directors, officers, employees, and consultants. The shareholders ratified the 2007 Plan pursuant to the Schedule 14C Information Statement filed with the Securities and Exchange Commission which was declared effective on May 10, 2007.   Any employee or director of, or consultant for, us or any of the Company’s subsidiaries or other affiliates will be eligible to receive awards under the 2007 Plan. The Company has reserved 26,099,040 shares of common stock for awards under the 2007 Plan. The 2007 Plan specifically prohibits the re-pricing of any stock options awarded under this plan.

In November 2007, the Company granted 2,350,000 stock options to purchase shares of common stock under the 2007 Plan at an average exercise price of $0.25 per share to employees and directors. 1,095,000 of the shares granted were immediately vested at the date of grant. 1,050,000 of such options have expired as of June 30, 2012.  In October 2008, InterMetro granted 600,000 stock options to purchase shares of common stock under the 2007 Plan at an average exercise price of $0.25 per share to employees and directors. 30% vested at date of grant with the remaining vesting 1/12 per subsequent quarter over the succeeding 3 years expiring 5 years from date of grant.

On March 22, 2012, the Company granted 13,500,000 stock options to purchase shares of common stock under the 2007 Plan at an average exercise price of $0.04 per share to employees and directors. 6,750,000 of the options granted were immediately vested at the date of grant. The remaining 6,750,000 options vest 25% per quarter beginning with the quarter ending June 30, 2012.  The Company recognized $142,028 in compensation expense related to the immediate vesting of the stock option grants and an additional $36,000 in the three months ended June 30, 2012. The remaining fair value is being recognized on a straight line basis over the vesting term. No options to purchase shares of common stock were granted under the 2007 plan in the six months ended June 30, 2011.  As of June 30, 2012 none of the Company’s outstanding stock options under the 2007 Plan have been exercised.

The following presents a summary of activity under the Company’s 2004 and 2007 Plans for the six months ended June 30, 2012 (unaudited):

	Number of Shares			Price per Share		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at December 31, 2011		6,600,688		$	—	$	0.12		4.16	$	146,028
Granted		13,500,000		0.04 to 0.044			0.04
Exercised		—			—		—
Forfeited/expired		(1,479,607	)		—		0.18
Options outstanding at June 30, 2012		18,621,081		$		$	0.06		4.41	$	598,265
Options vested and expected to vest in the future at June 30, 2012		18,621,081		$		$	0.06		4.41	$	598,265
Options exercisable at June 30, 2012		13,558,581		$		$	0.06		4.28	$	446,390

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last day of the six month period ended June 30, 2012 and the exercises price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012. This amount changes based on the fair market value of the Company’s stock.  As of June 30, 2012 there remain 10,699,040 shares available for grant.

Additional information with respect to the outstanding options at June 30, 2012 is as follows:

		Options Outstanding						Options Exercisable
Exercise Prices		Number of Shares		Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	0.01		1,049,141		1.50	$	0.01		1,049,141	$	0.01
	0.01		154,039		1.75		0.01		154,039		0.01
	0.01		431,307		2.00		0.01		431,307		0.01
	0.01		123,231		2.50		0.01		123,231		0.01
	0.01		277,269		3.25		0.01		277,269		0.01
	0.25		1,900,000		5.25		0.25		1,900,000		0.25
	0.04		13,500,000		4.75		0.04		8,437,500		0.04
	0.01		338,884		3.25		0.01		338,884		0.01
	0.01		643,880		3.50		0.01		643,880		0.01
	0.01		110,907		3.50		0.01		110,907		0.01
	0.01		92,423		3.75		0.01		92,423		0.01
			18,621,081						13,558,581

As of June 30, 2012, there was $106,521 unrecognized compensation cost related to unvested share based compensation arrangements granted under the 2004 and 2007 option plans.  This cost will be amortized on a straight-line basis over the next three quarters.

Warrants – Historically, the Company has issued warrants to providers of equipment financing.  For a detailed description of the warrants issued in connection with equipment financing arrangements, see Note 4.

On April 30, 2008, the Company negotiated a revolving line of credit which allows the Company to borrow up to $2.4 million.  Warrants to purchase 14,233,503 shares of the Company’s common stock at an exercise price of $0.01 to $0.05 per share were granted in connection with securing and amending this credit facility.  See Note 11 for a detail of the warrants issued in connection with this credit facility.

The Company has issued warrants to its secured note holders in connection with the execution of the loan agreements and subsequent amendments.  Warrants to purchase an aggregate of 4,302,500 shares of the Company’s common stock with exercise prices ranging from $0.01 to $0.50 were outstanding with these note holders as of June 30, 2012 and December 31, 2011.  See Note 7 for further details of these warrants.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 10, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	InterMetro Communications, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		70,262,798
Amendment Flag	false
Entity Central Index Key	0001160142
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

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11 - Credit Facilities

6 Months Ended

Jun. 30, 2012

Schedule of Line of Credit Facilities [Table Text Block]

 11 — Credit Facilities

ATI Bank Lines of Credit – ATI had two $100,000 lines of credit.  The line of credit with Bank of America has an interest rate of 7.13% per annum.  The line of credit with Wells Fargo Bank had an interest rate of 6.75 % per annum.   The lines of credit had been personally guaranteed by the former stockholder of ATI. On March 31, 2011 the former stockholder of ATI filed a lawsuit against the Company.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in March 2012, which resulted in the payoff of one line for $99,000 and the refinance of the other (see Note 12). Borrowing under the remaining line of credit amounted to approximately $48,000 at June 30, 2012.

Revolving Credit Facility - The Company entered into certain agreements, including a Loan and Security Agreement (as subsequently amended, the “Agreement”), effective as of April 30, 2008 with Moriah Capital, L.P. (“Moriah”), pursuant to which the Company could borrow up to $2,400,000 which was subsequently increased to $2,575,000. The Agreement has been amended several times (the “Amendments”) as summarized below.

Pursuant to the Agreement, the Company was permitted to borrow an amount not to exceed 80% of its eligible accounts (as defined in the Agreement), net of all discounts, allowances and credits given or claimed. Pursuant to the Amendments, from September 10, 2008 through November 4, 2008 this borrowing base increased to 110% of eligible accounts, from November 5, 2008 through December 15, 2008 increased to 135% of eligible accounts, from December 16, 2008 to January 15, 2009 decreased to 120% of eligible accounts, from January 16, 2009 through May 1, 2009 decreased to 110% of the eligible accounts, from May 1, 2009 to July 31, 2009 increased to 120% of eligible accounts, from August 1, 2009 to September 30, 2009 decreased to 100% and thereafter decreased to 85%.  The Company's obligations under the loans are secured by all of the assets of the Company, including but not limited to accounts receivable; provided, however, that Moriah’s lien on the collateral other than accounts receivable (as such terms are defined in the Agreement) are subject to the prior lien of the holders of the Company’s outstanding secured notes.  The Agreement includes covenants that the Company must maintain including financial covenants pertaining to cash flow coverage of interest and fixed charges, limitations on the ratio of debt to cash flow and a minimum ratio of current assets to current liabilities. The Company is not in compliance with the financial covenants as of June 30, 2012.  Amendment No. 8 extended the term to June 30, 2011, Amendment No. 9 extended the term to September 30, 2011, Amendment No. 10 extended the term to November 30, 2011, Amendment No. 11 extended the term to March 30, 2012 and Amendment No. 12 extended the term to May 30, 2012 and Amendment No. 13 extended the term to August 16, 2012.

Annual interest on the credit facility is equal to the greater of (i) the sum of (A) the Prime Rate as reported in the “Money Rates” column of The Wall Street Journal, adjusted as and when such Prime Rate changes plus (B) 4% or (ii) 15%, and is payable in arrears prior to the maturity date, on the first business day of each calendar month, and in full on August 16, 2012.  (See Note 1.)

In accordance with the Agreement, the outstanding amount of the loan at any given time may be converted into shares of the Company's common stock at the option of the lender. The conversion price was $1.00, subject to adjustments and limitations as provided in the Agreements.

The Company has also agreed to register the resale of shares of the Company's common stock issuable under the Agreement and the shares issuable upon conversion of the convertible note if the Company files a registration statement for its own account or for the account of any holder of the Company’s common stock.

As part of the original transaction, Moriah received Warrant #1 to purchase 2,000,000 shares of the Company’s common stock with an exercise price of $1.00 which expire on April 30, 2015.  As part of the Amendments No.1 and No. 2, Moriah received warrants to purchase an additional 1,000,000 and 3,000,000 shares, respectively, of the Company’s common stock under the same terms as the original 2,000,000 warrants.   The Company accounts for the issuance of detachable stock purchase warrants in accordance with FASB ASC 470-20 “Debt With Conversion and Other Options”, whereby it separately measures the fair value of the debt and the detachable warrants, and in the case of detachable warrants with put features to the Company for cash, it also values the put feature as a separate component of the detachable warrant, and allocates the proceeds from the debt on a pro-rata basis to each. The resulting discount from the fair value of the debt allocated to the warrant and put feature for cash, which are accounted for as paid-in capital and a liability, respectively, is amortized over the estimated life of the debt.   The warrants were valued using the Black-Scholes option-pricing model using the assumptions noted in the table below.  The value associated with the 6,000,000 warrants was $928,000 and was recorded as an offset to the principal balance of the revolving credit facility and was amortized on a straight-line basis through April 2009.  As discussed below, the put option liability was $250,000 and the $678,000 difference was credited to Additional Paid in Capital.

Pursuant to Amendment No. 4 dated May 22, 2009, effective as of April 30, 2009, Moriah received 1,000,000 seven year warrants with an exercise price of $0.01. The warrants were valued using the Black-Scholes option-pricing model using assumptions in the table below.  The value associated with the 1,000,000 warrants was $45,000 and was recorded as an offset to the principal balance of the revolving credit facility and was amortized on a straight-line basis through January 2010.  The warrant put option liability was increased to $437,500 and the $187,500 increase in the liability was recorded as an offset to the principal balance of the revolving credit facility and was amortized on a straight-line basis through January 2010.  In addition, Amendment No. 4 reduced the exercise price per share of the previous 6,000,000 warrants from $1.00 to $0.25.  As a result of re-pricing, incremental cost of $19,000 was recorded as debt discount and was fully amortized as of December 31, 2010.

Pursuant to Amendment No. 5 effective January 31, 2010, Moriah received 2,000,000 seven year warrants with an exercise price of $0.01.  The warrants have been valued using the Black-Scholes option-pricing model.  The value associated with the 2,000,000 warrants was $11,800 and was amortized on a straight-line basis in full during 2010. Also pursuant to Amendment No.5, the previously issued 6,000,000 warrants were restated with the exercise price reduced to $0.05 from $0.25 thereby resulting in an incremental cost of $8,400 amortized fully during 2010.  In addition, pursuant to Amendment No. 5 the interest rate for the facility was increased from 10% to 11%.

Pursuant to Amendment No. 6 entered into September 29, 2010 and effective April 30, 2010, the Company agreed to make regular principal reductions that would permanently reduce the maximum amount borrowed to $1,450,000 by December 31, 2010. As previously amended, the Company had issued to Moriah Warrants #1 to #6 to purchase a total of 9,000,000 shares of the Company's common stock, 6,000,000 of which have an exercise price of $0.05 and 3,000,000 of which have an exercise price of $0.01 and which collectively expire on various dates between April 30, 2015 and February 28, 2017.   The Company had also previously granted Moriah an option, as part of the Agreement, pursuant to which Moriah could sell the 2,000,000 shares subject to Warrant #1 back to the Company for $437,500.  The Company, as part of Amendment No. 6, issued to Moriah an additional warrant (Warrant #8) to purchase 1,500,000 shares of common stock with an exercise price of $0.01 and a term of seven years, which, in combination with the aforementioned Warrant #1 (exercisable for a total of 3,500,000 shares) could be sold back to the Company for $437,500 between July 1, 2011 and July 30, 2011.  In addition, as part of Amendment No. 6, the Company issued to Moriah a warrant (Warrant #7) to purchase 2,000,000 shares of the Company's common stock with an exercise price of $0.01 and a term of seven years and also granted Moriah an option to sell this warrant (Warrant #7) back to the Company for $280,000 between July 1, 2011 and July 30, 2011.  The warrants issued pursuant to Amendment No. 6 have been valued using the Black-Scholes option-pricing model.  The value associated with the 3,500,000 warrants is $20,400 and was amortized on a straight-line basis over the extended term of the agreement.

Pursuant to Amendment No. 7 entered into in March 2011 and effective December 31, 2010, the maximum amount that could be borrowed at December 31, 2010 is $2,400,000.  The Company has made payments on the line of credit that have reduced the outstanding advances to $2,025,000 at June 30, 2012.  Also pursuant to Amendment No. 7, the term of all warrants issued to Moriah was extended by two years.  The extension of the warrants has been valued using the Black-Scholes option-pricing model. The value associated with the extension was $14,000 and was charged to interest expense.

Pursuant to Amendment No. 8 entered into in May 2011 and effective March 30, 2011, the term of the Agreement was extended to June 30, 2011 and the Company incurred loan costs of $30,000 that was amortized in 2011.

Pursuant to Amendment No. 9 entered into in August 2011 and effective June 30, 2011, the term of the Agreement was extended to September 30, 2011 and the Company incurred loan costs of $36,000 that were amortized during the three months ended September 30, 2011. Also pursuant to Amendment No. 9, the Company issued to Moriah warrants to purchase 1,000,000 and 500,000 shares of the Company’s common stock at July 31, 2011 and August 31, 2011, respectively, (Warrant #9 and Warrant #10). The warrants have an exercise price of $0.10 and will expire on July 31, 2020 and August 31, 2020, respectively. The aggregate value associated with the Warrant #9 and #10 issuance was $30,000 and was amortized during the three months ended September 30, 2011.

In connection with Amendment No. 9, Moriah exercised its put option related to Warrant #1 and surrendered 766,497 shares subject to Warrant #1 for an amount of $100,000. Further, in consideration for inclusion of the put interest for Warrants #9 and #10 in the Warrant #7 put interest, the Warrant #7 put price was increased from $280,000 to $350,000.

Pursuant to Amendment No. 10 entered into in November 2011 and effective September 30, 2011, the term of the Agreement was extended to November 30, 2011 and the Company incurred loan costs of $24,000 that were amortized over the extended term of the agreement. Also pursuant to Amendment No. 10, the Company issued to Moriah warrants to purchase 600,000 shares of the Company’s common stock (Warrant #11). The warrant had an exercise price of $0.05 and will expire on September 30, 2020. The value associated with the Warrant #11issuance was $15,000 and was amortized over the extended term of the agreement.  In consideration for inclusion of the put interest for Warrant #11 in the Warrant #7 put interest, the Warrant #7 put price, as previously modified in Amendment No. 9, was increased from $350,000 to $400,000.

 Pursuant to Amendment No. 11 entered into in January 2012 and effective November 30, 2011, the term of the Agreement was extended to March 30, 2012 and the Company incurred loan costs of $96,000 that were amortized over the extended term of the agreement. Also pursuant to Amendment No. 11, the Company issued to Moriah warrants to purchase 300,000 shares of the Company’s common stock (Warrant #12). The warrant has an exercise price of $0.05 and will expire on November 29, 2020. The value associated with the Warrant #12 issuance is $6,900 and was amortized on a straight-line basis over the extended term of the agreement.  Seventy five percent (75%) of the put interest for Warrant #12 is to be included in the Warrant #7 put interest.

Pursuant to Amendment No. 12 entered into in April 2012 and effective March 30, 2012, the term of the Agreement was extended to May 30, 2012 and the Company incurred loan costs of $48,000 that were amortized over the extended term of the agreement. Also pursuant to Amendment No. 12, the Company issued to Moriah warrants to purchase 100,000 shares of the Company’s common stock (Warrant #13). The warrant has an exercise price of $0.05 and will expire on March 30, 2021. The value associated with the Warrant #13 issuance was $1,555 and was amortized on a straight-line basis over the extended term of the agreement.  Fifty five percent (55%) of the put interest for Warrant #13 was to be included in the Warrant #7 put interest. The availability of loan amounts under the Agreement expired on May 30, 2012.

Pursuant to Amendment No. 13 entered into in August 2012 and effective June 1, 2012, the term of the Agreement was extended to August 16, 2012 and the Company incurred loan costs of $48,000 of which $24,000 was amortized during the three months ended June 30, 2012. The availability of loan amounts under the Agreement expires on August 16, 2012.

The expense recognized by the Company in the three months ended June 30, 2012 and 2011 from the amortization of the debt discount related to the warrants was $3,000 and $2,000, respectively. The expense recognized by the Company in the six months ended June 30, 2012 and 2011 from the amortization of the debt discount related to the warrants was $7,000 and $4,000, respectively.   The Company calculated the fair value of the warrants using the following assumptions:

	March 31, 2012			December 31, 2011
Risk-free interest rate		0.42	%	0.4% to 2.7 %
Expected lives (in years)	4.5 years			3.2 to 4.5 years
Dividend yield		0	%		0	%
Expected volatility		82.0	%		82.0	%
Forfeiture rate		0	%		0	%

Pursuant to the Agreement and Amendments Moriah may sell certain warrants back to the Company for $437,500 at any time during the 30 day period commencing on the earlier of the prepayment in full of all loans or January 31, 2010. As noted above, as part of Amendment No. 6 the Company granted Moriah an additional option pursuant to which Moriah can sell warrants back to the Company for $280,000, subsequently increased to $400,000 by Amendment No. 10.  The Company has determined that the put options associated with the warrants causes the instrument to contain a net cash settlement feature. In accordance with FASB ASC 480 “Distinguishing Liabilities from Equity,” the put option requires liability treatment.  As a result, the put warrant liability was recorded at the warrant purchase price of $737,500 as of June 30, 2012 and December 31, 2011.  The debt discount associated with the put liability for the warrant put feature was amortized over the extended terms of the agreement.  An amount of $0 and $82,000 was amortized during the three and six months ended June 30, 2012 and 2011, respectively.

The Company recognized interest expense in connection with the Agreement and Amendments of $76,000 and $75,000 for the three months ended June 30, 2012 and 2011, respectively and $152,000 and $150,000 for the six months ended June 30, 2012 and 2011 respectively. The Company recognized amortization of loan costs of $72,000 and $96,000 for the three months ended June 30, 2012 and 2011, respectively and $144,000 and $96,000 for the six months ended June 30, 2012 and 2011, respectively.  At June 30, 2012 and December 31, 2011, the Company recorded deferred loan costs of $0 and $72,000, respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net revenues	$ 4,947,000	$ 5,359,000	$ 9,338,000	$ 11,616,000
Network costs	3,783,000	4,081,000	7,054,000	8,601,000
Gross profit	1,164,000	1,278,000	2,284,000	3,015,000
Operating expenses
Sales and marketing	160,000	204,000	322,000	437,000
General and administrative (includes stock-based compensation of $36 and $0 for the three months ended June 30, 2012 and 2011, respectively, and $178 and $0 for the six months ended June 30, 2012 and 2011, respectively)	804,000	877,000	1,796,000	1,876,000
Total operating expenses	964,000	1,081,000	2,118,000	2,313,000
Operating income	200,000	197,000	166,000	702,000
Interest expense, net (includes amortization of debt discount of $3 and $4 for the three months ended June 30, 2012 and 2011, respectively and $10 and $86 for the six months ended June 30, 2012 and 2011, respectively)	294,000	212,000	576,000	590,000
Accounts payable write-off	(285,000)	(152,000)	(293,000)	(338,000)
Gain on forgiveness of debt	0	(208,000)	(113,000)	(1,922,000)
Net income (loss)	$ 191,000	$ 345,000	$ (4,000)	$ 2,372,000
Basic net income (loss) per common share (in Dollars per share)	$ 0.00	$ 0.00	$ 0.00	$ 0.03
Diluted net income (loss) per common share (in Dollars per share)	$ 0.00	$ 0.00	$ 0.00	$ 0.03
Shares used to calculate basic net income (loss) per common share (in thousands) (in Shares)	70,262	74,208	71,926	73,806
Shares used to calculate diluted net income (loss) per common share (in thousands) (in Shares)	90,886	87,683	71,926	87,281

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5 - Accrued Expenses

6 Months Ended

Jun. 30, 2012

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

5 — Accrued Expenses

The following is a summary of the Company’s accrued expenses (in thousands):

	June 30, 2012		December 31, 2011
	(unaudited)
Commissions, network costs and other general accruals	$	1,870	$	1,374
Accrued USF and sales tax		1,070		878
Deferred payroll and other payroll related liabilities		534		554
Interest due on convertible promissory notes and other debt		1,490		1,243
Payments due to third party providers		106		512
	$	5,070	$	4,561

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4 - Property and Equipment

6 Months Ended

Jun. 30, 2012

Property, Plant and Equipment Disclosure [Text Block]

4 — Property and Equipment

The following is a summary of the Company’s property and equipment (in thousands):

	June 30, 2012			December 31, 2011
	(unaudited)
Telecommunications equipment	$	3,373			$	3,340
Computer equipment		203				203
Telecommunications software		107				107
Leasehold improvements, office equipment and furniture		86				86
Total property and equipment		3,769				3,736
Less: accumulated depreciation and amortization		(3,635	)			(3,618	)
	$	134			$	118

Depreciation expense included in network costs was $6,000 and $9,000 for the three months ended June 30, 2012 and 2011, respectively and $12,000 and $18,000 for the six months ended June 30, 2012 and 2011, respectively. Depreciation and amortization expense included in general and administrative expenses was $2,000 and $0 for the three months ended June 30, 2012 and 2011, respectively and $5,000 and $7,000 for the six months ended June 30, 2012 and 2011, respectively.

In May 2006, the Company entered into a strategic agreement with Cantata Technology, Inc. (“Cantata”), a VoIP equipment and support services provider. Under the terms of this agreement, the Company obtained VoIP equipment to expand its operations. In January 2010, the Company settled a lawsuit brought by Cantata regarding the agreement for $500,000. The settlement contains a long-term payment plan and is subject to timely payments by the Company. As of June 30, 2012, the remaining amount due under the settlement agreement was $197,000.

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Accounting Policies, by Policy (Policies)	6 Months Ended
	Jun. 30, 2012
Basis of Accounting, Policy [Policy Text Block]	The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for the three and six month period ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2011 which are included in Form 10-K filed by the Company on March 30, 2012.
Liquidity Disclosure [Policy Text Block]	The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. The Company had a working capital deficit of $12,609,000 and had a total stockholders' deficit of $13,099,000 as of June 30, 2012.The Company had a net loss of $4,000 for the six months ended June 30, 2012. The Company's ability to continue as a going concern will require additional financings if its ability to generate cash from operations does not fund required payments on its debt obligations.Obligations to the Company's debt holders include interest and principal payments to its secured note holders (see Note 7), principal and interest due on its revolving line of credit (see Note 11) and settlement payments due (see Note 6). The loan under the revolving line of credit is secured by substantially all of the Company's assets. The Company has other significant matters of importance, including contingencies such as vendor disputes and lawsuits discussed in Note 12 that could have material adverse consequences, including cessation of operations at any time. The Company anticipates it will not have sufficient cash flows to fund its operations through 2012, or earlier, depending on the results of the negotiations with Moriah Capital, L.P. ("Moriah") regarding the Company's indebtedness to Moriah discussed in Note 11. If the Company were to require additional financings in order to fund ongoing operations there can be no assurance that it will be successful in completing the required financings, that could ultimately cause the Company to cease operations.The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.There are many claims and obligations that could ultimately cause the Company to cease operations. The report from the Company's independent registered public accounting firm relating to the year ended December 31, 2011 states that there is substantial doubt about the Company's ability to continue as a going concern. As discussed in Note 11, the Company entered into agreements with Moriah under which it could borrow up to $2,400,000.At June 30, 2012, the Company had borrowed $2,025,000. The availability of loan amounts under the agreements expires on August 16, 2012 and all amounts are due at that time. Management believes that the losses in past years were primarily attributable to costs related to building out and supporting a telecommunications infrastructure, and the requirement for continued expansion of the customer base, in order for the Company to become profitable. This resulted in the Company taking on debt and delaying payment to certain vendors.The Company may be required to obtain other financing during the next twelve months or thereafter as a result of future business developments, including any acquisitions of business assets or any shortfall of cash flows generated by future operations in meeting the Company's ongoing cash requirements. Such financing alternatives could include selling additional equity or debt securities, obtaining long or short-term credit facilities, or selling operating assets. Management continues to work with its historical vendors in order to secure the continued extension of credit. Management believes that cash flows from operations and additional debt conversions are integral to management's plan to retire past due obligations and be positioned for growth.No assurance can be given, however, that the Company will be successful in restructuring its debt on terms favorable to the Company or at all. Should the Company be unsuccessful in this restructuring, material adverse consequences to the Company could occur such as cessation of its operations.Any sale of additional common stock or convertible equity or debt securities would result in additional dilution to the Company's stockholders.
Consolidation, Policy [Policy Text Block]	The consolidated financial statements include the accounts of InterMetro, InterMetro Delaware, andInterMetro Delaware'swholly owned subsidiary, Advanced Tel, Inc. ("ATI"). All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates, Policy [Policy Text Block]	In the normal course of preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition, Policy [Policy Text Block]	VoIP services are recognized as revenue when services are provided primarily based on usage. Revenues derived from sales of calling cards through retail distribution partners are deferred upon sale of the cards. These deferred revenues are recognized as revenue generally at the time card minutes are expended. The Company has revenue sharing agreements based on successful collections.The company recognizes revenue from these customers at time of invoicing based on the history of collections with such customers. The Company recognizes revenue in the period that services are delivered and when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant Company obligations remain and collection is reasonably assured. Deferred revenue consists of fees received or billed in advance of the delivery of the services or services performed in which collection is not reasonably assured. This revenue is recognized when the services are provided and no significant Company obligations remain. Management of the Company assesses the likelihood of collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. Generally, management of the Company does not request collateral from customers. If management of the Company determines that collection of revenues are not reasonably assured, amounts are deferred and recognized as revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.
Receivables, Policy [Policy Text Block]	Accounts receivable consist of trade receivables arising in the normal course of business. The Company does not charge interest on its trade receivables. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. The Company determines the allowance based upon historical write-off experience, payment history and by reviewing significant past due balances for individual collectibility. If estimated allowances for uncollectible accounts subsequently prove insufficient, additional allowances may be required.Bad debt expense for the three months ended June 30, 2012 and 2011 amounted to $0 and $21,000, respectively, and for the six months ended June 30, 2012 and 2011 amounted to $0 and $42,000, respectively.
Cost of Sales, Policy [Policy Text Block]	The Company's network costs consist of telecommunication costs, leasing collocation facilities and certain build-outs, and depreciation of equipment related to the Company's network infrastructure.It is not unusual in the Company's industry to occasionally have disagreements with vendors relating to the amounts billed for services provided between the recipient of those services and the vendor. As a result, the Company currently has disputes with vendors that it believes did not bill certain network charges correctly. The Company's policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company's favor.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]	The Company assesses impairment of its other long-lived assets in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360, "Property, Plant and Equipment".An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered by the Company include: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business; and significant negative industry or economic trends. When management of the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, an estimate is made of the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows if not. To date, the Company has not had an impairment of long-lived assets and is not aware of the existence of any indicators of impairment.
Goodwill and Intangible Assets, Policy [Policy Text Block]	The Company records goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. The Company accounts for goodwill and intangible assets in accordance with FASB ASC 350 "Goodwill and Other". FASB ASC 350 requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment. FASB ASC 350 also requires the Company to amortize intangible assets over their respective finite lives up to their estimated residual values.At June 30, 2012, management does not believe there is any impairment in the value of goodwill.
Vendor Disputes [Policy Text Block]	The Company's policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company's favor.
Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]	The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on the historical volatility of a peer group of publicly traded entities.The expected term of the options granted is derived from the average midpoint between vesting and the contractual term, as described in the SEC's Staff Accounting Bulletin No. 107, "Share-Based Payment."The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company granted options under its 2007 plan during the six months ended June 30, 2012 and did not grant any options during the six months ended June 30, 2011 (see Note 10).
Concentration Risk, Credit Risk, Policy [Policy Text Block]	Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, accounts payable, accrued expenses, and short term debt. The Company maintains its cash with a major financial institution located in the United States. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. Periodically throughout the year the Company maintained balances in excess of federally insured limits. The Company encounters a certain amount of risk as a result of a concentration of revenue from a few significant customers and services provided from vendors. Credit is extended to customers based on an evaluation of their financial condition. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and records an allowance for potential bad debts based on available information. To date, such losses, if any, have been within management's expectations. The Company had ten customers which accounted for 75% and 79% of net revenues for the six months ended June 30, 2012 and 2011, respectively.The Company had accounts receivable balances from one customer and two customers that accounted for 48% and 41% of total accounts receivable at June 30, 2012 and December 31, 2011, respectively.
Income Tax, Policy [Policy Text Block]	The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
Segment Reporting, Policy [Policy Text Block]	The Company operates in one principal business segment primarily in the United States. All of the operating results and identified assets are located in the United States.
Earnings Per Share, Policy [Policy Text Block]	Basic net income (loss) per common share excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share includes dilution for potential common stock issuances when the warrants, options or common stock conversion rights underlying those potential issuances are below the then fair market value of the Company's common stock and have intrinsic value.A total of 20,623,550 potential common stock issuances were included in the calculation of diluted net income for the three months ended June 30, 2012. As the Company reported a net loss for the six months ended June 30, 2012, the conversion of promissory notes and the exercise of stock options and warrants were not considered in the computation of diluted net loss per common share because their effect is anti-dilutive. A total of 13,475,018 potential common stock issuances were included in the calculation of diluted net income per share for the three and six months ended June 30, 2011.
New Accounting Pronouncements, Policy [Policy Text Block]	Management does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company's consolidated financial statements.

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12 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Text Block]

12 — Commitments and Contingencies

Facility Lease – The Company leases its facilities under a non-cancelable operating lease that expires on March 31, 2013 at an annual expense of  $168,000.  Rent expense for the Company’s facilities for the six months ended June 30, 2012 and 2011 was $96,000.

Vendor Disputes – It is not unusual in the Company’s industry to occasionally have disagreements with vendors relating to the amounts billed for services provided between the recipient of those services and the vendor, or in some cases, to receive invoices from companies that the Company does not consider a vendor. The Company currently has disputes with a vendor that it believes did not bill certain charges correctly or should not have billed any charges at all. The Company’s policy is to include amounts that it intends to dispute or that it has disputed in a reserve account as an offset to accounts payable if management believes that the facts and circumstances related to the dispute provide probable support that the dispute will be resolved in the Company’s favor.  As of June 30, 2012, there were approximately $61,000 of disputed payables that were recorded as an offset to accounts payable at June 30, 2012. The Company is in discussion with the significant vendor that has sent invoices regarding these charges. Management does not believe that any settlement would have a material adverse effect on the Company’s financial position or results of operations.

The Company has periodically received “credit hold” and disconnect notices from major telecommunications carriers.  Suspension of service by any major carrier could have a material adverse effect on the Company’s operations and financial condition.  These disconnect notices were generated primarily due to the non-payment of charges claimed by each carrier, including some amounts disputed by the Company.  Service has been maintained with each carrier, although further notices are possible if the Company is unable to make timely payments to its counterparties or to resolve the disputed amounts.  Such payments would be in addition to current charges generated with such carriers.

The Company has received several notices from state and local regulatory and taxing authorities for its possible failure to file certain documents pertaining to the Company’s wholly-owned subsidiary ATI.  The amounts at issue with these potential filings are de minimis.

Legal Proceedings

A Network Service Provider – On October 12, 2010, the Company was served a complaint filed by a network service provider (“NSP”) against the Company asserting various causes of action.  The NSP claimed that the Company owed various charges totaling $505,583. The Company denied that it owed this amount.  The Company and NSP settle the complaint on August 12, 2011 for $100,000, subject to timely payment through January 2013. The remaining amount due under the settlement was $45,000 at June 30, 2012.

On March 31, 2011, the Company was notified that the seller and the former president of Advanced Tel, Inc, (“ATI”) the Company’s wholly owned subsidiary, had filed suit against the Company asserting, among other things, that the Company owed said seller certain amounts related to the agreement entered into by the parties (“Purchase Agreement”) when the Company purchased ATI in 2006.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in the first quarter of 2012, conditions that were met on March 14, 2012 resulting in dismissal of the suit on March 14, 2012.  As part of the settlement the Company voided the disputed 4,089,930 shares originally issued to the seller in 2008 as part of the stock compensation in the Purchase Agreement and the seller returned to the Company the 308,079 shares issued to him in 2006 also originally part of the Purchase Agreement.  The Company will pay the seller a total of $200,000, of which $187,000 remains unpaid at June 30, 2012 and subject to timely monthly payments through March 2017.

A Network Service Provider – On October 26, 2011, the Company was served a complaint filed by a network service provider (“NSP”) against the Company asserting various causes of action.  The NSP claimed that the Company owed various charges totaling $150,926. The Company denied that it owed this amount and believes the NSP owes the Company higher amounts which offset this claim.   The Company filed a cross-complaint against the NSP on December 1, 2011 for charges owed the Company totaling $280,403. The Company and the NSP are in the process of settling the complaint and cross-complaint and the Company believes it is fully reserved for the outcome.

Universal Service Administrative Company – The Universal Service Administrative Company (USAC) administers the Universal Service Fund (USF).  In 2009 and 2010, the Company did not make all of the payments claimed by the USAC in a timely manner and USAC transferred these unpaid amounts to the Federal Communications Commission (FCC) for collection.  The FCC has transferred some of these unpaid amounts to the Department of the Treasury which worked with the Company to establish long term payment plans.   Should any of the remaining unpaid amounts with the FCC transfer from the FCC to Treasury, additional fees, surcharges and penalties will be added to the amount due.  As of June 30, 2012, the Company has recorded an aggregate $1.1 million in connection with the USF.  The Company continues to work with the FCC and the Department of the Treasury to resolve these amounts in long term payment programs.  Failure to finalize any significant proposed payment plan would likely have a material adverse effect on the Company.

Consulting Agreement – Commencing in December 2006, the Company entered into a three-year consulting agreement with an affiliate of a stockholder and debt holder pursuant to which the Company received services related to strategic planning, investor relations, acquisitions, and corporate governance.  The Company was obligated to pay $13,000 a month for these services, subject to annual increases.  In June 2008, the parties orally agreed to cancel the agreement and any future obligation.  Included in accrued expense is $182,000 at June 30, 2012 and December 31, 2011 for unpaid amounts.

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8 - Long-Term Debt

6 Months Ended

Jun. 30, 2012

Long-term Debt [Text Block]

8 — Long-Term Debt

The Company’s long-term debt consists of the following:

	June 30, 2012			December 31, 2011
	(unaudited)
Vendor settlements	$	2,983		$	3,184
Secured promissory notes		2,383			2,380
Note payable to former shareholder		187			200
Less: Current portion of long-term debt		(4,475	)		(4,614	)
Long-term debt	$	1,078		$	1,150

A summary of future maturities of long-term debt for the twelve months ending June 30th are as follows:

2013	$	4,475
2014		355
2015		298
2016		279
2017		146
	$	5,553

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6 - Vendor Settlements, Contingent Gains and Gain of Forgiveness of Debt

6 Months Ended

Jun. 30, 2012

Other Income and Other Expense Disclosure [Text Block]

6 — Vendor Settlements, Contingent Gains and Gain of Forgiveness of Debt

During the six months ended June 30, 2012, the Company entered into cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $0 and $113,000 for the three and six months ended June 30, 2012, respectively.  Also, the Company has a policy, based on the statute of limitations, as prescribed by law, to write-off accounts payable with written contract more than four years old with no current activity and two years when there is no written agreement. The Company recorded a gain of $285,000 and $293,000 for the three and six months ended June 30, 2012, respectively, related to these write-offs which is included in accounts payable write-off.  At June 30, 2012, the balance in vendor settlements payable was $2,983,000 including $1,052,000 of deferred gains subject to timely payments.  The settlements will be paid in periods ranging from one to thirty months with an aggregate monthly payment of approximately $100,000.   The Company may continue to approach vendors to enter into similar agreements as well as continuing to write-off certain accounts payable under statute of limitations.

During the six months ended June 30, 2011, the Company entered into numerous cash payment plan agreements with vendors for amounts less than the liability recorded in accounts payable and accrued expenses.  As a result of these agreements, the Company recorded a gain on forgiveness of debt of $208,000 and $1,922,000 for the three and six months ended June 30, 2011, respectively.  In addition, the Company wrote-off certain accounts payable for Competitive Local Exchange Carriers (“CLEC”) that resulted in a gain of $152,000 and $338,000 for the same periods, and is included in accounts payable write-off.  The CLEC accounts payable were written off based on a two year statute of limitations on such accounts payable balances.

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7 - Secured Promissory Notes and Advances

6 Months Ended

Jun. 30, 2012

Debt Disclosure [Text Block]

7 — Secured Promissory Notes and Advances

2008 Bridge Loan - In November and December 2007, the Company received $600,000 in advance payments, pursuant to the sale of secured notes with individual investors, including $330,000 from related parties.  In 2008 the Company received an additional $1,320,000, including $170,000 from related parties, pursuant to the sale of additional secured notes with individual investors, for a total of $1,920,000.  The secured notes were issued on January 16, 2008 and were scheduled to mature 13 to 18 months after issuance (“2008 Bridge Loan”).  The 2008 Bridge Loan was extended in 2009 to July 15, 2010, and then modified on October 5, 2010 (“2008 Bridge Loan Modification”)  to be paid in quarterly installments, of interest, fees and principal, commencing March 31, 2011 and concluding on July 15, 2012. A partial interest-only payment of $42,600 was made on March 31, 2011 and the June 30, 2011 and September 30, 2011 installment payments on principal and interest were not made. Partial interest-only payments of $6,625, $6,411, $6,624 and $3,277 were also made on November 23, 2011, December 16, 2011, January 31, 2012 and February 17, 2012, respectively.  The 2008 Bridge Loan bears interest at a rate of 13% per annum and contain an origination and documentation fee equal to 3% and 2.5%, respectively, of the original principal amount of the note.  All amounts from the installment payment schedule of the 2008 Bridge Loan Modification that became overdue and remain unpaid, bear interest at a rate of 13% per annum. The holder of each note has the right, at any time to (i) assert a default and pursue repayment in accordance with the loan documents, or (ii) convert the entire principal plus accrued interest and origination and documentation fee, or any portion thereof, into shares of common stock by dividing the conversion amount by $0.25. The 2008 Bridge Loan is collateralized by substantially all of the assets of the Company.  Since inception, the Company has incurred $1,274,000 in interest and fees, including $83,000 and $165,000 during the three and six months ended June 30, 2012, respectively.

In connection with the notes, the Company originally issued two common stock purchase warrants for every dollar received or 3.84 million common stock purchase warrants with an exercise price of $1.00, (the “Initial Warrants” and the “Additional Warrants”, collectively the “2008 Bridge Origination Warrants”).  These 2008 Bridge Origination Warrants contained terms which resulted in 3.84 million shares of common stock being issued in 2009, in accordance with those terms, to extinguish the 2008 Bridge Origination Warrants.  In exchange for the first extension of the due date from July 15, 2009 to July 15, 2010, the holder received a common stock purchase warrant (“Extension Warrants”) for each dollar of principal with an exercise price of $0.50 per share that were set to expire on July 14, 2016.  The 2008 Bridge Loan Modification extends the term of Extension Warrants to July 14, 2018. In exchange for the 2008 Bridge Loan Modification the holder received a common stock purchase warrant (“2010 Extension Warrants”) for each dollar of principal with an exercise price of $0.01 per share that will expire on October 5, 2017.  The value associated with the 2010 Extension Warrants was $11,000 and was recorded as an offset to the principal balance of the secured notes and was amortized into interest expenses over the term of the notes using the effective interest method.  The warrants were valued using the Black-Scholes formula.

The “Initial Warrants” also contained a put feature which gave the holder the option to put the warrant back to the Company for $0.15 per share and had been carried as a liability in the Company’s financial statements. The put feature was eliminated pursuant to the 2008 Bridge Loan Modification and the $288,000 related liability was reclassified to equity.

2009 Bridge Loan- In November and December 2008, two related party secured note holders advanced an additional $310,000 and in 2009 there were advances of an additional $152,500 from existing note holders, including $65,000 from related parties, paying 13% interest per annum.  On June 12, 2009, the Company entered into a Short Term Loan and Security Agreement (“2009 Bridge Loan”) with the advance lenders.  Per the 2009 Bridge Loan, the maturity date of the loans was extended from June 30, 2009 to February 28, 2010, and then subsequently modified on October 5, 2010 (“2009 Bridge Loan Modification”)  to be paid in quarterly installments, of interest, fees and principal, commencing November 30, 2010 and concluding February 28, 2012.  On November 30, 2010 the note holders waived their initial installment payment for 60 days to receive their first installment payment as of January 31, 2011.  The first installment of $59,300 in interest only was made and then the February 28, 2011, May 31, 2011, August 31, 2011, November 30, 2011, and February 28, 2012 installment payments on principal and interest were not made. The 2009 Bridge Loan accrues interest at 13% per annum and contains an origination and documentation fee equal to 3% and 2.5%, respectively, of the original principal amount of the note.  All amounts from the installment payment schedule of the 2009 Bridge Loan Modification that become over and remain unpaid, bear interest at a rate of 13% per annum. The holder of each note has the right, at any time and from time to time, to (i) assert a default and pursue repayment in accordance with the loan documents, or (ii) convert the entire principal plus accrued interest and origination and documentation fee, or any portion thereof, into shares of common stock by dividing the conversion amount by $0.25.  The 2009 Bridge Loan is collateralized by substantially all of the assets of the Company.   Since inception, the Company has incurred $252,000 in interest and fees, including $21,000 and $39,000 during the three and six months ended June 30, 2012, respectively.

As was the case for the 2008 Bridge Loan warrants, the provisions of the 2009 Bridge Loan warrants included terms that resulted in the Company providing shares of common stock in lieu of exercise under certain conditions, which conditions occurred on June 12, 2009 and resulted in the issuance of 1,387,500 common stock to extinguish the 2009 Bridge Original Warrants.  In exchange for the 2009 Bridge Loan Modification the holder received a common stock purchase warrant (“2010 Extension Warrants”) for each dollar of principal with an exercise price of $0.01 per share that expire on October 5, 2017.  The value associated with the 2010 Extension Warrants was $3,000 and was recorded as an offset to the principal balance of the secured notes and was amortized into interest expenses over the term of the notes using the effective interest method.  The warrants were valued using the Black-Scholes formula.

The total expense recorded by the Company for amortization of the debt discount related to all warrants was $1,000 for the three months ended June 30, 2012 and 2011 and $3,000 for the six months ended June 30, 2012 and 2011.  The net amount of the notes was $2,383,000 and $2,380,000 as of June 30, 2012 and December 31, 2011, respectively.  The Company did not make certain scheduled interest and principal payments on both the 2008 and 2009 Bridge Loans during the three and six months ended June 30, 2012.   It has not received a notice of cure or default from any of the note holders in response to the non-payments.

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9 - Common and Preferred Stock

6 Months Ended

Jun. 30, 2012

Schedule of Stock by Class [Table Text Block]

9 — Common and Preferred Stock

Preferred Stock – The Company’s Amended and Restated Articles of Incorporation authorize 10,000,000 shares of preferred stock, par value $0.001 per share. On November 19, 2009, the Company filed a Certificate of Designation (“C.D.”) and designated a Series A Preferred stock by resolution of the board of directors.  The C.D. authorized the sale of 250,000 shares of Series A preferred stock at $1.00 per share, with additional rights, preferences, restrictions and privileges as filed with the Nevada Secretary of State. As of June 30, 2012 and December 31, 2011, 25,000 shares of Series A Preferred stock were issued and outstanding at $1.00 per share to a stockholder and secured note holder.

Common Stock - As of June 30, 2012 and December 31, 2011, the total number of authorized shares of common stock, par value $0.001 per share, was 150,000,000 of which 70,262,798 and 74,352,728 shares, respectively, were issued and outstanding.  In the first quarter of 2012 the Company cancelled 4,089,930 shares of its common stock pursuant to the settlement of a lawsuit with a former shareholder (See Note 12).

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1 - Nature of Operations and Summary of Significant Accounting Policies (Detail) - Schedule of Estimated Useful Lives	6 Months Ended
	Jun. 30, 2012
Technology Equipment [Member]
Property, Plant and Equipment, Estimated Useful Life	2-3 years
Software [Member]
Property, Plant and Equipment, Estimated Useful Life	18 months to 2 years
Computer Equipment [Member]
Property, Plant and Equipment, Estimated Useful Life	2 years
Office Equipment [Member]
Property, Plant and Equipment, Estimated Useful Life	3 years
Leasehold Improvements [Member]
Property, Plant and Equipment, Estimated Useful Life	Useful life or remaining lease term, which ever is shorter

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13 - Income Taxes (Detail) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Operating Loss Carryforwards	$ 39,000,000
Deferred Tax Assets, Net of Valuation Allowance	$ 0	$ 0

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14 - Cash Flow Disclosures

6 Months Ended

Jun. 30, 2012

Cash Flow, Supplemental Disclosures [Text Block]

14 — Cash Flow Disclosures

The table following presents a summary of the Company’s supplemental cash flow information (in thousands):

	Six Months Ended June 30,
	2012		2011
	(unaudited)
Cash paid:
Interest	$	258	$	329
Non-cash information:
Fair value of warrant issued	$	1	$	—
Liability for warrant put feature	$	—	$	70

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4 - Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2012

Property, Plant and Equipment [Table Text Block]

The following is a summary of the Company’s property and equipment (in thousands):

	June 30, 2012			December 31, 2011
	(unaudited)
Telecommunications equipment	$	3,373			$	3,340
Computer equipment		203				203
Telecommunications software		107				107
Leasehold improvements, office equipment and furniture		86				86
Total property and equipment		3,769				3,736
Less: accumulated depreciation and amortization		(3,635	)			(3,618	)
	$	134			$	118

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11 - Credit Facilities (Detail) - Schedule of valuation assumptions	3 Months Ended	12 Months Ended
	Mar. 31, 2012	Dec. 31, 2011
Risk-free interest rate	0.42%	0.4% to 2.7 %
Expected lives (in years)	4.5 years	3.2 to 4.5 years
Dividend yield	0.00%	0.00%
Expected volatility	82.00%	82.00%
Forfeiture rate	0.00%	0.00%

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7 - Secured Promissory Notes and Advances (Detail) (USD $)	3 Months Ended			6 Months Ended		12 Months Ended					42 Months Ended	66 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Mar. 31, 2008	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007	Jun. 30, 2012	Jun. 30, 2012
Proceeds from Issuance of Debt								$ 152,500		$ 600,000
Proceeds from Related Party Debt								65,000	310,000
Debt Instrument, Face Amount	200,000			200,000							200,000	200,000
Debt Instrument, Periodic Payment, Interest						59,300
Debt Instrument, Interest Rate, Stated Percentage								13.00%
Debt Instrument, Convertible, Conversion Price (in Dollars per share)	$ 0.25			$ 0.25					$ 1.00		$ 0.25	$ 0.25
Interest and Debt Expense	294,000	212,000		576,000	590,000						252,000	1,274,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted (in Shares)									14,233,503
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)							0.01		1.00
Debt Instrument, Unamortized Discount	2,000			2,000		4,000	3,000				2,000	2,000
Related Party Transaction, Description of Transaction				consulting agreement with one of its board members to provide consulting services					two related party secured note holders
Debt Instrument, Payment Terms							note holders waived their initial installment payment for 60 days to receive their first installment payment as of January 31, 2011
Stock Issued During Period, Shares, Other (in Shares)			1,143,165					1,387,500
Amortization of Financing Costs and Discounts	1,000	1,000		3,000	3,000
Secured Debt, Current	2,383,000			2,383,000		2,380,000					2,383,000	2,383,000
November 23, 2011 [Member] | 2008 Bridge loan [Member]
Debt Instrument, Periodic Payment, Interest						6,625
December 16, 2011 [Member] | 2008 Bridge loan [Member]
Debt Instrument, Periodic Payment, Interest						6,411
January 31, 2012 [Member] | 2008 Bridge loan [Member]
Debt Instrument, Periodic Payment, Interest				6,624
February 17, 2012 [Member] | 2008 Bridge loan [Member]
Debt Instrument, Periodic Payment, Interest				3,277
2008 Bridge loan [Member]
Proceeds from Issuance of Debt									1,320,000	330,000
Proceeds from Related Party Debt									170,000
Debt Instrument, Face Amount									1,920,000
Debt Instrument, Maturity Date, Description									mature 13 to 18 months after issuance
Debt Instrument, Periodic Payment, Interest						42,600
Debt Instrument, Interest Rate, Stated Percentage	13.00%			13.00%							13.00%	13.00%
Debt Instrument, Fee				origination and documentation fee equal to 3% and 2.5%, respectively
Debt Instrument, Convertible, Conversion Price (in Dollars per share)	$ 0.25			$ 0.25							$ 0.25	$ 0.25
Interest and Debt Expense	83,000			165,000
Warrants issued with debt, description								two common stock purchase warrants for every dollar received
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted (in Shares)								3,840,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)							0.01	0.50	1.00
Stock Issued During Period, Shares, Conversion of Convertible Securities (in Shares)								3,840,000
Debt Instrument, Unamortized Discount							11,000
Warrant, put price per share (in Dollars per share)							$ 0.15
Adjustments to Additional Paid in Capital, Convertible Debt with Conversion Feature							288,000
2009 Bridge loan [Member]
Interest and Debt Expense	$ 21,000			$ 39,000

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parentheticals) (USD $)	3 Months Ended			6 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Stock based compensation (in Dollars)	$ 36,000	$ 142,028	$ 0	$ 178,000	$ 0
Amortization of debt discount (in Dollars)	$ 3,000		$ 4,000	$ 10,000	$ 86,000

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3 - Prepayments and Other Current Assets

6 Months Ended

Jun. 30, 2012

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]

3 — Prepayments and Other Current Assets

The following is a summary of the Company’s prepayments and other current assets (in thousands):

	June 30, 2012		December 31, 2011
	(unaudited)
Employee advances	$	69	$	69
Deferred loan costs		—		72
Prepaid expenses		161		197
	$	230	$	338

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5 - Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Accrued Liabilities [Table Text Block]

The following is a summary of the Company’s accrued expenses (in thousands):

	June 30, 2012		December 31, 2011
	(unaudited)
Commissions, network costs and other general accruals	$	1,870	$	1,374
Accrued USF and sales tax		1,070		878
Deferred payroll and other payroll related liabilities		534		554
Interest due on convertible promissory notes and other debt		1,490		1,243
Payments due to third party providers		106		512
	$	5,070	$	4,561

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4 - Property and Equipment (Detail) - Schedule of property, plant and equipment (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Telecommunications equipment	$ 3,373	$ 3,340
Computer equipment	203	203
Telecommunications software	107	107
Leasehold improvements, office equipment and furniture	86	86
Total property and equipment	3,769	3,736
Less: accumulated depreciation and amortization	(3,635)	(3,618)
	$ 134	$ 118

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13 - Income Taxes

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

13 — Income Taxes

At June 30, 2012, the Company had net operating loss carryforwards to offset future taxable income, if any, of approximately $39 million for Federal and State taxes. The Federal net operating loss carryforwards begin to expire in 2021. The State net operating loss carryforwards began to expire in 2008.

The following is a summary of the Company’s deferred tax assets and liabilities (in thousands):

	June 30, 2012			December 31, 2011
	(unaudited)
Current assets and liabilities:
Current assets and liabilities:
Deferred revenue	$	159		$	78
Stock based compensation		71			—
Bad debt		78			160
Accrued expenses		809			668
		1,117			906
Valuation allowance		(1,117	)		(906	)
Net current deferred tax asset	$	—		$	—
Non-current assets and liabilities:
Depreciation and amortization	$	124		$	127
Net operating loss carryforward		15,742			15,956
		15,866			16,083
Valuation allowance		(15,866	)		(16,083	)
Net non-current deferred tax asset	$	—		$	—

The reconciliation between the statutory income tax rate and the effective rate is as follows:  

	For the Six Months Ended June 30,
	2012			2011
	(unaudited)
Federal statutory tax rate		(34	)%		(34	)%
State and local taxes		(6	)		(6	)
Valuation reserve for income taxes		40			40
Effective tax rate		—	%		—	%

Management has concluded that it is more likely than not that the Company will not have sufficient taxable income of an appropriate character within the carryforward period permitted by current law to allow for the utilization of certain of the deductible amounts generating the deferred tax assets; therefore, a full valuation allowance has been established to reduce the net deferred tax assets to zero at June 30, 2012 and December 31, 2011.

The Company has applied the provision of FASB ASC 740, “Income Taxes” which clarifies the accounting for uncertainty in tax positions.  FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position.  At June 30, 2012 and December 31, 2011, the Company had no unrecognized tax benefits.

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively.  As of June 30, 2012 and December 31, 2011, the Company has no accrued interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the United States of America (“U.S.”) and files tax returns in the U.S. federal jurisdiction and California (or various) state jurisdiction (s). The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2007. The Company currently is not under examination by any tax authority.