Ealixir, Inc. 10-Q

ITEM 1: FINANCIAL STATEMENTS FLINT TELECOM GROUP, INC. AND SUBSIDIARIES (Formerly Semotus Solutions, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS September 30, 2008 March 31, 2008 CURRENT ASSETS: (unaudited) Cash and cash equivalents $ 83,162 $ 222,384 Trade receivables (net of allowance for doubtful accounts of $7,035 at September 30, 2008 and March 31, 2008) 390,711 151,995 Prepaid expenses and other current assets 18,923 24,190 ----------------- --------------- Total current assets 492,796 398,569 Goodwill, net 1,430,141 1,430,141 Long term note receivable from Stockgroup asset sale (Note 7) 86,106 117,724 ------------ ----------------- Total assets $ 2,009,043 $ 1,946,434 LIABILITIES & SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 123,036 $ 129,781 Accrued payroll 187,976 58,387 Other accrued liabilities 81,391 13,816 Deferred revenue 192,277 238,688 --------------- ---------------- Total current liabilities 584,680 440,672 ------------ ---------------- Total liabilities 584,680 440,672 ------------ --------------- SHAREHOLDERS’ EQUITY: Common stock: $0.01 par value; 100,000,000 authorized, 2,990,982 issued and outstanding at September 30, 2008, and 50,000,000 authorized, 2,249,164 issued and outstanding at March 31, 2008 29,910 22,492 Additional paid-in capital 73,082,605 72,867,976 Accumulated deficit (71,688,152 ) (71,384,706 ) ------------------- ---------------- Total shareholders’ equity 1,424,363 1,505,762 ------------------ --------------- Total liabilities and shareholders’ equity $ 2,009,043 $ 1,946,434 See accompanying notes to condensed consolidated financial statements. FLINT TELECOM GROUP, INC. AND SUBSIDIARIES (Formerly Semotus Solutions, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months September Ended 30, Six Months September Ended 30, 2008 2007 2008 2007 Revenues $ 425,680 $ 139,803 $ 656,415 $ 454,134 Cost of revenues 885 1,753 2,473 22,463 ----------------- ------------ ------------ ------------ Gross profit 424,795 138,050 653,942 431,671 Operating expenses: (Exclusive of stock, option and warrant expense) Research and development 89,387 74,690 113,972 117,185 Sales and marketing 213,975 181,857 422,198 338,858 General and administrative 246,605 239,602 459,644 458,751 Stock, option and warrant expense: Research and development 853 12,445 4,213 24,812 Sales and marketing 591 5,097 3,322 10,194 General and administrative 1,231 16,922 10,512 54,087 --------------- ------------ ------------ ------------ 2,675 34,464 18,047 89,093 -------------------- ------------ ------------ ------------ Total operating expenses 552,642 530,613 1,013,861 1,003,887 --------------------- ------------ ------------ ------------ Operating loss (127,847 ) (392,563 ) (359,919 ) (572,216 ) Other income (expense) 58,966 3,720,924 56,473 4,044,021 -------------------- ------------ ------------ ------------ Net income (loss) $ (68,881 ) $ 3,328,361 $ (303,446 ) $ 3,471,805 ============= =========== =========== ============ Net income (loss) per common share: Basic $ (0.02 ) $ 1.85 $ (0.13 ) $ 1.94 Diluted $ (0.02 ) $ 1.69 $ (0.13 ) $ 1.77 ============ ============= =========== ============= Weighted average shares outstanding: Basic 2,813,591 1,795,492 2,300,755 1,786,886 Diluted 2,813,591 1,973,345 2,300,755 1,964,739 ============ =========== =========== ============== See accompanying notes to condensed consolidated financial statements. FLINT TELCOM GROUP, INC. AND SUBSIDIARIES (Formerly Semotus Solutions, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months September Ended 30, 2008 2007 Cash flows from operating activities: Net income (loss) $ (303,446 ) $ 3,471,805 Adjustments to reconcile loss from continuing operations to net cash used in operating activities: Compensation expense related to stock, stock options and warrants issued for services 7,472 6,485 FAS123R expense 10,575 89,093 Amortization of debt discount and accrued interest on Notes Payable 4,000 101,016 (Gain) loss on Stockgroup asset sale (Note 7) -- (350,000 ) (Gain) loss on Innofone transaction (Note 10) -- (3,630,000 ) Expired merger and acquisition fee (Citytalk transaction) -- 100,000 Changes in assets and liabilities: Accounts and other receivables (222,429 ) 217,023 Receivable from Stockgroup for transitional services (Note 7) (16,287 ) (41,463 ) Prepaid expenses and other assets 5,267 8,487 Accounts payable (6,745 ) 13,536 Accrued expenses and other current liabilities 197,164 3,683 Deferred revenue (46,411 ) 188 --------------- ----------- Net cash provided by (used in) operating activities (370,840 ) (10,147 ) ---------------- ------------ Cash flows from investing activities: Proceeds from Stockgroup asset sale (Note 7) -- 150,000 Long term receivable from Stockgroup asset sale (Note 7) 31,618 41,893 ---------------- ------------ Net cash provided by investing activities 31,618 191,893 ------------------ ---------------- Cash flows from financing activities: Equipment loan -- (717 ) Net proceeds from Flint note payable 200,000 -- Fractional shares disbursement from reverse stock split -- (22 ) ----------------- ----------- Net cash provided by (used in) financing activities 200,000 (739 ) ------------------ ----------- Net increase (decrease) in cash and cash equivalents (139,222 ) 181,007 Cash and cash equivalents, beginning of period 222,384 305,588 ------------------ ------------ Cash and cash equivalents, end of period $ 83,162 $ 486,595 =========== ========== See accompanying notes to condensed consolidated financial statements. FLINT TELECOM GROUP, INC. AND SUBSIDIARIES (Formerly Semotus Solutions, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited) Six Months September Ended 30, 2008 2007 SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ -- $ 351 =========== =========== Cash paid for income taxes $ -- $ 256 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Deferred tax asset related to stock option grants $ -- $ 4,686 =========== =========== Long term receivable from Stockgroup asset sale (Note 7) $ -- $ 200,000 =========== =========== Investment in Innofone (Note 10) $ -- $ 3,630,000 =========== =========== Common stock issued upon conversion of notes payable and accrued interest (Note 6) $ 204,000 $ 240,000 ========== =========== See accompanying notes to condensed consolidated financial statements. FLINT TELECOM GROUP, INC. AND SUBSIDIARIES (Formerly Semotus Solutions, Inc.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. FORMATION AND BUSINESS OF THE COMPANY: Flint Telecom Group, Inc. (“We” or “Our”), changed our name from Semotus® Solutions, Inc. as of October 3, 2008. From January 11, 2001 to October 2, 2008 we were named Semotus Solutions, Inc., and from August 5, 1999 to January 10, 2001 we were named Datalink.net, Inc. We were originally named Datalink Systems Corporation, and we were formed under the laws of the State of Nevada on June 18, 1996. On June 27, 1996, we went public through an acquisition of a public corporation, Datalink Communications Corporation ("DCC"), which was previously Lord Abbott, Inc., a Colorado corporation formed in 1986. In the June 27, 1996 acquisition of DCC, we issued 3,293,064 shares of our $0.01 par value Common Stock to the holders of 100% of the outstanding Common Stock of DCC, and DCC became our wholly owned subsidiary. As a part of the transaction, we acquired a Canadian corporation, DSC Datalink Systems Corporation, incorporated in Vancouver, British Columbia, which changed its name to Semotus Systems Corporation. On October 1, 2008, we acquired substantially all of the assets and liabilities of Flint Telecom, Inc. (“FTI”) in exchange for 28,460,094 shares of our restricted common stock pursuant to a definitive Contribution Agreement dated April 23, 2008. FTI is a technology and services company that provides turnkey telecom services to the global telecom and media industry. Its assets are mainly comprised of telecom products that blend both proprietary software and industry leading technologies to create a converged voice and data network based on SIP protocol, the emerging technical standard for the future of telephony. This is also known as Digital Phone Service or Voice over IP (VoIP). FTI generates its income by licensing its technology to niche partner companies who themselves then provide next-generation telecom services to their customers in both residential and business markets. FTI partners with organizations such as internet service providers (ISPs), rural telecoms and cable companies, PBX system vendors and other niche telecom operators that benefit from offering additional telecom services to their existing customers. FTI enables its partners to quickly establish a reliable, feature rich and cost effective phone service for zero capital investment on behalf of its partner. The Semotus business division is a leading provider of enterprise application software connecting individuals wirelessly to critical business systems, urgent information and key processes. We help mobile employees make better and faster decisions, increase customer satisfaction, and improve efficiencies in business processes for shorter sales and service cycles. Our wireless software products and professional services are all included in the HipLink family of software, which provide immediate mobile access and control of business-critical software applications, databases, networks and servers. In the year ended March 31, 2008 we substantially scaled back the operations of Clickmarks and sold our Global Market Pro wireless financial data software and services to Stockgroup Systems Ltd. In the year ended March 31, 2007, we closed the operations of Expand Beyond and transferred our research and development activities from Vancouver, Canada to Pakistan. 2. BASIS OF PRESENTATION AND FUTURE PROSPECTS The accompanying condensed consolidated financial statements include the accounts of Flint Telecom Group, Inc. and its subsidiaries. The condensed consolidated balance sheet as of September 30, 2008, the condensed consolidated statements of operations for the three and six months ended September 30, 2008 and 2007, and the condensed consolidated statements of cash flows for the six months ended September 30, 2008 and 2007 have been prepared by us, without audit and in accordance with the instructions to Form 10-Q and Regulation S-K. In the opinion of our management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending March 31, 2009. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the disclosures provided are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-KSB for the year ended March 31, 2008. The accompanying condensed consolidated financial statements do not include the accounts of Flint Telecom, Inc. (“FTI”) because the acquisition transaction in which we purchased substantially all of FTI’s assets and liabilities closed on October 1, 2008, subsequent to the closing of our second fiscal quarter. FTI’s accounts will be combined with our accounts and filed in an amendment to SEC Form 8-K, which we expect to file by no later than December 16, 2008. The acquisition will be accounted for as a reverse merger with the acquiring entity for accounting purposes being FTI. The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. The condensed consolidated financial statements include the accounts of Flint Telecom Group, Inc. and our wholly owned subsidiary, Clickmarks. All significant intercompany transactions and balances have been eliminated in consolidation. Our management believes, after discontinuing all operations that were unprofitable, that the remaining continuing operations are sustainable and that we will have enough cash to maintain our operations over the next twelve months. Although those operations range from slightly cash positive to cash negative on a monthly basis, the overall trend toward positive cash flow is continuing. Further, with the closing of the acquisition transaction with FTI, our operations will be augmented in the current fiscal year. However, our continued operation is still dependent on increasing sales and achieving profitability and/or obtaining sufficient long-term financing. 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not believe that the adoption of FIN 48 currently has a material impact on our financial statements. In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (SFAS 157). The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe that the adoption of SFAS 157 currently has a material impact on our financial statements. In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141R) which replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for us beginning January 1, 2009 and will apply prospectively to business combinations completed on or after that date. We do not expect the adoption of SFAS 141R to have a material impact on our consolidated financial statements. In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51” (SFAS 160) which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for us beginning January 1, 2009 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. We do not expect the adoption of SFAS 160 to have a material impact on our consolidated financial statements. 4. STOCK-BASED COMPENSATION On April 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” requiring us to recognize expense related to the fair value of its employee stock option awards. We recognize the cost of all share-based awards on a straight line vesting basis over the vesting period of the award. Total stock compensation expense recognized by us during the three months ended September 30, 2008 and 2007 was $2,675 and $34,464; total stock compensation expense recognized by us during the six months ended September 30, 2008 and 2007 was $18,047 and $89,093, respectively. We have estimated the fair value of our option awards granted after April 1, 2006 using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of our stock. We use actual data to estimate option exercises, forfeitures and cancellations within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Fiscal Year Ended Black-Scholes -Based Option Valuation Assumptions 2009 2008 Fair value of options granted during the period $ 0.26 $ 0.148 Expected term (in years) 2.5 – 7.0 years 2.0 – 7.0 years Expected volatility 99.7% - 105.9% 91.9% - 107.1% Weighted average volatility 100.34% 103.34% Expected dividend yield -- -- Risk-free rate 3.10% 11.25% The following table summarizes the stock option transactions for the quarter ended September 30, 2008 based upon a closing stock price of $0.55 per share as of September 30, 2008: Stock Options Shares (#) Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life Weighted Average Grant Date Fair Value ($) Aggregate Intrinsic Value ($) Outstanding at July 1, 2008 1,134,863 0.82 -- 0.47 -- Granted -- -- -- -- -- Exercised -- -- -- -- -- Forfeited -- -- -- -- -- Expired 4,671 10.23 -- 8.30 -- Outstanding at September 30, 2008 1,130,192 0.78 5.35 0.44 261,950 Exercisable at September 30, 2008 1,019,824 0.80 4.91 0.44 234,750 The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the shares that had exercise prices that were lower than the $0.55 market price of our common stock at September 30, 2008. No options were exercised during the three months ended September 30, 2008. 5. EARNINGS PER SHARE (EPS) DISCLOSURES In accordance with SFAS No. 128 "Earnings per Share" (EPS), we report Basic and Diluted EPS as follows: Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. For the three and six months ended September 30, 2008, 1,334,456 potential shares were not included in the shares used to calculate diluted EPS due to the fact that no potential shares currently have the effect of being dilutive. For the three and six months ended September 30, 2007, 177,853 potential shares were included in the shares used to calculate diluted EPS, as their effect is dilutive, and 527,437 potential shares were not included in the shares used to calculate diluted EPS, as their effect is not dilutive due to the fact that the exercise prices of all of our options and warrants are greater than the average market price of our stock over the three and six month periods ended September 30, 2007. 6. CONVERTIBLE PROMISSORY NOTES: ISSUANCE AND CONVERSION We signed an investment agreement dated April 23, 2008 with Flint Telecom Limited (the “Flint Parent”), relating to an investment of $200,000 into us (the “Investment Agreement”). The investment was taken in the form of a convertible promissory note (the “Note”). The Note was converted in full on July 22, 2008 by Flint Parent, which included the entire outstanding principal amount of $200,000 and all accrued interest up to and including July 22, 2008 which came to a total of $204,000, into 741,818 restricted shares of our common stock at a conversion price of $0.275 per share, comprised of 727,273 shares for the principal of $200,000 and 14,545 shares for the accrued interest of $4,000. We entered into an investment agreement on November 13, 2006 with an individual investor, Richard Sullivan, Citytalk’s Chairman and CEO, under which he invested $225,000 into us in the form of a convertible promissory note (the “Convertible Promissory Note”) which was converted in full by Mr. Sullivan on September 13, 2007 into 120,000 shares of our restricted common stock at a conversion price of two dollars ($2.00) per share, comprised of 112,500 shares for the principal of $225,000 and 7,500 shares for the accrued interest of $15,000. $51,702 in unamortized discount was written off at the time of conversion. 7. STOCKGROUP ASSET SALE We entered into a definitive Asset Purchase Agreement and Transition Services Agreement on May 8, 2007 with Stockgroup Systems, Ltd. (“Stockgroup”), relating to the sale of our wireless financial information assets (the “Agreement”). As part of the Agreement, we agreed to sell our financial data wireless distribution technology and intellectual property, and the related wireless financial data services, including the Global Market Pro family of software and services. The purchase price for this asset sale consists of up to $350,000; $150,000 was paid on the closing date, May 9, 2007, and the remaining $200,000 is be paid through a monthly revenue share of 30%, until $200,000 has been paid to us or two years have passed from the date of Closing or gross revenue falls below $15,000 per month, whichever occurs first. In accordance with the Transition Services Agreement, we continue to provide certain transition services to Stockgroup, including certain accounting, administrative and technical services related to the financial data products. As of September 30, 2008, Stockgroup owed us a total of $131,370, comprising the unpaid balance of $86,106 from the original $200,000 purchase price, and $45,264 for transitional services provided by us to date. 8. INCREASE IN TOTAL AUTHORIZED COMMON SHARES Effective September 30, 2008, a s a result of the closing of the acquisition transaction with FTI and as app roved by our shareholders at our annual meeting held September 17, 2008, we filed an amendment to our articles of incorporation increasing our total authorized shares of common stock from 50,000,000 to 100,000,000 . 9. CONCENTRATIONS OF CREDIT RISK: One customer accounted for a total of 65% of our revenue during the three months ended September 30, 2008 and 42% of our revenue during the six months ended September 30, 2008. One customer accounted for 82% of our accounts receivable at September 30, 2008. There was no material concentration of revenue during the three months ended September 30, 2007. However, two customers accounted for a total of 37% of our revenue in the six months ended September 30, 2007, representing 22% and 15%, respectively. Four customers accounted for 46% of our accounts receivable at September 30, 2007. 10. INNOFONE TRANSACTION On July 23, 2007, we entered into a Software License Agreement and Stock Issuance and Registration Rights Agreement with Innofone.com Incorporated (“Innofone”), relating to a royalty free license of our HipLinkXS and Clickmarks software applications (the “Agreement”). The consideration for this software license consisted of $3.75 million worth of Innofone’s restricted common stock at a price we calculated as $0.19 per share, which equals 19,736,842 shares, with demand and piggyback registration rights. We also granted Innofone an option to buy certain assets, including the Hiplinkxs and Clickmarks software application products, the complete terms and conditions of which were not fully defined or agreed upon (“Asset Sale”). At a minimum, this Asset Sale would require a payment by Innofone of $250,000 and a convertible note due from Innofone in favor of us for $500,000. Additionally, there was a post-closing purchase price adjustment on the Innofone stock, should the stock fall below $3.75 million in aggregate value, in order for Stockgroup to retain its option to purchase certain assets of Semotus. Pursuant to the post-closing purchase price adjustment provision in the Agreement, Innofone issued to us 26,888,158 additional shares of Innofone restricted common stock during the second quarter ended September 30, 2007, for a total of 46,625,000 shares of Innofone’s restricted common stock. As of September 30, 2007 we owned approximately 35% of Innofone, and, accordingly, the investment was accounted for on the equity method. Innofone is currently delinquent in its SEC filings and working with its auditors to find a cost effective way to become current. Innofone’s last quarterly report was filed with the SEC on May 21, 2007 for the three and nine months ended March 31, 2007, in which it reported total assets of $53,523,822, total liabilities of $39,256,222 and a net loss for the three and nine months ended March 31, 2007 of $17,156,434 and $33,601,375, respectively. Since September 30, 2007, Innofone’s common stock has declined. We initially generated $3.75 million of other income from the sale of a software license to Innofone. However, due to the continuing operating losses and the uncertainty of Innofone’s business, as of March 31, 2008, Semotus reduced the value of its investment to $0 and thereby recorded a $366,250 loss for the fourth quarter and a $3,730,000 loss for the year ended March 31, 2008. As of the contractual deadline of October 22, 2007, Innofone had not paid us $250,000, and therefore its option to buy certain assets expired. Innofone’s right of first refusal to merge with us has also therefore expired. On April 30, 2008 we entered into a Termination Agreement with Innofone, whereby we returned all of the shares of Innofone common stock received under the License Agreement in exchange for the complete termination of the software license granted to Innofone thereunder. 11. SUBSEQUENT EVENTS On October 1, 2008, we acquired substantially all of the assets and liabilities of Flint Telecom, Inc. (“FTI”) in exchange for 28,460,094 shares of our restricted common stock pursuant to a definitive Contribution Agreement dated April 23, 2008 among Semotus, FTI and Flint Telecom Limited (“FTI Parent”) (the “Contribution Agreement”). FTI is a technology and services company that provides “turnkey’ telecom services to the global telecom and media industry. Its assets are mainly comprised of telecom products that blend both proprietary software and industry leading technologies to create a converged voice and data network based on SIP protocol, the emerging technical standard for the future of telephony. This is also known as Digital Phone Service or Voice over IP (VoIP). As part of the closing of the transaction and in addition to the issuance of the common stock noted above , we assumed all of FTI’s obligations under its convertible promissory notes (the “Notes”) . A portion of the Notes, totaling approximately $4,000,000 in outstanding principal plus accrued interest to date, are co nvertible into shares of our common stock at any time and from time to time prior to December 31, 2008 at a conversion price of $0.275 per share, and the remaining Notes, totaling approximately $2,000,000 in outstanding principal plus accrued interest to date, are co nvertible into shares of our common stock at any time and from time to time prior to July 1, 2009 at a conversion price of $0.50 per share. Assuming conversion by each of the holders of such Notes, such conversion will result in the issuance of approximately 18,500,000 additional shares of our restricted common shares . As part of the closing of the transaction , we also assumed all of FTI’s obligations under outstanding warrants exercisable at $0.50 per share for a three year term which , assuming exercise by each of the holders of such warrants, will result in the issuance of approximately 6,850,000 additional shares of our restricted common shares. The foregoing description of the Notes and warrants are qualified in their entirety by reference to the full text of the Notes and Warrants, which are attached as Exhibits 4.1 and 4.2 to our SEC Form 8-K filed on October 7, 2008, and are incorporated herein by reference. As part of the closing of the transaction, we entered into an amended and restated employment agreement with Mr. LaPine , effectuating the following: (i) Mr. LaPine’s title changed from Chairman and Chief Executive Officer to Chairman; (ii) Mr. LaPine’s job description changed such that he is now required to perform only those services commensurate with his position as Chairman, maintaining our public listing and SEC compliance and managing the day-to-day operations relating to the Semotus Business (as defined in the Contribution Agreement) ; (iii) Mr. LaPine was issued 3,508,000 shares of restricted common stock (evidencing an approximate 5% ownership on a fully-diluted basis taking into account the r estricted shares issued to FTI at the closing of the transaction , the unvested shares issued to other key employees and executive officers as described below , the shares underlying the Notes and warrants and any shares outstanding or available for issuance under our existing stock option plans). Mr. LaPine also has the right to purchase (at any time within the three-year period commencing on the date of closing ) or, in the event our Board should determine to dispose of the Semotus Business unit prior to the end of such three-year period, a right of first refusal with respect thereto, in exchange for (1) the shares issued to him in accordance with his new employment agreement (as contemplated by the Contribution Agreement ) or (2) the fair market value of the Semotus Business at the time Mr. LaPine exercises his right to purchase (payable in cash or in shares of our common stock issued to Mr. LaPine thereunder ), whichever is less. The foregoing description of Mr. LaPine’s Amended and Restated Employment Agreement is qualified in its entirety by reference to the full text of the Amended and Restated Employment Agreement, which is attached hereto as Exhibit 10.1 to our SEC Form 8-K filed on October 8, 2008, and is incorporated herein by reference. Additionally, as part of the closing of the transaction, the entire FTI management team and employees have become employees . As a hiring and retention incentive, in lieu of issuing stock options under our existing stock option plan, our Board has approved the issuance o f up to 8,410,000 shares of restricted common stock to certain key employees and executive officers, which is subject to vesting over a period of four years such that 25% of the shares vest at the employees’ first annual anniversary and 6.25% of the shares vest quarterly thereafter so that 100% shall be fully vested at the end of four years. Therefore, on a fully diluted basis, taking into consideration (i) our outstanding stock , on the date of the closing, (ii) the stock issuance to Mr. LaPine under his new employment agreement, (iii) the stock we intend to issue to other key employees and executive officers as described above, (iv) the aggregate number of shares underlying the Notes we have assumed, (v) the aggregate number of shares underlying the F TI warrants we assumed and (vi) the aggregate number of shares underlying our outstanding stock options, and our outstanding warrants, we have an aggregate of approximately 70,000,000 shares outstanding . As a result of the transaction and effective as of the closing, our existing shareholders now own approximately 3%, Mr. LaPine now owns approximately 5% and FTI and its investors now own approximately 92% of the outstanding shares on a fully-diluted basis . Effective as of October 1, 2008, we appointed Vincent Browne as our new Chief Executive Officer. Anthony LaPine also resigned from his former position as Chief Executive Officer but will remain our Chairman of the Board. Mark Williams and Laurence Murray each resigned from the Board of Directors and the vac ancies created by their resignations were filled by Flint ’ s designees, Vincent Browne and Michael Butler . Neither Mr. Browne nor Mr. Butler qualify as “ independent” directors, as that term is defined by the NASDAQ Stock Market and the SEC, and neither wil l be serving on any Board Committees. In addition, and also effective October 1, 2008, Pamela LaPine resigned from her position as President, but will remain an executive of the Company as President of Semotus, which has become a business division of the Company. We also appointed Christopher Knight as Chief Technology Officer effective as of October 1, 2008; Mr. Knight has subsequently been let go, without cause, effective as of November 1, 2008. The following are descriptions of the business experience of each of Messrs. Browne and Butler for at least the past five years: Vincent Browne , age 40 . Mr. Browne founded Flint Telecom, Ltd, Flint Telecom, Inc.’s parent company, in December of 2004 and Flint Telecom, Inc. was incorporated in July of 2005. Mr. Browne has over 15 years experience in the ICT sector. Prior to joining Flint, Mr. Browne founded Prime Carrier Limited (PCL) in 2000 and was its CEO. PCL provides advanced Least Cost Routing software and systems to international telecom companies across the globe. During his time as founding CEO at PCL, he raised over $18m in various funding rounds and successfully negotiated several multi-million dollar contracts with international customers. Prior to that, Mr. Browne held senior management positions with Siemens in Ireland and with Esat BT. Mr. Browne holds a BComm degree from University College Dublin. Michael Butler , age 53 . Mr. Butler became Flint Telecom, Inc.’s Executive Vice President of Investor Relations in October of 2008. Prior to that, he was Flint’s Finance Director since February of 2006. Mr. Butler has over 30 years experience in Accountancy and Insolvency practices in Ireland. Most recently as Managing Partner with Butler & Co, which he built to become one of the leading insolvency practices in Ireland. Mr. Butler is a prolific investor in early stage technology and internet companies, most notably Coretime.com which was sold to Sage, and Hostelworld.com, the World’s leading hostel booking engine. Mr. Butler has a BComm from University College Dublin and is a Member of the Irish Institute of Credit Managers. Pursuant to the terms of their employment: (i) Mr. Browne will receive salary in the amount of $180,000 per year, which shall immediately increase to $240,000 when the Company achie ves sustainable profitability for one quarter, and 2,500,000 shares of restricted common stock as described above; and ( ii) Mr. Butler will receive salary in the amount of $180,000 per year and 1,500,000 shares of restricted common stock as described above . Each will be entitled to participate in other employee benefit plans to the same extent provided to other executive officers. The foregoing description of the terms of employment of Messrs. Browne and Butler are qualified in their entirety by reference to the full text of Mr. Browne’s Employment Agreement and Mr. Butler’s offer letter, which are attached as Exhibits 10.2 and 10.4 to our SEC Form 8-K filed on October 7, 2008. In addition and in connection with the closing of the acquisition transaction w ith FTI, we assumed the foll owing indebtedness owed by FTI : (i) € 1,475,000 in convertible notes owed to Mr. Butler; (ii) $875,000 in convertible notes owed to Mr. Butler and his family members and affilites; and (iii) $238,9 72 in indebtedness owed by FTI to FTI ’ s Parent Company, which is controlled by Mr. Browne and Mr. Butler. Finally, effective October 3, 2008, as part of the acquisition transaction with FTI and as approved by our shareholders at our annual shareholders meeting held on September 17, 2008, we filed an amendment to our Articles of Incorporation, changing our corporate name from Semotus Solutions, Inc. to Flint Telecom Group, Inc. As a result of the closing of the acquisition transaction with FTI, FTI owns approximately 92 % of our common stock on a fully diluted basis. FTI also replaced two of our former directors with two individuals designated by it. From and after the closing and until the first to occur of (i) the Flint Business (as defined in the Contribution Agreement) shall have ge nerated positive cash flow or (ii) the Flint Business shall have obtained at least $3,000,000 in additional financing (the events described in clause (i) and (ii) hereof each being referred to as a “ Board Change Trigger Event” ), the board of directors wil l be comprised of four directors, two of whom shall be designated by Flint Telecom, Ltd. (“ FTI Parent” ) (initially Vincent Browne and Michael Butler) and two of whom shall be incumbent directors of Semotus (initially Anthony LaPine and Robert Lanz). From a nd after the occurrence of a Board C hange Trigger Event, our board of directors shall take such actions as may be necessary to increase the size of our board of directors to six directors, with the vacancies created by such board increase to be filled by i ndividuals designated by FTI Parent. On October 30, 2008, we let go of Christopher Knight, the Chief Information Officer of the Company, without cause, effective November 1, 2008. In connection with Mr. Knight’s separation, we entered into a Separation Agreement with Mr. Knight (the “Separation Agreement”), effective November 6, 2008. Under the Separation Agreement, Mr. Knight has agreed to provide such services as may be requested from time to time by us until November 30, 2008. The Separation Agreement provides that Mr. Knight will be paid an aggregate of approximately $124,600 in cash and $550,000 worth of shares of restricted common stock, consisting of: · his regular base salary through November 30, 2008, or approximately $20,000; · continued residence at the corporate apartment for two additional months (November and December) at the Company’s expense, or approximately $14,600; · payment for past wages owed, or approximately $40,000; · reimbursement for approved expenses in an amount that has yet to be determined, and which amount shall not exceed $50,000; · severance pay in the form of acceleration of a portion of his unvested restricted stock, as follows: 150,000 shares vest as of November 6, 2008, and 212,500 vest quarterly thereafter for a period of 12 months, for a total of 1,000,000 shares of restricted common stock. The closing price of our common stock on November 6, 2008 was $0.55 per share, and therefore the total fair market value of these shares as of November 6, 2008 was $550,000. The above summary of the Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the Separation Agreement, a copy of which is filed as an exhibit to the Form 8-K that we filed on November 10, 2008.