What changed in this filing

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Item 1. Financial Statements

2009-05-20 compared with 2009-02-20 · 854 added, 523 removed, 239 unchanged (85% of the section changed)

6 unchanged sentences

$346,727 and $190,083

in marketable securities

expenses and other current assets

from related parties

plant & equipment:

12 unchanged sentences

Total current

notes payable – long-term

notes payable due to related parties – long-term

payable due to related parties, net of discount

obligations - long-term

Total liabilities

and contingencies

Stockholders'

$0.01 par value;

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

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

June 30, 2008

100,000,000 authorized, 76,956,920

issued and outstanding at March 31, 2009, 28,460,094 issued and

outstanding at June 30, 2008

stock issuable

paid-in capital

stock compensation

comprehensive loss

stockholders' deficit

5 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

profit (loss)

and development

6 unchanged sentences

operating expenses

operations, net of tax

loss per common share:

5 unchanged sentences

Flows from Operating Activities:

to reconcile net loss to net cash provided by operating

to reconcile net loss to net cash provided (used) by operating

non-cash transactions:

3 unchanged sentences

of debt issuance costs

on disposal of Semotus

on disposal of fixed assets

10 unchanged sentences

(paid) to Flint Telecom Ltd.

from the offering

on lease obligations

15 unchanged sentences

purchased under capital lease obligations

of marketable securities

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

2 unchanged sentences

stock compensation

accompanying notes to condensed consolidated financial statements.

of Semotus Solutions, Inc.:

assets of Semotus

liabilities of Semotus

of CHVC Subsidiaries:

accompanying notes to condensed consolidated financial

TELECOM GROUP, INC.

1 unchanged sentence

OF STOCKHOLDERS’ DEFICIT

Stock Issuance

Comprehensive

at June 30, 2008

of Semotus Solutions, Inc.

of the six CHVC subsidiaries

of new shares as compensation to officers and key

3 unchanged sentences

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)

options expense for nine months ended March 31, 2009

comprehensive loss

of employment agreements

loss for nine months ended March 31, 2009

at March 31, 2009

accompanying notes to condensed consolidated financial

4 unchanged sentences

Telecom Group, Inc.

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

“Company”), is a Nevada Corporation.

Flint was originally formed in

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

the “Company”), is a Nevada Corporation.

We were originally formed in

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

1 unchanged sentence

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.

Flint Telecom Limited is a holding company whose

sole operating business in the United States was Flint Telecom,

Flint Telecom Limited was a vehicle for the initial funding of

Flint and for the development of the proprietary intellectual property

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.

of the assets and liabilities of Flint Telecom, Inc.

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 the accounting acquirer.

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

The existing Semotus operations

became a division of Flint, and were subsequently sold in January

provide 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

We offer a wholesale call

platform for aggregating call traffic at cost competitive rates to other

Carriers and distribute telecommunications services and products through our

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

software connecting individuals wirelessly to critical business systems, urgent

information and key processes.

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

software, which provide immediate mobile access and control of business-critical

software applications, databases, networks and servers.

We are headquartered in Boca Raton, Florida

and operate in the United States.

January 29, 2009, we acquired six U.S.

operating subsidiaries of China Voice Holding Corp.

(“CHVC”), namely:

Inc., Cable and Voice Corporation, StarCom Alliance Inc, Dial-Tone Communication

Inc, Phone House of Florida, Inc., and Phone House, Inc.

(of California) (the

“Acquisition Companies”), in exchange for 21,000,000 shares of our restricted

common stock and $500,000 in cash at Closing and $1,000,000 in deferred

Acquisition Companies 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,

Alliance, Inc.

was established in January 2008, and is a master

distributor of prepaid cellular products and

of Florida was established on March 6, 2008.

of California was established on June 12, 2001.

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

internationally.

Basis of Presentation and Future Prospects

2 unchanged sentences

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.

We believe that the

disclosures provided are adequate to make the information presented not

These consolidated financial statements should be read in

conjunction with the audited consolidated financial statements and related notes

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

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

nine months ended March 31, 2009 are not necessarily indicative of the results

that may be expected for the year ending June 30, 2009.

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.

consolidated financial statements should be read in conjunction with the audited

consolidated financial statements and related notes included in our SEC Forms

8-K/A filed on December 23, 2008 and on March 31, 2009.

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

contemplates the realization of assets and the settlement of liabilities in the

normal course of our business.

As reflected in the accompanying

financial statements, Flint had a net loss of $1,246,295 and $10,940,839 for the

three and nine months ended March 31, 2009, respectively, negative cash flow

from operating activities of $3,387,428 for the nine months ended March 31,

2009, an accumulated stockholder’s deficit of $5,818,074 and a working capital

deficit of $7,908,813 as of March 31, 2009.

Also, as of March 31,

2009, we had limited liquid and capital resources.

We are currently

largely dependent upon obtaining sufficient short and long term financing in

order to continue running its operations.

foregoing factors raise substantial doubt about our ability to continue as a

going concern.

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

Ultimately, our 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.

growing telecom services market in order to attain a reasonable threshold of

operating efficiency and achieve profitable operations.

The financial

statements do not include any adjustments that might be necessary if we are

unable to continue as a going concern.

secured indicative funding commitments from investors for additional capital,

which management believes is sufficient to fund our cash flow

of the CHVC Acquisition Companies

January 29, 2009, we acquired six U.S.

operating subsidiaries of China Voice

Holding Corp.

(“CHVC”), namely:

CVC Int’l Inc., Cable and Voice Corporation,

StarCom Alliance Inc, Dial-Tone Communication Inc, Phone House of Florida, Inc.,

and Phone House, Inc.

(of California) (the “Acquisition Companies”), in exchange

for 21,000,000 shares of our restricted common stock and $500,000 in cash at

Closing and $1,000,000 in deferred payments.

of the closing of the transaction and in addition

to the issuance of the commo n stock and

cash paid as noted above , we also acquired 15,000,000 shares of

restricted common stock of CHVC in exchange for deferred payments totaling

Additionally, we issued a Promissory Note to CHVC

dated January 29, 2009, in an amount of $7,000,000 , pursuant to which we are obligated to

make payments as follows:

$2,333,333.33 on or before December 31, 2009;

$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” ).

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 Current Report on Form

8-K that we filed on February 4, 2009.

25, 2009 the Merger Agreement and Stock Purchase Agreement were amended, to,

among other things, extend the payment schedules to CHVC as described

Please see Note 22:

Subsequent Events, for more detailed

information on these amendments.

from the Merger Agreement, as a hiring and retention incentive and in lieu of

issuing stock options under the Company’s stock option plan, during the three

months ended March 31, 2009 we issued 6,500,000 shares of restricted common

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

employees, and 255,000 shares of restricted common stock that were immediately

vested to other key employees.

These shares of restricted common

stock were valued at various prices between $0.15 and $0.38.

recorded approximately $167,519 in expense in the three and nine months ended

March 31, 2009, related to the shares of restricted common stock granted to

these executive officers and key employees.

following are condensed pro forma financial information as though the

acquisition of the CHVC Acquisition Companies had occurred as of the beginning

of the nine months ended March 31, 2009 and 2008.

In association with the

acquisition of CHVC subsidiaries, we recorded the purchase price in excess of

the net assets acquired as of the acquisition date as goodwill.

goodwill was recorded on January 29, 2009, the closing date of the CHVC

subsidiaries acquisition in the amount of $8,554,248.

Telecom Group, Inc.

Pro Forma Statement of Operations

income (loss)

income (loss) per common share

average shares outstanding

and Subsequent Disposition of Semotus Solutions, Inc.

the nine months ended March 31, 2009, we acquired Semotus Solutions, Inc.

(“Semotus”) through a reverse merger and disposed of the Semotus software

business on January 28, 2009.

Semotus issued.

28,460,094 shares of

restricted common stock to Flint Telecom, Inc.

pursuant to a definitive

Contribution Agreement dated April 23, 2008

(the “Contribution Agreement”).

Through the acquisition of Semotus,

we acquired $492,796 in fair value of assets, $584,680 in liabilities and

recorded $2,538,148 in goodwill.

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

These shares of restricted common stock were valued at

We recorded approximately $257,813 and $3,283,031

in expense in the three and nine months ended March 31, 2009, 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.

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

March 31, 2009 and 2008.

Telecom Group, Inc.

1 unchanged sentence

income (loss)

$ (9,929,108)

$ (1,190,583)

income (loss) per common share

average shares outstanding

Business Disposition:

January 29, 2009, we sold all of the assets and liabilities of the ‘Semotus

Business’ or ‘Solutions Division’ to Mr.

Anthony LaPine for 3,508,000 shares of

our restricted common stock owned by Mr.

LaPine 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 our restricted common stock owned by Mr.

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 we transferred all of the

assets and properties, subject to all the liabilities, debts, obligations and

contracts, of the Solutions Division to Semotus, Inc.

in exchange for Mr.

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

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 Telecom, Inc.

that closed on October 1, 2008,

and does not reflect the business operations of Flint Telecom, Inc.

connection with that transaction.

The financial impact of this

transaction is as a gain of

the three months ended March 31, 2009, as part of our restructuring and

consolidation efforts after the CHVC acquisition transaction closed, we

discontinued our VOIP telecom division based in New York City,

and are moving to an outsourced solution for our Partners.

As a result of

this discontinuation, we recorded $(870,749) in discontinued operations, net of

tax for the three months and nine months ended March 31, 2009

Accounting Pronouncements

9 unchanged sentences

Although SFAS

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.

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, except for;

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.

We have adopted SFAS

157 and we believe that it has no material impact on the Financial

February 2007, the FASB issued Statement No.

1 unchanged sentence

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 159 will have a material affect on our financial

This Statement permits entities to

choose to measure many financial instruments and certain other items at fair

The 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.

Statement is effective as of the beginning of an entity’s first fiscal year that

begins after November 15, 2007.

We have adopted SFAS 159 and we

believe that it has no material impact on the Financial Statements.

December 2007, the FASB issued SFAS No.

4 unchanged sentences

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

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

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

141R is effective for fiscal years

beginning after December 15, 2008 and is to be applied prospectively to

business combinations occurring after adoption.

The impact of SFAS No.

on our consolidated financial statements will depend on the nature and extent of

the Company’s future acquisition activities.

December 2007, the FASB issued SFAS No.

4 unchanged sentences

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

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

It requires consolidated net income to be reported at

amounts that include the amounts attributable to both the parent and 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.

It also 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.

statement is effective for financial statements issued for fiscal years

beginning after December 15, 2008, and interim periods within those fiscal

We do not believe that the adoption of SFAS 160 will have a

material affect on our financial statements.

Interpretation

2 unchanged sentences

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.

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 statements.

Under FIN 48, we 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 settlement.

FIN 48 also provides guidance on

de-recognition, classification, interest and penalties on income taxes,

accounting in interim periods and requires increased disclosures.

have adopted FIN 48 and we believe that it has no material impact on the

Financial Statements.

January 2009, FASB released final FSP No.

EITF 99-20-1, Amendments to the Impairment

Guidance of EITF Issue No.

According to FASB, the FSP amends the

impairment guidance in EITF Issue No.

99-20, “Recognition of Interest Income and

Impairment on Purchased Beneficial Interests and Beneficial Interests That

Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve

more consistent determination of whether an other-than-temporary impairment

(OTTI) has occurred.

The FSP is effective for interim and annual reporting

periods ending after December 15, 2008, and shall be applied prospectively.

Retrospective application to a prior interim or annual reporting period is not

We have adopted FSP No.

EITF 99-20-1 and we believe that

it has no material impact on the Financial Statements.

FAS 107-1 and APB 28-1

9, 2009 the FASB issued FSP No.

FAS 107-1 and APB 28-1, Interim Disclosures about Fair

Values of Financial Instruments , which amends SFAS 107, Disclosures about Fair Values of

Financial Instruments, and requires that companies also disclose the fair value

of financial instruments during interim reporting similar to those that are

currently provided annually.

FSP No.FAS 107-1 and APB 28-1 is effective for

interim reporting periods ending after June 15, 2009 and it will have no impact

on our statement of financial position or results of operations.

does not believe that there are any other recently-issued, but not yet

effective, accounting standards that could have a material effect on the

accompanying financial statements.

to finance the CHVC acquisition, we entered into a Common Stock and Warrant

Purchase Agreement with Redquartz Atlanta, LLC (“Redquartz”), in which we sold

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

3,750,000 warrants to purchase shares common stock at $0.40 per share, having a

three year term and a cashless exercise provision, in exchange for

As of March 31, 2009, this investment was only partially

closed, with Redquartz having invested $500,000 of the $1,500,000 total that was

Additionally, on January 29, 2009, we

entered into a Stock Purchase Agreement with an individual investor, in which we

sold 1,454,545 shares of restricted common stock at $0.275 per share in exchange

for $400,000.

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.

1, 2009, we entered into a Stock Purchase Agreement with an individual investor,

in which we sold 100,000 shares of restricted common stock at $0.20 per share in

exchange for $20,000.

Investment in Marketable Securities

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

deferred payments totaling $1,500,000 and a Promissory Note to CHVC dated

January 29, 2009, in an amount of $7,000,000

classify these securities as investments in marketable securities available for

These securities are stated at their fair value in accordance with SFAS

115 “ Accounting for Cert ain Investments in Debt and Equity

Securities ”, and EITF 00-8 “ Accounting by a Grantee for an

Equity Instrument to be Received in Conjunction with Providing Goods or

Unrealized gains or losses in investments in marketable

securities available for sale are recognized as an element of other

comprehensive income on a monthly basis based on fluctuations in the fair value

of the security as quoted on an exchange or an inter-dealer quotation system.

Realized gains or losses are recognized in the consolidated statements of

operations when the securities are liquidated.

the securities received from CHVC are quoted on the Pink Sheets.

The securities

are restricted as to resale.

As the securities are restricted, we are

unable to liquidate these securities until the restriction is removed.

Unrealized gains or losses on marketable securities available for sale are

recognized as an element of comprehensive income on a monthly basis based on

changes in the fair value of the

as quoted on an exchange or an inter-dealer quotation system.

liquidated, realized gains or losses on the sale of marketable securities

available for sale are reflected in our net income for the period in which the

security was liquidated.

securities are evaluated periodically to determine whether a decline in their

value is other than temporary.

Management utilizes criteria such as the

magnitude and duration of the decline, in addition to the reasons underlying the

decline, to determine whether the loss in value is other than temporary.

term “other-than-temporary” is not intended to indicate that the decline is

It indicates that the prospects for a near term recovery of value are

not necessarily favorable, or that there is a lack of evidence to support fair

values equal to, or greater than, the carrying value of the investment.

The unrealized loss on marketable securities available for sale, net of

the effect of taxes, for the three months and nine months ended March 31, 2009

was $5,800,000.

will continue to monitor the underlying value of this

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.

customers accounted for 39% and 18% of our revenue, respectively, for the three

months ended March 31, 2009.

Four customers accounted for 25%, 14%, 14% and 12%

of our revenue, respectively, for the nine months ended March 31,

Three customers accounted for 54% of the accounts receivable at

March 31, 2009, the largest of which accounted for 25% of the receivables.

customers accounted for 62% and 14% of our revenue, respectively, for the three

months ended March 31, 2008.

accounted for 57% of our revenue for the nine months ended March 31,

payable at March 31, 2009 were $4,345,963.

Four vendors accounted for 47% of the

payables at March 31, 2009, the largest of which accounted for 24% of the

we believe that we have adequate alternative vendors to purchase services and

products, there can be no assurance of comparability, which could have a

detrimental effect 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 our 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.

We have acquired $1,319,334 in

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

primarily for computer and telephony equipment.

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.

months ended March 31, 2009, we incurred $112,651 in capital lease

During the nine months ended March 31, 2009, we incurred

$336,339 in capital lease charges.

There were no capital lease obligations

in the nine months ended March 31, 2008.

The future minimum payments

under these capital leases are $112,651 in fiscal 2009 and $450,605 in fiscal

The lease terms expire from November 2010 to June

1 unchanged sentence

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

the three months ended March 31, 2009, we issued a $300,000 Promissory Note, due

March 31, 2009, with 300,000 shares of restricted common stock issued on March

As of April 21, 2009, this Note had not been repaid and

under the terms of the Note we are required to issue an additional 300,000

shares of restricted common stock to the Note holder.

the three months ended March 31, 2009, we also issued a €100,000 (US $132,048)

Promissory Note, due April 30, 2009, with 30,000 shares of restricted common

stock to be issued on April 30, 2009.

30, 2007 to March 31, 2009, we issued $3,140,583 principal amount of Promissory

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

Dollar Convertible

Promissory Notes and €1,475,000 (US $1,947,738) principal amount of Euro

Convertible Promissory Notes.

Substantially all of the proceeds have been used

for the expansion of our business, including capital expenditures and working

Dollar Convertible Promissory Notes

2 unchanged sentences

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

The conversion

price for $910,146 of the Notes

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.

$2,751,500 of

the Notes have a conversion price of $0.275 per share.

the three months ended March 31, 2009, $1,474,282 in principal and interest was

converted by the U.S.

Dollar Convertible Promissory Notes into a total of

5,361,025 shares of restricted common stock.

As of March 31, 2009, a

total of $2,267,755 in principal and accrued interest of the U.S.

Convertible Promissory Notes was converted into 8,246,381 shares.

holder of U.S.

Dollar Convertible Promissory Note in the amount of $122,895

executed a six month extension to June 30, 2009.

A holder of two U.S.

Dollar Convertible Promissory Notes in the amount of $148,056 and $180,861 in

principal and accrued interest executed a twenty-four month extension to

December 31, 2010.

The remaining $1,235,425 was due to U.S.

Promissory Note holders as of December 31, 2008 and has not been

Management is negotiating extensions with these Note holders

and we believe that all of the remaining Note holders will agree extensions or

convert the Notes.

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, due and payable.

Convertible Promissory Notes

1 unchanged sentence

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,

conversion price for €1,175,000 (US $1,551,588) 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.

$396,150) of the Notes have a conversion price of $0.25 per share.

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 nine months ended March 31, 2009, we issued $1,502,500 of Promissory

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

Telecom, Ltd.

These notes have a 15% interest rate and mature on

March 30, 2009.

The warrants are exercisable into 1,202,500 common

shares at $0.50 per share.

The warrants expire on September 30,

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:

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

The Note has a 15% interest rate and matures on December

The warrants are exercisable into 300,000 common shares at

$0.50 per share.

The warrants expire on September 30, 2011.

the nine months ended March 31, 2009, we 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.

months ended March 31, 2009, the 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 March 31, 2009.

following are the assumptions used for the Black Scholes

term (in years)

2 unchanged sentences

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.

of the reverse merger with Semotus that closed on October 1, 2008, 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.

1 unchanged sentence

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.

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 and nine months ended March 31, 2009 was $443,948 and $3,489,198.

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

1 unchanged sentence

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

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

The expected term of options granted represents the period of

time that options granted are expected to be outstanding.

risk-free rate for periods within the contractual life of the option is based on

Treasury yield curve in effect at the time of grant.

Black-Scholes

4 unchanged sentences

following table summarizes the stock option transactions for the quarter ended

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

December 31, 2008:

March 31, 2009 based upon a closing stock price of $0.50 per share as of March

Exercise Price ($)

1 unchanged sentence

Average Grant Date Fair Value ($)

at October 1, 2008

at December 31, 2008

aggregate intrinsic value of options as of December 31, 2008 was zero, and is

at March 31, 2009

aggregate intrinsic value of options as of March 31, 2009 was zero, and is

calculated as the difference between the exercise price of the underlying

1 unchanged sentence

exercise prices that were lower than the $0.50 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

at March 31, 2009, of which there were none.

options were exercised during the three months ended March 31,

the quarter ended March 31, 2009, as a hiring and retention incentive and in

lieu of issuing stock options under the Company’s stock option plan, we issued

6,500,000 shares of restricted stock, vesting over a period of four years, to

executive officers, and a total of 1,600,000 shares of restricted common stock

to other key employees.

These shares of restricted common stock have

a total value of $2,004,500, calculated based on the closing market price of our

common stock on the date of grant.

We recorded approximately $167,519

in expense for the three and nine months ended March 31, 2009 related to these

October 1, 2008, 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.

These shares of restricted common stock have a total

value of $6,307,500;

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

Among these 8,410,000 shares, 1,660,000 shares have been cancelled in

the January 2009.

We recorded approximately $257,813 and $652,031 in expense for

the three and nine months ended March 31, 2009 respectively, related to the

these shares of restricted common stock granted to the executive officers and

key employees.

We also amended Mr.

LaPine’s employment agreement and issued to

him 3,508,000 shares of restricted common stock, having 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.

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

However, these shares were returned to us as consideration for the sale of the

Semotus Business that closed on January 29, 2009 (See Note 4 Acquisition and

Subsequent Disposition of Semotus Solutions, Inc.

for more details on the

Semotus Business disposition).

We recorded $2,631,000 in expense for

the nine months ended March 31, 2009, 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

maintain certain bank accounts denominated in euros and have issued and

outstanding €1,475,000 Convertible Notes.

1 unchanged sentence

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.

recorded a $105,078 and $374,650 loss on translation for the three and nine

months ended March 31, 2009, respectively.

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.

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

acquisition transaction by and among Flint Telecom, Inc.

Semotus, and as approved by our s tock holders, we

filed an amendmen t to our articles of

incorporation increasing our total authorized shares of common stoc k to 100,000,000.

As of March 31, 2009,

76,957,002 shares were issued and

There are no special voting or economic rights or

(Loss) Per Share

3 unchanged sentences

Basic EPS is computed as net income (loss) divided by

the weighted average number of common shares outstanding for the period.

EPS reflects the potential dilution that could occur from common shares issuable

through stock options, warrants and other convertible securities.

equivalent shares are excluded from the computation of net loss per share if

their effect is anti-dilutive.

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

the weighted average number of common shares outstanding for the

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.

incurred a net loss for the three and nine months ended March 31, 2009,

22,861,777 potential shares were excluded from the shares used to calculate

1 unchanged sentence

Since we incurred a net

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

loss for the three and nine months ended March 31, 2008, 8,741,215 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.

reported a net loss of $1,246,295 and $10,940,839 for the three and nine months

ended March 31, 2009, respectively.

We reported a net loss of

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

$531,572 and $1,604,431 for the three and nine months ended March 31, 2008,

respectively.

Related Party Transactions

On January 29, 2009, Redquartz Atlanta, LLC

(“Redquartz”), which is partly owned by Mr.

Stephen Keaveney, our CFO and a

member of our board of directors, agreed to purchase 5,454,545 shares of our

restricted common stock at $0.275 per share and we agreed to

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

See Note 7 for more

January 29, 2009, we sold all of the assets and liabilities of the ‘Semotus

Business’ or ‘Solutions Division’ to Mr.

Anthony LaPine for 3,508,000 shares of

Flint restricted common stock owned by Mr.

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

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 Flint restricted common stock owned by Mr.

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 we transferred all of the

assets and properties, subject to all the liabilities, debts, obligations and

contracts, of the Solutions Division to Semotus, Inc.

in exchange for Mr.

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

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 Telecom, Inc.

that closed on October 1, 2008,

and does not reflect the business operations of Flint Telecom, Inc.

connection with that transaction.

limited access to capital from either banking institutions or the capital

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

Consequently, we have 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.

Butler, one of Flint’s board

also has a direct equity investment in

The loan balance was $17,895 at March 31, 2009.

loan includes charges for management fees earned by 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

was $1,482,883

at March 31, 2009.

The investment is for capital needed for our

the nine months ended March 31, 2009, we 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.

The warrants are exercisable into 1,202,500 common

shares at $0.50 per share.

The warrants expire on September 30,

issued $300,000 of Promissory Notes with Warrants to Mr.Butler on September 30,

The Note has a 15% interest rate and matures on December 31,

The warrants are exercisable into 300,000 common shares at

$0.50 per share.

The warrants expire on September 30,

addition, € 1,475,000 in Euro

convertible notes are owed by us t o Mr.

Butler, and $ 634 ,000 in U.S.

Dollar convertible notes are owed to Mr.

Butler and his family members and affiliates.

Butler and his family members and

See Footnote 10 for more details

on these notes.

Effective January 29, 2009, we entered into a two year employment agreement with our

President, Bill Burbank.

The agreement automatically renews for six month

periods unless 60 days prior notice is provided by either party.

Burbank will receive salary in the amount of $186,000 pe r year and

2,000,000 shares of restricted common stock vesting over a period of four years,

such that ¼ of the shares shall vest at the

first annual anniversary of the Effective Date, and quarterly thereafter so that

100% of the shares shall be fully veste d at his four year

anniversary with Flint.

However, during the time Mr.

Burbank is an Officer

of China Voice Holding Corp.

he will be compensated as follows:

January 2009,

60% of base monthly salary and for months thereafter , 90% of monthly base

Effective March 1, 2009, we entered into a two year

employment agreement with our CFO, Steve Keaveney.

The agreement

automatically renews for six month periods unless 60 days prior notice is

provided by either party.

Pursuant to the terms of his employme nt, Mr.

Keaveney will receive salary in the amount of

$180,000 per year and 3,500,000 shares of restricted common stock vesting over a

period of four years, such that ¼ of the

shares shall vest at his first annual anniversary, and quarterly thereafter so

100% of the shares shall be fully vested at his four year

The foregoing description of the terms of employment of

Burbank and Mr.

Keaveney are qualified in their entirety by reference to the

full text of their employment agreements, which are attached as exhibits to our Current Reports on

Form 8-K filed on February 4, 2009 and March 6, 2009,

respectively.

and Contingencies

not a party to any legal proceedings.

party to various legal proceedings in the normal course of business.

evaluation of these matters and discussions with counsel, we believe that any

potential liabilities arising from these matters will not have a material

adverse effect on our consolidated results of operations or financial

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

1 unchanged sentence

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

base lease payment is $9,300 and there are additional payments owed for costs

passed through by the landlord.

We have incurred $83,700 in lease payments for

the nine months ended March 31, 2009.

The future minimum lease payments are

$27,900 in fiscal 2009 and $93,000 in fiscal 2010.We have two leases for

apartments in New York, N.Y.

for former executives, which expire on 30 th June

The future minimum lease payments are $11,085 and $21,900 for fiscal

and Goodwill Impairment

association with the acquisition of CHVC subsidiaries, in accordance with FASB

141, “Goodwill and Other Intangible Assets”, we recorded the purchase price in

excess of the net assets acquired as of the acquisition date as

The goodwill was recorded on January 29, 2009, the closing

date of the CHVC subsidiaries acquisition (See Note 3, Acquisition of the CHVC

Acquisition Companies.) in the amount of $7,654,248.

In accordance

with Statement of Financial Accounting Standards No.

142 (SFAS No.

perform an evaluation of the fair values annually, and more frequently if an

event occurs or circumstances change that may indicate that the fair value of a

reporting unit is less than the carrying amount.

We are currently

performing a valuation of the assets acquired for the purchase allocation, and

management expects the valuation will be done by June 30, 2009.

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 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,

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.

disposition of the Semotus Business Division on January 29, 2009 (See Note 4,

Acquisition and Subsequent Disposition of Semotus Solutions,

The goodwill was recorded on October 1, 2008, the closing date

of the Semotus acquisition (See Note 4, Acquisition and Subsequent Disposition

of Semotus Solutions, Inc.) in the amount of $2,538,148, and was mainly

associated with the Hiplink family of products.

recorded other income of $1,279,657 and $1,131,956 for the three months and nine

months ended March 31, 2009.

Other income is comprised mainly from

the gain from disposition of Semotus Solutions, Inc., net of any other expense

related to accrued interest on the convertible and promissory notes, as well as

the amortization of the debt discounts related to those notes.

the three months ended March 31, 2009, we disposed of the Semotus business (see

Note 4, Acquisition and Subsequent Disposition of Semotus Solutions, Inc).

result of the transaction, we recorded a gain of $1,639,767.

other component is exchange gains and losses from currency transactions in the

Euro and U.S.

For the three and nine months ended March 31,

2008, other income amounted to $104.

and Board of Directors Changes

4 unchanged sentences

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.

Sullivan as new

members of our Board of Directors.

To effectuate these new

board appointments, our board of directors took

such actions as was necessary to increase the s ize of the our board of

directors to seven directors, with the vacancies created by such board increase

filled by Mr.

Keaveney and Mr.

1 unchanged sentence

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.

“ independent” directors, as that term is defined by the NASDAQ Stock Market and the SEC, and they will

not be serving on any Board Committees.

Also effective as of

1 unchanged sentence

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

Please 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.

March 1, 2009, Charles K.

Dargan, II resigned as our Chief Financial Officer, as

part of a planned transition after the acquisition of Semotus Solutions, Inc,

for which he was the Chief Financial Officer, to Flint.

March 1, 2009, Steve Keaveney was appointed our Chief Financial

Please see our SEC Form 8-K filed on March 6, 2009 for a

description of Mr.

Keaveney’s terms of employment.

On April 24, 2009, we entered into two

amendments with China Voice Holding Corp.

1) the First Amendment to the Agreement and Plan of

Merger by and among Flint, Flint Acquisition Corps.

(A-E), each a wholly owned

subsidiary of Flint, CHVC, and CVC Int ’ l Inc., Cable and

Voice Corporation, StarCom Alliance Inc ,

Dial-Tone Communication Inc, Phone House Inc.

(of Florida), and Phone House,

(of California), each a wholly-owned subsidiary of CHVC (and

together, the “ Targets” ) dated January 29, 2009 (the “ Merger Agreement” ),

and 2) the First Amendment to the Sto ck

Purchase Agreement by and among Flint and CHVC dated January 29, 2009 (the

“ Stock Purchase Agreement” ), whereby the consideration to be paid under these

agreements is modified as follows:

The First Amendment to the Agreement and Plan of Merger

modifies the Agreement and Plan of Merger

such that all shares of the Targets ’ Common Stock are

converted into the right to receive a cash payment, paid to CHVC, at the

Closing Date equal to $500,000 and $200,000 paid on March 16, 2009.

addition to the aforeme ntioned amounts

already paid, we shall issue to CHVC 800,000 shares ($800,000 issue

price) of Series C preferred stock, redeemable through the following payment

$275,000 in May of 2009, with the remaining $525,000 redeemable in

five equal monthly installment payments of

$105,000 each, starting on July 15, 2009.

A lternatively,

should we close on new funding from a third party, the remaining

$525,000 shall be redeemed through one lump sum payment, up to a maximum of

twenty five percent (25%) of wha tever net

amount we actually receive.

Additionally, effective March 16, 2009, we agreed to omit

the Targets ’ future minimum revenue targets and our right of

we therefore released to CHVC the 6,300,000 shares of

restricted common stock that were b eing

held in escrow pursuant to the Merger Agreement.

Amendment to the Stock Purchase Agreement modifies the Stock Purchase Agreement

such that we shall pay to CHVC $500,000 by no later than April 30,

Additionally, we shall issue to

CHVC 1,000,000 shares ($1,000,000 issue

price) of Series C preferred stock, redeemable through the following payment

$275,000 in May of 2009, with the remaining $725,000 redeemable in

five equal monthly installment payments of $145,000 each, startin g on July 15, 2009.

Alternatively, should we close on new

funding from a third party, the remaining $725,000 shall be redeemed through one

lump sum payment, up to a maximum of twenty five percent (25%) of whatever net

amount we actually receives.

Additiona lly,

entered into a security agreement with CHVC

(the “ Security Agreement” ) whereby the obligation to redeem the preferred stock

issued to CHVC is secured by the capital stock of the Targets.

Notwithstanding, CHVC agrees to subordinate its security

int erest in the Targets to any future third

party funding closed by us , as required by us and approved by

CHVC, such approval not to be unreasonably withheld.

We also executed a

First Amendment to the Promissory Note issued to CHVC on January 29, 2009 (the

“ Note” ), whereby we agreed to add

the following language to the end of Section 2(a) of the Note:“ A portion equal to one million dollars (USD$1,000,000)

of the balance due on the Note shall be paid by Maker [Flint] through a payment

of seven hundred twenty o ne thousand pound

sterling (GBP£ 721,000) on or before

December 31, 2010, regardless of whether the U.S.

dollar strengthens or weakens

in relation to the GBP pound sterling during the term of the Note and whether

there is therefore a foreign currency trans l ation gain or loss

for either party.”

The foregoing descriptions of the First Amendment to the

Agreement and Plan of Merger, the First Amendment to the Stock Purchase

Agreement, the First Amendment to the Promissory Note and the Security Agreement

are qua lified in their entirety by

reference to the full text of those agreements, which are filed as exhibits to

our Current Report on Form 8-K dated April 30, 2009.

Promissory Notes

On May 2, 2009 we accepted a short-term loan in an

amount of two hundred fift y thousand

dollars ($250,000), all principal and a cash fee of one hundred twenty five

thousand dollars ($125,000) to be repaid by July 31, 2009.

Promissory Note is secured by 5,000,000 shares of restricted common stock of

CHVC held directly by Flint .

On May 5, 2009 we accepted a short term loan in an

amount of one hundred thousand euro ( € 100,000), all

principal and a cash fee of eight thousand euro ((€ 8,000) to be repaid by no later than May 31,

On May 1 3 , 2009 we accepted

a short-term loan in an amount of five hundred thousand dollars ($500,000), all

principal and a cash fee of tw o hundred

fifty thousand dollars ($250,000) to be repaid by no later than August 11,

This Promissory Note is secured by 10,000,000 shares of

restricted common stock of CHVC held directly by us .

Additionally, Effective May 2, 2009, we entered into

a n agreement with China Voice Holding Corp.

(CHVC), to allow for a temporary waiver of CHVC ’ s security

interest in the 15,000,000 CHVC shares of restricted common stock held directly

such waiver to remain in place for so long as the promissory notes issued in May of 2009, as described above, remain

The foregoing descriptions of the Promissory Notes and

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

those notes and agreement, which are attached hereto as Exhi bits 4.

respectively, and are incorporated herein by reference.

13, 2009 we entered into an agreement with Mr.

Butler to cancel his 5 existing

Promissory Notes without repayment, including the repayment of any and all

principal amounts underneath these Promissory Notes (EURO 1,175,000,

EURO300,000, $141,000, $173,000 and $300,000 each) (the “Notes”) as well as to

waive and cancel all past, present and future accrued interest amounts that may

have been due under the Notes, and in exchange we issued a new Convertible

Promissory Note in an amount of $1,516,000, accruing no interest, convertible in

whole or in part at $0.40 per share, and due and payable through installment

payments of $100,000 each, beginning as of October 31, 2009, and we issued

3,260,000 shares of restricted common stock in the Company, vesting quarterly

over a period of three years beginning as of January 1, 2011 such that 100% of

the shares are vested as of January 1, 2014.

foregoing description of the Restructure Agreement and Convertible Promissory

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

Restructure Agreement and Convertible Promissory Note, which are attached as

Exhibits 4.7 and 4.8, respectively.

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