What changed in this filing

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Item 1. Financial Statements

2009-02-20 compared with 2008-11-13 · 684 added, 626 removed, 78 unchanged (94% of the section changed)

1 unchanged sentence

TELECOM GROUP, INC.

AND SUBSIDIARIES

Semotus Solutions, Inc.)

1 unchanged sentence

and cash equivalents

receivables (net of allowance for doubtful accounts of $7,035 at September

30, 2008 and March 31, 2008)

receivables, net of allowance for doubtful accounts

$197,283 and $190,083

expenses and other current assets

-----------------

---------------

current assets

term note receivable from Stockgroup asset sale (Note 7)

-----------------

& SHAREHOLDERS’ EQUITY

plant & equipment:

leases – equipment

property, plant & equipment

accumulated depreciation

property, plant & equipment

& STOCKHOLDERS' DEFICIT

payable-trade

accrued liabilities

---------------

----------------

current liabilities

----------------

---------------

SHAREHOLDERS’

interest payable

obligations – current

payable, net of discount

notes payable, net of discount

to Flint Telecom Ltd.

Total current

notes payable – long-term

obligations - long-term

Total liabilities

and contingencies

Stockholders'

$0.01 par value;

100,000,000 authorized, 46,254,432 issued and

outstanding at September 30, 2008, and 50,000,000 authorized, 2,249,164

issued and outstanding at March 31, 2008

outstanding at December 31, 2008, 28,460,094 issued and outstanding at

June 30, 2008

paid-in capital

-------------------

----------------

shareholders’ equity

------------------

---------------

liabilities and shareholders’ equity

accompanying notes to condensed consolidated financial

stock compensation

stockholders' deficit

liabilities and stockholders’ deficit

See accompanying notes to condensed consolidated

financial statements.

TELECOM GROUP, INC.

AND SUBSIDIARIES

Semotus Solutions, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

-----------------

of stock, option and warrant expense)

and development

1 unchanged sentence

and administrative:

option and warrant expense:

and development

and marketing

and administrative

---------------

--------------------

and payroll related expense

fee payable to Flint Ltd

compensation and option expense

general and administrative

operating expenses

---------------------

income (expense)

--------------------

income (loss)

=============

income (loss) per common share:

=============

loss per common share:

average shares outstanding:

==============

accompanying notes to condensed consolidated financial

TELCOM GROUP, INC.

AND SUBSIDIARIES

Semotus Solutions, Inc.)

1 unchanged sentence

Flows from Operating Activities:

income (loss)

to reconcile loss from continuing operations to net cash used in operating

expense related to stock, stock options and warrants issued for

of debt discount and accrued interest on Notes Payable

loss on Stockgroup asset sale (Note 7)

loss on Innofone transaction (Note 10)

merger and acquisition fee (Citytalk transaction)

in assets and liabilities:

and other receivables

from Stockgroup for transitional services (Note 7)

expenses and other assets

expenses and other current liabilities

---------------

cash provided by (used in) operating activities

----------------

to reconcile net loss to net cash provided by operating

non-cash transactions:

and option compensation expense

on purchase of non-convertible notes

of debt discounts & warrants

of debt issuance costs

on disposal of fixed assets

in assets and liabilities, net of acquisition:

cash used in operating activities

Flows from Investing Activities:

from Stockgroup asset sale (Note 7)

term receivable from Stockgroup asset sale (Note 7)

----------------

cash provided by investing activities

------------------

----------------

of property, plant & equipment

assumed in acquisition of Semotus

cash used in investing activities

Flows From Financing Activities:

proceeds from Flint note payable

shares disbursement from reverse stock split

-----------------

cash provided by (used in) financing activities

------------------

from short term notes issued

term notes repaid

from convertible notes issued

(paid) to Flint Telecom Ltd.

on lease obligations

cash provided by financing activities

Flows From Foreign Currency Activities:

gain (loss) on convertible notes

cash provided by (used in) foreign currency activities

increase (decrease) in cash and cash equivalents

and cash equivalents, beginning of period

------------------

and cash equivalents, end of period

and cash equivalents, beginning of the period

and cash equivalents, end of the period

See accompanying notes to condensed consolidated financial

FLINT TELECOM GROUP, INC.

AND SUBSIDIARIES

TELECOM GROUP, INC.

Semotus Solutions, Inc.)

4 unchanged sentences

SCHEDULE OF NONCASH ACTIVITIES:

tax asset related to stock option grants

term receivable from Stockgroup asset sale (Note 7)

in Innofone (Note 10)

purchased under capital lease obligations

stock issued upon conversion of notes payable and accrued interest (Note

– beneficial conversion

of Semotus Solutions, Inc.:

stock compensation

accompanying notes to condensed consolidated financial statements.

TELECOM GROUP, INC.

AND SUBSIDIARIES

Semotus Solutions, Inc.)

OF STOCKHOLDERS’ DEFICIT

at June 30, 2008

of Semotus Solutions, Inc.

of new shares as compensation to officers and key

of deferred stock compensation

of notes payable into equity

of warrants to holders of notes payable

conversion feature on convertible notes payable

options expense for three months ended December 31, 2008

loss for six months ended December 31, 2008

at December 31, 2008

$(16,168,150)

accompanying notes to condensed consolidated financial

TELECOM GROUP, INC.

Semotus Solutions, Inc.)

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FORMATION AND BUSINESS OF THE COMPANY:

Organization and

Telecom Group, Inc.

(“We” or “Our”), changed our name from Semotus® Solutions,

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

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

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,

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

This is also known as Digital Phone Service or Voice over

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.

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.

(formerly named Semotus Solutions, Inc.) (“Flint” or the

“Company”), is a Nevada Corporation.

Flint was originally formed in

2005 as Flint Telecom, Inc., a Delaware Corporation, and started operations in

April 2006 as a wholly owned subsidiary of Flint Telecom Limited, headquartered

in Dublin, Ireland.

Flint Telecom Limited is a holding company whose sole

operating business in the United States was Flint Telecom, Inc.

Flint Telecom

Limited was a vehicle for the initial funding of Flint and for the development

of the proprietary intellectual property (“IP”).

The IP had been licensed to

Flint for a nominal fee of $1.00 per year and was subsequently sold to Flint on

October 1, 2008.

October 1, 2008, Semotus Solutions, Inc.

(“Semotus”) acquired substantially all

of the assets and liabilities of Flint in exchange for 28,460,094 shares of

restricted common stock pursuant to a definitive Contribution Agreement dated

April 23, 2008.

Although Semotus is the legal acquirer, for accounting purposes

Flint is considered the accounting acquirer in a reverse merger.

changed to Flint Telecom Group, Inc.

The existing Semotus operations became a

division of Flint Telecom Group, Inc.

On December 12, 2008, Flint Telecom, Inc.,

which had changed its name to FTG Holdings, Inc., merged with and into Flint

Telecom Group, Inc.

so that Flint Telecom Group, Inc.

is the surviving

provides next generation turnkey voice, data and wireless services through

partner channels primarily in the United States.

Flint offers a wholesale

call platform for aggregating call traffic at cost competitive rates to other

Carriers and distributes telecommunications services and products through its

distribution channels.

Flint is headquartered in Boca Raton, Florida

and operates nationwide as well as internationally.

Semotus business division is a leading provider of enterprise application

1 unchanged sentence

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

Semotus helps mobile employees make better and

faster decisions, increases customer satisfaction, and improves efficiencies in

business processes for shorter sales and service cycles.

The wireless software

products and professional services are all included in the HipLink family of

1 unchanged sentence

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

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.

Basis of Presentation and Future Prospects

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.

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

accompanying condensed consolidated financial statements 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 December 31,

2008 are not necessarily indicative of the results that may be expected for the

year ending June 30, 2009.

Certain information and footnote disclosures normally

included in financial statements prepared in accordance with generally accepted

accounting principles have been condensed or omitted.

3 unchanged sentences

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,

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

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

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

Actual results could differ from those estimates.

condensed consolidated financial statements include the accounts of Flint

included in our SEC Form 8-K/A filed on December 23, 2008.

financial statements have been prepared on a going concern basis, which

contemplates the realization of assets and the settlement of liabilities and

commitments in the normal course of our business.

As reflected in the

accompanying financial statements, Flint had a net loss of $8,548,598 and

$9,694,544 for the three and six months ended December 31, 2008, respectively,

negative cash flow from operating activities of $2,228,501 for the six months

ended December 31, 2008, an accumulated stockholder’s deficit of $7,224,959 and

a working capital deficit of $8,369,226 as of December 31, 2008.

December 31, 2008, the Company had limited liquid and capital resources.

Company is currently largely dependent upon obtaining sufficient short and long

term financing in order to continue running its operations.

foregoing factors raise substantial doubt about Flint’s ability to continue as a

going concern.

Ultimately, the Company’s ability to continue as a going concern

is dependent upon its ability to attract new sources of capital, exploit the

growing telecom services market in

attain a reasonable threshold of operating efficiency and achieve profitable

The financial statements do not include any adjustments that might

be necessary if the Company is unable to continue as a going

of Semotus Solutions, Inc.

quarter ended December 31, 2008, we acquired Semotus Solutions, Inc.

through a reverse merger;

Semotus issued to Flint Telecom, Inc.

shares of restricted common stock pursuant to a definitive Contribution

Agreement dated April 23, 2008 by and among Semotu s,

Flint and Flint Telecom Limited (the “Contribution Agreement”).

the acquisition of Semotus, we acquired $492,796 in fair value of assets,

$584,680 in liabilities and recorded $2,538,148, in

Separate from the Contribution Agreement, as a hiring and

retention incentive and in lieu of issuing stock options under the Company’s

stock option plan, we issued 8,410,000 shares of restricted common stock,

vesting over a period of four years, to executive officers and key employees,

and 3,508,000 shares of restricted common stock to Mr.

These shares of

restricted common stock were valued at $8,938,500.

approximately $3,025,219 in expense in the three and six months ended December

31, 2008, related to the shares of restricted common stock granted to these

executive officers, directors and key employees.

following are condensed pro forma financial information as though the reverse

merger with Semotus had occurred as of the beginning of the six months ended

December 31, 2008 and 2007.

Telecom Group, Inc.

and our wholly owned subsidiary, Clickmarks.

All significant

intercompany transactions and balances have been eliminated in

consolidation.

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.

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.

Pro Forma Statement of Operations

income (loss)

$ (9,929,108)

$ (1,190,583)

income (loss) per common share

average shares outstanding

Accounting Pronouncements

2006, the FASB issued FASB Interpretation No.

48, “Accounting for

Uncertainty in Income Taxes — an interpretation of FASB Statement

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

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.

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.

September 2006, the Financial Accounting Standards Board (the “FASB”) issued

Statement No.

157, “Fair Value Measurements” (“SFAS 157”);

SFAS 157 establishes

a formal framework for measuring fair value under GAAP.

and codifies the many definitions of fair value included among various other

authoritative literature, clarifies and, in some instances, expands on the

guidance for implementing fair value measurements, and increases the level of

disclosure required for fair value measurements.

Although SFAS 157

applies to and amends the provisions of existing FASB and AICPA pronouncements,

it does not, of itself, require any new fair value measurements, nor does it

establish valuation standards.

SFAS 157 applies to all other

accounting pronouncements requiring or permitting fair value measurements,

SFAS 123R, share-based payment and related pronouncements, the

practicability exceptions to fair value determinations allowed by various other

authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9

that deal with software revenue recognition.

This statement is

effective for financial statements issued for fiscal years beginning after

November 15, 2007, and interim periods within those fiscal years.

believe that the adoption of SFAS 157 will have a material affect on our

financial statements.

February 2007, the FASB issued Statement No.

159, “The Fair Value Option for

Financial Assets and Liabilities”.

This Statement permits entities to choose to

measure many financial instruments and certain other items at fair value.

objective is to improve financial reporting by providing entities with the

opportunity to mitigate volatility in reported earnings caused by measuring

related assets and liabilities differently without having to apply complex hedge

accounting provisions.

The fair value option established by this

Statement permits all entities to choose to measure eligible items at fair value

at specified election dates.

A business entity shall report unrealized gains and

losses on items for which the fair value option has been elected in earnings (or

another performance indicator if the business entity does not report earnings)

at each subsequent reporting date.

This Statement is effective as of the

beginning of an entity’s

fiscal year that begins after November 15, 2007.

We do not believe that the

adoption of SFAS 157 currently has a material impact on our financial

adoption of SFAS 159 will have a material affect on our financial

December 2007, the FASB issued SFAS No.

141(revised 2007), “Business

Combinations” (SFAS 141R) which replaces SFAS No.

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.

Combinations” (“SFAS No.

which revises current purchase accounting guidance in SFAS No.

“Business Combination s ”.

requires most assets acquired and liabilities assumed in a business combination

to be measured at their fair values as of the date of acquisition.

141R also modifies the initial measurement and subsequent remeasurement

of contingent consideration and acquired contingencies, and requires that

acquisition related costs be recognized as expense as incurred rather than

capitalized as part of the cost of the acquisition.

effective for fiscal years beginning after December 15, 2008 and is to be

applied prospectively to business combinations occurring after adoption.

impact of SFAS No.

141R on the Company’s consolidated financial statements

will depend on the nature and extent of the Company’s future acquisition

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.

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

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;

stock compensation expense recognized by us during the six months ended

September 30, 2008 and 2007 was $18,047 and $89,093, respectively.

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

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

The risk-free rate for periods within the contractual life of the

option is based on the U.S.

Consolidated Financial Statements – an Amendment of ARB No.

This Statement

amends ARB 51 to establish accounting and reporting standards for the

noncontrolling interest in a subsidiary and for the deconsolidation of a

It clarifies that a noncontrolling interest in a subsidiary is an

ownership interest in the consolidated entity that should be reported as equity

in the consolidated financial statements.

Statement changes the way the consolidated income statement is presented.

requires consolidated net income to be reported at amounts that include the

amounts attributable to both the parent and the noncontrolling interest.

requires disclosure, on the face of the consolidated statement of income, of the

amounts of consolidated net income attributable to the parent and to the

noncontrolling interest.

This statement is effective for financial statements

issued for fiscal years beginning after December 15, 2008, and interim periods

within those fiscal years.

We do not believe that the adoption of SFAS 160 will

have a material affect on our financial statements.

Interpretation

Accounting Standards Board Interpretation No 48, “Accounting for Uncertainty in

Income Taxes — an interpretation of FASB Statement No 109, “Accounting for

Income Taxes (“FIN 48”)” is effective for fiscal years beginning after December

FIN 48 addresses the determination of whether tax benefits claimed or

expected to be claimed on a tax return should be recorded in the financial

Under FIN 48, the Company may recognize the tax benefit from an

uncertain tax position only if it is more likely than not that the tax position

will be sustained on examination by the taxing authorities, based on the

technical merits of the position.

The tax benefits recognized in the financial

statements from such a position should be measured based on the largest benefit

that has a greater than 50% likelihood of being realized upon ultimate

FIN 48 also provides guidance on de-recognition,

classification, interest and penalties on income taxes, accounting in interim

periods and requires increased disclosures.

The Company is evaluating the

effects of FIN 48 for the 2008 fiscal year, but it does not believe that it has

a liability for unrecognized tax benefits.

does not believe that there are any other recently-issued accounting

pronouncements, but not yet effective accounting standards, which could have a

material effect on the accompanying financial statements.

Receivable and Concentration of Credit Risk

customers accounted for 42% and 43% of the Company’s revenue, respectively, for

the three months ended December 31, 2008.

Two customers accounted for 43% and

44% of the Company’s revenue, respectively, for the six months ended December

Seven customers accounted for 73% of the accounts

receivable at December 31, 2008, the largest of which accounted for 25% of the

Two customers accounted for 64% and 23% of the Company’s revenue,

respectively, for the three months ended December 31, 2007.

Two customers

accounted for 54% and 34% of the Company’s revenue, respectively, for the six

months ended December 31, 2007.

payable at December 31, 2008 were $1,539,395.

Seven vendors accounted for 62% of

the payables at December 31, 2008, the largest of which accounted for 20% of the

the company believes that it has adequate alternative vendors to purchase

services and products, there can be no assurance of comparability, which could

have a detrimental affect on the business.

Further, when the vendor provides

services for direct access to and call routing for residential or business

customers, a reduction in or elimination of that vendor service will probably

have a detrimental affect on that portion of Flint’s business.

Plant and Equipment

Flint has acquired $1,033,298 in

equipment and has incurred $823,236 in principal amount of capital lease

obligations primarily for computer and telephony equipment.

completed its wholesale call platform.

During the three

months ended December 31, 2008, we made $112,651 in capital lease payments.

During the six months ended December 31, 2008, we made $223,688 in capital lease

There were no

capital lease obligations in the six months ended December 31, 2007.

minimum payments under these capital leases are $225,302 in fiscal 2009 and

$450,605 in fiscal 2010.

The lease terms expire from November 2010 to June 2011.

The interest rates range from 9.1% to 21.8%.

and Convertible Notes

30, 2007 to December 31, 2008, Flint has issued $2,707,000 principal amount of

Promissory notes with Warrants, $3,661,646 principal amount of U.S.

Convertible Promissory Notes and €1,475,000 principal amount of Euro Convertible

Promissory Notes.

Substantially all of the proceeds have been used for the

expansion of Flint’s business, including capital expenditures and working

Dollar Convertible Promissory Notes

Dollar Convertible Promissory Notes were issued from December 2007 to June 30,

2008 to approximately 50 different individuals and entities with an interest

rate of 12% and maturities ranging from six months to one year.

The Notes are

convertible after the Flint common stock has been listed on the OTC Bulletin

Board or has otherwise been publicly trading for twenty trading days.

conversion price for $910,146 of the Notes is based upon a formula which is the

lower of (i) the expected market capitalization divided by the number of shares

outstanding and (ii) a price per share derived by a percentage multiplied by the

average daily closing price of the common stock in the first 20 days of trading,

provided however that if the estimated market capitalization is actually below

$10 million at the calculation date, then the $10 million number will be used in

the calculation.

$2,726,500 of the Notes have a conversion price of $0.275 per

December 31, 2008, a total of $793,472 in principal and interest was converted

Dollar Convertible Promissory Notes into a total of 2,885,356 shares

of restricted common stock.

As of February 13, 2009, a total of

approximately $1,980,097 in principal and accrued interest was converted by the

Dollar Convertible Promissory Notes into a total of 7,439,680 shares.

holder of one Note in the amount of $122,895 in principal and accrued interest

that was not converted executed a six month extension to June 30, 2009.

remaining $1,918,855 was due back to the Note holders as of December 31, 2008,

which to date has not yet been repaid;

however, management is currently working

on executing extensions with all of the remaining Note holders and we believe

that all of the remaining Note holders will either sign extensions or convert

the Notes without issuing default notices to us.

Upon default, we are required

to pay interest in cash to the Note holder, payable on demand, on the

outstanding principal balance of the Note from the date of the default until the

default is cured at the rate of the lesser of thirty percent (30%) per annum and

the maximum applicable legal rate per annum.

Upon default, the Note holders may

at any time at their option declare the entire unpaid principal balance of the

Note, together with all interest accrued hereon, immediately due and

Convertible Promissory Notes

Convertible Promissory Notes have been issued to one individual, Mr.

Butler, in two tranches each with an interest rate of 15%.

The maturity is

approximately 16 and 17 months based upon the tranche issued.

Likewise, the

Notes are convertible after the Flint common stock has been listed on the OTC

Bulletin Board or has otherwise been publicly trading for twenty trading days or

ninety trading days depending on the tranche issued.

Finally, the conversion

price for €1,175,000 of the Notes is based upon a formula which is the lower of

(i) the expected market capitalization divided by the number of shares

outstanding and (ii) a price per share derived by a percentage multiplied by the

average daily closing price of the common stock in the first 90 days of trading,

provided however that if the estimated market capitalization is actually below

$10 million at the calculation date, then the $10 million number will be used in

the calculation.

€300,000 of the Notes have a conversion price of $0.25 per

incurred $168,492 of debt issuance costs related to the Convertible Notes and

have amortized $162,982 of the costs through December 31, 2008.

As of December

31, 2008, $742,250 of these Convertible Notes has been converted.

As of October

29, 2008,, there was a beneficial conversion feature calculated for $3,462,008

of the convertible notes.

These notes were analyzed after our common stock

traded for twenty trading days.

The equity feature of $1,635,647 of these notes

still has not been valued since these notes require a 90 trading day period.

$434,502 of the beneficial conversion feature has been expensed at December 31,

Notes with Warrants

the three months ended September 30, 2008, Flint issued $1,502,500 of Promissory

$1,202,500 of the Promissory Notes were issued to the Flint Telecom, Ltd.

These notes have a 15% interest rate and mature on March 30, 2009.

are exercisable into 1,202,500 common shares at $0.50 per share.

expire on September 30, 2011.

also issued $300,000 of Promissory Notes with Warrants to an individual on

September 30, 2008.

The Note has a 15% interest rate and matures on March 30,

The warrants are exercisable into 300,000 common shares at $0.50 per

The warrants expire on September 30, 2011.

the three months ended December 31, 2008, Flint issued a $250,000 Promissory

Note due March 30, 2009 to an individual with 250,000 warrants exercisable at

$0.50 per share, expiring on November 10, 2011.

warrant component of the promissory notes was valued at $1,132,869, The value

was recorded as a discount to the promissory note and $1,132,869 was expensed

through December 31, 2008.

The following are the assumptions used for the Black

Scholes calculation:

term (in years)

average volatility

dividend yield

STOCK-BASED COMPENSATION

the quarter ended December 31, 2008, as part of the reverse merger with Semotus,

we assumed Semotus’ 1996 and 2005 Stock Option Plans, as described in Semotus’

SEC Form 10K for the fiscal year ended March 31, 2008.

adopted Statement of Financial Accounting Standards (SFAS) No.

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

Total stock compensation expense recognized by us during the three

and six months ended December 31, 2008 was $3,045,249.

estimated the fair value of our option awards granted on or after October 1,

2008 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

Black-Scholes -Based Option Valuation

value of options granted during the period

Black-Scholes

-Based Option Valuation Assumptions

term (in years)

2 unchanged sentences

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:

December 31, 2008 based upon a closing stock price of $0.15 per share as of

December 31, 2008:

Exercise Price ($)

1 unchanged sentence

Average Grant Date Fair Value ($)

at July 1, 2008

at September 30, 2008

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.

options were exercised during the three months ended September 30,

EARNINGS PER SHARE (EPS) DISCLOSURES

at October 1, 2008

at December 31, 2008

aggregate intrinsic value of options as of December 31, 2008 was zero, and 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 $0.15 market price of our common stock

at December 31, 2008, of which there were none.

options were exercised during the three months ended December 31,

hiring and retention incentive and in lieu of issuing stock options under the

Company’s stock option plan, we issued 8,410,000 shares of restricted common

stock, vesting over a period of four years, to executive officers and key

These shares of restricted common stock have a total value of

this value was calculated based upon the closing market price of our

common stock on the date of grant, October 1, 2008, which was $0.75 per

We recorded approximately $3,045,249 in expense for the

three and six months ended December 31, 2008, related to the 8,410,000 shares of

restricted common stock granted to these employees.

We also amended

LaPine’s employment agreement and issued to him 3,508,000 shares of

restricted common stock, having a total value of $2,631,000;

this value was

calculated based upon the closing market price of our common stock on the date

of grant, October 1, 2008, which was $0.75 per share.

We recorded $2,631,000 in

expense for the three and six months ended December 31, 2008, related to the

3,508,000 shares of restricted common stock issued to Mr.

Gains and Losses

maintains certain bank accounts denominated in euros and has issued and

outstanding €1,475,000 Convertible Notes.

The reporting currency of Flint is the

Dollar so that transactions and balances are translated into dollars.

recorded a $23,689 and $269,572 loss on translation for the three and six months

ended December 31, 2008, respectively.

There were no translation gains or losses

for the three and six months ended December 31, 2007.

Stockholder’s Equity

Company’s Articles of Incorporation in July 2005, the Company was authorized to

issue 3,000 shares of common stock.

Effective October 1, 2008, as a result of the closing of the acquisition

transaction by and among Flint and Semotus, and as approved by our s tock holders, we

filed an amendment to our articles of incorporation increasing our total

authorized shares of common stock to 100,000,000.

As of December 31, 2008,

46,254,432 shares were issued and outstanding.

special voting or economic rights or privileges.

(Loss) Per Share

accordance with SFAS No.

7 unchanged sentences

their effect is anti-dilutive.

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.

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

PROMISSORY NOTES:

ISSUANCE AND CONVERSION

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

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

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

$51,702 in unamortized discount was written off at the time of

STOCKGROUP ASSET SALE

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

In accordance with the Transition Services Agreement, we

continue to provide certain transition services to

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.

IN TOTAL AUTHORIZED COMMON SHARES

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 .

CONCENTRATIONS

OF CREDIT RISK:

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.

no material concentration of revenue during the three months ended September 30,

However, two customers accounted for a total of 37% of our

revenue in the six months ended September 30, 2007, representing 22% and 15%,

incurred a net loss for the three and six months ended December 31, 2008,

24,262,188 potential shares were excluded from the shares used to calculate

diluted EPS as their effect is anti-dilutive .

Since we incurred a net

loss for the three and six months ended December 31, 2007, 1,993,500 potential

shares were excluded from the shares used to calculate diluted EPS as their

effect is anti-dilutive.

reported a net loss of $14,461,879_and $15,607,826 for the three and six months

ended December 31, 2008, respectively.

We reported a net loss of

$526,113 and $1,072,860 for the three and six months ended December 31, 2007,

respectively.

Four customers accounted for 46% of our accounts receivable at

September 30, 2007.

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.

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.

September 30, 2007 we owned approximately 35% of Innofone, and, accordingly, the

investment was accounted for on the equity method.

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.

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,

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.

SUBSEQUENT EVENTS

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).

Related Party Transactions

limited access to capital from either banking institutions or the capital

Consequently, it has loans from Flint Telecom Ltd, which is controlled

Browne, Flint’s CEO, and Mr.

Butler, one of Flint’s board members.

also has a direct equity investment in Flint.

The loan balance was $60,739

at December 31, 2008.

The loan is for management fees owed to Flint, Ltd.

management fees are for the executive, operating and financial services provided

by Flint, Ltd.

These functions, as well as the corporate strategy, are

executed by the personnel at Flint, Ltd..

The investment from Flint, Ltd.

$1,062,883 at December 31, 2008.

The investment is a direct result of the

capital needed for the operations of Flint.

addition, € 1,475,000 in

Euro conv ertible notes

are owed by Flint

Butler, and $ 1,1 75,000 in

Dollar convertible notes are owed to Mr.

Butler and his family members and affiliates.

See Footnote 8 for more details

on these notes.

and Contingencies

not a party to any legal proceedings.

assumed an operating lease for its facility in New York, N.Y.

starting on April

The lease expires on May 1, 2010.

The monthly base lease payment is

$9,300 and there are additional payments owed for costs passed through by the

Flint has paid $55,800 in lease payments for the six months ended

December 31, 2008.

The future minimum lease payments are $55,800 in fiscal 2009

and $93,000 in fiscal 2010.

also has two operating leases for apartments in New York, N.Y.

May 2008 and 1 st June

Both leases expire on 30 th June

The monthly base lease payments are $3,695 and $7,300 each.

minimum lease payments are $22,170 and $43,800 for fiscal 2009.

Flint also has

four operating leases for furniture in New York, N.Y.

starting 1 st July

The leases expire May 30, 2009.

The combined monthly lease payments are

The future combined minimum lease payments are $6,195.75for fiscal

accordance with FASB 142, “Goodwill and Other Intangible Assets” we determined

that the goodwill from the Semotus acquisition was impaired due to the

disposition of the Semotus Business Division on January 29, 2009 (See Footnote

16, Subsequent Events, Semotus Business Disposition).

The goodwill was recorded

on October 1, 2008, the closing date of the Semotus acquisition (See Footnote 3,

Semotus Acquisition) in the amount of $2,538,148, and was mainly associated with

the Hiplink family of products.

Voice Acquisition

January 29, 2009, five newly created, wholly owned subsidiaries of Flint Telecom

(“Flint”) merged with six wholly owned subsidiaries of China Voice

Holding Corp.

(“CHVC”) in exchange for 21,000,000 shares of our restricted

common stock and $1,500,000 in cash, $500,000 of which was paid at the Closing,

a second installment in the amount of $500,000 to be paid on February 12, 2009

and the remaining $500,000 to be paid on March 31, 2009, pursuant to the Merger

The above summary of the Merger Agreement does not purport

to be complete and is qualified in its entirety by reference to the Merger

Agreement, a copy of which is filed as an exhibit to the Form 8-K that we filed

on February 4, 2009.

subsidiary companies that Flint acquired provide the following telecom services

and / or distribute the following telecom products:

was established in January 2007, and

is a provider of wholesale VoIP telecommunications services located in

South Florida.

and Voice Corporation was established on

June 1, 2008, and is a master distributor of

advanced broadband products and services located in

Tampa, Florida.

StarCom Alliance,

was established in January 2008, and

is a master distributor of prepaid cellular products and

of Florida was established on March 6, 2008, Phone

of California was established on June 12, 2001 (and

subsequently acquired by CHVC in June 2007) and Dial-Tone Communication

was established on July 19, 2007;

each provides discount calling

cards that enable users who purchase cards in the United States to call

China, India, Mexico, Africa, South

America, Brazil, Bangladesh, and other

countries throughout the world at significant

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.

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.

of the closing of the transaction, we entered into

an amended and restated employment agreement with Mr.

LaPine , effectuating the

LaPine’s title changed from Chairman and Chief

Executive Officer to Chairman;

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) ;

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).

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.

to the issuance of the common stock and cash paid as noted above , Flint

also acquired 15,000,000 shares of restricted common stock of CHVC in exchange

for $1,500,000, $750,000 of which will be paid on February 27, 2009 and the

remaining $750,000 to be paid on April 30, 2009, pursuant to the CHVC Stock

Purchase Agreement.

Additionally, Flint issued a Promissory Note to

CHVC dated January 29, 2009, in an amount of $7,000,000 , pursuant to which Flint is obligated

to make payments as follows:

$2,333,333.33 on or before December 31,

$2,333,333.33 on or before July 31, 2010, and $2,333,333.34, plus any

remaining balance due on the Note on or before December 31, 2010 (the “Note”).

The Note shall not bear any

interest pre-default;

The Note will bear interest at Eighteen percent (18%) per

year for any period of time when a payment is past due.

15,000,000 shares of CHVC restricted common stock are

attached to the Note as collateral, pursuant to a Security

The foregoing description of the Stock Purchase

Agreement, Note and Security Agreement are qualified in their entirety by

reference to the full text of the Stock Purchase Agreement, Note and Security

Agreement, a copy of which are filed as exhibits to the Form 8-K that we filed

on February 4, 2009.

In order to finance the transaction,

Flint simultaneously entered into a Common Stock and Warrant Purchase Agreement

with Redquartz Atlanta, LLC (“Redquartz”), in which Flint sold to Redquartz

5,454,545 shares of Flint restricted common stock at $0.275 per share and issued

3,750,000 warrants to purchase shares of Flint’s common stock at $0.40 per

share, having a three year term and a cashless exercise provision, in exchange

for $1,500,000.

Additionally, on January 29, 2009, Flint entered into a Stock

Purchase Agreement with Mr.

David Tracey, in which we sold 1,454,545 shares of

restricted common stock at $0.275 per share to Mr.

Tracey in exchange for

The foregoing description of the common stock and warrant purchases

are qualified in their entirety by reference to the full text of the Common

Stock and Warrant Purchase Agreement, the Warrant Certificate and the Stock

Purchase Agreement, copies of which are filed as exhibits to the Form 8-K that

we filed on February 4, 2009.

Business Disposition

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.

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

as of October 1, 2008, we appointed Vincent Browne as our new Chief Executive

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

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.

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.

also appointed Christopher Knight as Chief Technology Officer effective as of

October 1, 2008;

Knight has subsequently been let go, without cause,

effective as of November 1, 2008.

following are descriptions of the business experience of each of Messrs.

Browne and Butler for at least the past

Vincent Browne , age 40 .

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.

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.

a BComm degree from University College Dublin.

Michael Butler , age 53 .

Butler became Flint

Telecom, Inc.’s Executive Vice President of Investor Relations in October of

Prior to that, he was Flint’s Finance Director since February of 2006.

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.

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

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:

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.

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

The foregoing description of the terms of employment of Messrs.

Browne and Butler are qualified in their entirety by reference to the full text

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,

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.

$875,000 in convertible notes owed to Mr.

Butler and his family members and

and (iii) $238,9 72 in

indebtedness owed by FTI to FTI ’ s Parent

Company, which is controlled by Mr.

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,

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.

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.

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.

October 30, 2008, we let go of Christopher Knight, the Chief Information Officer

of the Company, without cause, effective November 1, 2008.

connection with Mr.

Knight’s separation, we entered into a Separation Agreement

Knight (the “Separation Agreement”), effective November 6,

Under the Separation Agreement, Mr.

Knight has agreed to

provide such services as may be

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:

regular base salary through November 30, 2008, or approximately

residence at the corporate apartment for two additional months (November

and December) at the Company’s expense, or approximately

for past wages owed, or approximately

reimbursement

for approved expenses in an amount that has yet to be determined, and

which amount shall not exceed

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

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,

on January 29, 2009, Flint sold all of the assets and liabilities of its

‘Semotus Business’ or ‘Solutions Division’ to Mr.

Anthony LaPine for 3,508,000

shares of restricted common stock of Flint owned by Mr.

exercised his right to purchase the Semotus Business/Solutions Division from

Flint, in accordance with Section 8.2(f) of the Contribution Agreement by and

among Semotus Solutions, Inc.

(now named Flint Telecom Group, Inc., and referred

to as “Flint”) and Flint Telecom, Inc.

dated April 23, 2008, in exchange for

3,508,000 shares of restricted common stock of Flint owned by Mr.

This transaction was further clarified and consummated by the

Agreement and Plan of Corporate Separation and Reorganization by and among Flint

and Semotus, Inc.

executed as of January 29, 2009, pursuant to which Flint

transferred all of the assets and properties, subject to all the liabilities,

debts, obligations and contracts, of the Solutions Division to Semotus, Inc.

exchange for Mr.

LaPine’s 3,508,000 shares of restricted common stock of Flint.

The “Semotus Business”, as set forth in Section 7.18 of the Contribution

Agreement, is defined as the operations of Semotus as conducted immediately

prior to the acquisition transaction of Flint that closed on October 1, 2008,

and does not reflect the business operations of Flint acquired in connection

with that transaction.

and Board of Directors Changes

Effective January 29, 2009, we appointed Mr.

Burbank as our President, Chief Operating Officer and as a new member to our

Board of Directors.

Additionally, on

January 29, 2009, we appointed Stephen Keaveney and Garrett A.

Sullivan as new members of our Board of

To effectuate these new board appointments, our board of directors took such actions as was

necessary to increase the size of the Flint board of

directors to seven directors, with the vacancies created b y such board increase filled by Mr.

Keaveney and Mr.

Burbank nor Mr.

Keaveney qualify as

“ independent” directors, as that term is defined by the NASDAQ Stock

Market and the SEC, and they will not be serving on any Board C ommittees.

Also effective as of

January 29, 2009, we appointed John Iacovelli as our Chief Technology Officer

and Jose Ferrer as our Executive Vice President of Business

see our SEC Form 8-K filed on February 4, 2009 for a description of the business

experience of Messrs.

Burbank, Keaveney, Sullivan, Iacovelli and Ferrer for at

least the past five years and a description of their terms of employment

compensation.

Dollar Convertible Promissory Note Conversions and Extensions

January 1, 2009 to February 13, 2009, a total of approximately $1,186,625 in

principal and accrued interest was converted by the U.S.

Dollar Convertible

Promissory Notes into a total of 4,554,324 shares.

A holder of one Note in the

amount of $122,895 in principal and accrued interest that was not converted as

of December 31, 2008 executed a six month extension to June 30, 2009.

remaining $1,918,855 was due back to the Note holders as of December 31, 2008,

which to date has not yet been repaid;

however, management is currently working

on executing extensions with all of the remaining Note holders and we believe

that all of the remaining Note holders will either sign extensions or convert

the Notes without issuing default notices to us.

Upon default, the Note holders

may at any time at their option declare the entire unpaid principal balance of

the Note, together with all interest accrued hereon, immediately due and

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements