What changed in this filing

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Item 2. Management’s Discussion and Analysis

2009-11-23 compared with 2009-05-20 · 67 added, 511 removed, 1 unchanged (100% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

following discussion should be read in conjunction with the attached financial

statements and notes thereto.

Except for the historical information contained

herein, the matters discussed below are forward-looking statements that involve

certain risks and uncertainties, including, among others, the risks and

uncertainties discussed below.

ACCOUNTING POLICIES

critical accounting policies are those that are most important to the portrayal

of our financial condition and results of operations, and require our

management's significant judgments and estimates and such consistent application

fairly depicts our financial condition and results of operations for all periods

Our critical accounting policies are described below.

Revenue Recognition –

We recognize revenues based upon contract terms and completion of the sales

process in accordance with Staff Accounting Bulletin No.

104, a codification of

revenue recognition.

Revenue is generated from the sale of telecom services to

the Company’s partners.

We recognize the revenue when the service is provided

and payment is collected either through credit cards or through payments by

The appropriate partner revenue allocation is deducted from those

accounts that pay us directly.

Other accounts that pay the partners directly, we

recognize the portion of the revenue share that relates to it and invoices the

Partner for this.

The invoice becomes a receivable from the Partner when

Cost of Revenue –

Costs directly related to the production of revenue are categorized as a cost of

These costs are the cost of call generation, including transmission and

termination, network charges including access costs, lease and right-of-way

charges and other third party fulfillment costs, and other telecommunication

fees, such as emergency 911 service fees.

Earnings (loss) per share

- Basic earnings (loss) per share is computed by dividing net income

(loss) available to common stockholders by the weighted average number of common

shares outstanding during the period.

Diluted earnings per share reflects the

potential dilution, using the treasury stock method or the if converted method,

that could occur if securities or other contracts to issue common stock were

exercised or converted into common stock or resulted in the issuance of common

stock that then shared in our earnings.

Any dilutive security issued, that would

create an anti-dilutive effect, is not included in the weighted average share

calculation for that period.

Stock Compensation Expense –

We adopted Statement of Financial Accounting Standards (SFAS) No.

(revised 2004), “Share-Based Payment,” requiring us to recognize expense related

to the fair value of our 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

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

respectively.

Income taxes - We

account for income taxes in accordance with SFAS No.

109, “Accounting

for Income Taxes.” Under SFAS No.

109, income taxes are recognized for

the amount of taxes payable or refundable for the current year and deferred tax

liabilities and assets are recognized for the future tax consequences of

transactions that have been recognized in our financial statements or tax

A valuation allowance is provided when it is more likely than not that

some portion or all of the deferred tax asset will not be realized.

Cash and Cash

Equivalents – We

consider all highly liquid investments with original maturities of three months

or less or money market funds from substantial financial institutions to be cash

We place substantially all of its cash and cash equivalents in

interest bearing demand deposit accounts with one financial institution and in

amounts that are insured either by the Irish government for Euro deposits or by

the Federal Deposit Insurance Corporation for U.S deposits.

Concentrations of Credit

Risk - Financial instruments which potentially subject us to

concentrations of risk consist principally of trade and other receivables.

extend credit to its customers in the ordinary course of business and

periodically reviews the credit levels extended to customers, estimates the

collectability and creates an allowance for doubtful accounts, as needed.

not require cash collateral or other security to support customer receivables.

Provision is made for estimated losses on uncollectible accounts.

estimate our allowance for doubtful accounts by applying estimated loss

percentages against our aging of accounts receivable balances.

The estimated

loss percentages are updated periodically and are based on our historical

write-off experience, net of recoveries.

Changes to allowances may be required

if the financial condition of our customers improves or deteriorates or if we

adjust its credit standards for new customers, thereby resulting in write-off

patterns that differ from historical experience.

Estimates - The

preparation of 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 date of the financial statements and

the reported amounts of revenues and expenses during the reporting period.

Certain significant estimates were made in connection with preparing our

financial statements.

Actual results could differ from those

Fair value of financial

instruments - The carrying amounts of financial instruments, including

cash and cash equivalents, accounts receivable, accounts payable and short term

notes approximate fair value because of their short maturity as of March 31,

Convertible Notes were recorded at face value as of the issuance date.

Convertible Notes issued in the Euro currency were translated at the Euro – U.S.

Dollar exchange rate as of the transaction date and are adjusted for exchange

rate changes on a quarterly basis.

The Convertible Notes approximate fair value

since they are a long term liability with a fixed interest rate, adjusted for

exchange rates if required and will be held until maturity or until converted

into common stock.

Foreign Currency

Transactions - Exchange adjustments resulting from foreign currency

transactions are generally recognized in operations.

Flint has a bank account

and convertible notes that are in the Euro currency.

Net foreign currency

transaction losses were $374,650 for the nine months ended March 31,

Equipment – These assets are stated at cost, net of accumulated

depreciation and amortization.

Depreciation is provided on the straight-line

method over the estimated useful lives of the related assets, generally three to

Amortization on capital leases is over the lesser of the estimated

useful life or term of the lease if shorter, and is included in depreciation and

amortization expense in the statement of operations.

Ordinary course repairs and

maintenance on fixed assets are expensed as incurred.

carrying value of property and equipment is assessed annually or when factors

indicating an impairment are present.

In accordance with SFAS No.

“Accounting for the Impairment or Disposal of Long-Lived Assets”, we review our

property, plant, and equipment for impairment whenever events or circumstances

indicate that their carrying amount may not be recoverable.

Impairment reviews

require a comparison of the estimated future undiscounted cash flows to the

carrying value of the asset.

If the total of the undiscounted cash flows is less

than the carrying value, an impairment charge is recorded for the difference

between the estimated fair value and the carrying value of the

and Goodwill Impairment-In association with the acquisition of CHVC

subsidiaries, in accordance with FASB 142, “Goodwill and Other Intangible

Assets”, we recorded the purchase price in excess of the net assets acquired as

of the acquisition date as goodwill.

The goodwill was recorded on January 29,

2009, the closing date of the CHVC subsidiaries acquisition (See Note 3,

Acquisition of the CHVC

Companies.) in the amount of $8,554,248.

In accordance with Statement of

Financial Accounting Standards No.

142 (SFAS No.

142), we 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 price 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 Note 4,

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

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.

objective for the three months ended March 31, 2009 was to increase the size of

the business through acquisition or other strategic business combination

structures, and to improve overall operations to reduce the need for external

financing in the difficult economic and financial markets.

an acquisition of six wholly owned subsidiary companies of China Voice Holding

on January 29, 2009, thereby increasing the depth and breadth of

operations, enhanced the management team and identified additional acquisitions

in the telecom, media and technology (TMT) space.

After the CHVC

subsidiaries acquisition, we continued our focus on our operations and

consolidation of the entities.

We have been actively engaged in

seeking other potential acquisition targets to further enhance the scale, depth

and profitability of the business

three months ended March 31, 2009, we had a net loss of $1,246,295 ($0.02 per

share basic and diluted), as compared to a net loss of $531,572 ($0.02 per share

basic and diluted) in the three months ended March 31, 2008.

We had a net loss

of $10,940,839 ($0.24 per share basic and diluted) in the nine months ended

March 31, 2009, as compared to net loss of $1,604,431 ($0.06 per share basic and

diluted) in the nine months ended March 31, 2008.

The increase in the

losses year on year were predominantly as a result of costs and SEC accounting

provisions associated with the Semotus transaction which are non recurring.

overall cash decreased by $1,163,562 in the nine months ended March 31, 2009,

compared to an increase of $150,783 in the nine months ended March 31,

OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009 AND

for the three months ended March 31, 2009 increased 2,197.3% to $11,220,472 as

compared $492,275 for the three months ended March 31, 2008.

for the nine months ended March 31, 2009 increased 1,854% to $17,432,765 as

compared to $892,155 for the nine months ended March 31, 2008.

increase is primarily due to the acquisition of the six subsidiaries of China

Voice Holding, Corp.

(CHVC) and growth of our wholesale call traffic

OF REVENUES AND GROSS MARGIN

overall gross margin has improved in both the three and nine months ended March

31, 2009 versus 2008 due to larger traffic volumes being delivered through the

call platform and the cessation of certain business activities that required

high cost of revenues.

We have moved from a fixed cost of revenue structure to a

fully variable cost model that results in consistent positive gross margins

going forward.

The cost of revenues principally is the cost of call generation,

including transmission and termination, network charges including access costs,

lease and right-of-way charges and other third party fulfillment costs, and

other telecommunication fees, such as emergency 911 service fees.

expenses increased 147% to $1,544,129 in the three month period ended March 31,

2009 versus $624,884 for the same period in the last fiscal year, and increased

575% to $9,591,430 in the nine month period ended March 31, 2009 versus

$1,420,964 for the same period in the last fiscal year.

This increase

is mainly due to non-recurring costs associated with the reverse merger with

Semotus Solutions, Inc.

and the CHVC subsidiaries, the growth of the telephony

business, the non-cash expense of stock and options issued to directors,

officers and employees, and the impairment of goodwill.

We categorize

operating expenses into three major categories:

research and development, sales

and marketing, and general and administrative.

The table below summarizes the

changes in these three categories of operating expenses

and development

and marketing

and administrative

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

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

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

and development expenses are expenses incurred in developing new products and

product enhancements for current products.

These expenditures are charged to

expense as incurred.

These costs are solely related to the Hiplink

product in the Semotus business division.

marketing expenses consist of costs incurred to develop and implement marketing

and sales programs for our product lines.

These include costs required to staff

the marketing department and develop a sales and marketing strategy,

participation in trade shows, media development and advertising, and web site

development and maintenance.

These costs also include the expenses of

hiring sales personnel and maintaining a customer support

These costs incurred in 2008 are a result of an increase

in sales and marketing personnel through the Semotus Business, as well as a

management fee to Flint, Ltd.

and administrative expenses include senior management, accounting, legal,

business development consulting, rent, administrative personnel, and other

overhead related costs.

This category also includes stock compensation and

option expense, the costs associated with being a publicly traded company,

including the costs of SEC filings, a management fee payable to Flint, Ltd.,

investor relations and public relations.

These costs have increased

during the three and nine months ended March 31, 2009 versus 2008 due to the

costs associated with becoming a publicly traded company and the stock

compensation and option expense from the stock and options issued to directors,

officers and employees.

Also, we determined that the goodwill from

the Semotus acquisition was impaired due to the disposition of the Semotus

Business Division.

non-cash charges for compensation consist mainly of the grants of stock as a

result of the reverse merger with Semotus Solutions, Inc.

and the acquisition of

the six CHVC subsidiaries, and of warrants issued as part of financing

The common stock issued was valued at its fair market value at

the date of issuance.

$1,279,657 for the three months ended March 31, 2009 and $1,131,956 for the nine

months ended March 31, 2009 in other income is comprised mainly from the gain

from Semotus spin-off, net 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.

During the three months ended March

31, 2009, the Company disposed of Semotus (see Note 4).

As a result of the

Acquisition and Subsequent Disposition of Semotus Solutions, Inc., we recorded a

gain of $1,639,767.

The other component is exchange gains and losses

from currency transactions in the Euro and U.S.

OPERATIONS, NET OF TAX

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

consolidation efforts after the CHVC acquisition transaction closed, we

discontinued our wholesale telecom operations that were based out of New York

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

AND CAPITAL RESOURCES

cash decreased by $1,163,562 for the nine months ended March 31, 2009 due to a

continued loss from operations, purchases of equipment for the wholesale call

platform, the reverse merger with Semotus and the acquisition of the six CHVC

subsidiaries.

We were able to cover some of the cash loss through proceeds from

convertible and promissory note issuances.

Cash increased $150,783

for the nine months ended March 31, 2008 due mainly to financing from Flint

Telecom Ltd., which offset the operating losses.

The sources and uses

of cash are summarized as follows (unaudited):

used in operating activities

used in investing activities

provided by financing activities

used in foreign currency activities

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the attached financial statements and notes thereto.

Except for the historical information contained herein, the matters discussed below are forward-looking statements that involve certain risks and uncertainties, including, among others, the risks and uncertainties discussed below.

Management’s objective for the three months ended September 30, 2009 was to improve overall operations to reduce the need for external financing in the difficult economic and financial markets.

We continued our focus on consolidation of our entities.

We have been actively engaged in seeking additional external financing

and other strategic partnerships and relationships to further enhance the scale, depth and profitability of the business

In the three months ended September 30, 2009, we had a net loss of $(3,052,220) ($0.04)per share basic and diluted), as compared to a net loss of $1,145,947 ($0.04 per share basic and diluted) in the three months ended September 30, 2008.

The increase in the losses year on year was predominantly as a result of costs and SEC accounting provisions

associated with the Semotus transaction which is non recurring.

Our overall cash decreased by $ 1,212,545 in the three months ended September 30, 2009, compared to a decrease of $80,744 in the three months ended September 30, 2008.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

Revenues for the three months ended September 30, 2009 increased 349.7% to $14,504,855 as compared to $3,225,251for the three months ended September 30, 2008.

This increase is primarily due to the acquisition of the six subsidiaries of China Voice Holding, Corp.

(CHVC) and growth of our wholesale call traffic business.

COST OF REVENUES AND GROSS MARGIN

The overall gross margin has improved in the three months ended September 30, 2009 versus 2008 due to the launch of our own branded calling cards through one of our subsidiaries, Wize Communications.

Our own brand calling cards enable us to

increase margin by selling our high margin products through our existing strong distribution channels.

OPERATING EXPENSES

Operating expenses increased 140.4% to $2,556,911 in the three month period ended September 30, 2009 versus $1,063,450 for the same period in the last fiscal year.

Operating expenses consist of general and administrative expenses, including payroll, accounting, legal, consulting, rent and other overhead costs.

This category also includes stock compensation and option expense, the costs associated with being a publicly traded company, including the costs of SEC filings, a management fee payable to Flint,

Ltd., investor relations and public relations.

These costs have decreased during the three months ended September 30, 2009 versus 2008 due to cost savings that have been achieved by the business following the full integration of the six companies acquired from China Voice Holding Company.

The non-cash charges for compensation consist mainly of the grants of stock issued as part of settlements for services rendered.

The common stock issued was valued at its fair market value at the date of issuance.

INTEREST EXPENSE

The $1,176,754 for the three months ended September 30, 2009 in interest expense is related to accrued interest on the convertible and promissory notes, as well as the amortization of the debt discounts related to those notes.

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

LIQUIDITY AND CAPITAL RESOURCES

Overall cash decreased by $1,212,545 for the three months ended September 30, 2009 due to a continued loss from operations, and delays in the private offerings that only partially closed as of June 30, 2009, and which we previously expected to fully close during the fiscal year ending June 30, 2009.

We were able to cover some of the cash loss

through proceeds from convertible and additional promissory note issuances.

The sources and uses of cash are summarized as follows (unaudited):

Three Months Ended

September 30,

Net cash used in operating activities

$ (1,321,959)

increase (decrease) in cash and cash equivalents

the nine months ended March 31, 2009, cash used in operating activities was

$3,187,428 resulting from a gross gain of $15,982 and operating expenses of

The loss included non cash charges for stock and option compensation

and impairment of goodwill of $3,489,198 and $2,538,148,

respectively.

Other non-cash expenses were depreciation and

amortization of $379,338 and a loss on the purchase of notes of

operating activities that increased cash were an increase in accounts payable of

$1,235,492, of accrued liabilities of $606,118, and accrued interest of

the nine months ended March 31, 2008, cash used in operating activities was

$1,771,022 resulting from gross loss of $183,572 and operating expenses of

Other operating activities contributing to the increase in cash were

mainly an increase in accounts payable of $128,202, slightly offset by a

decrease in accrued liabilities of 34,096.

the nine months ended March 31, 2009, cash used in investing activities

consisted of $351,305 of purchases of telephony equipment, $196,906 for the cash

assumed in the acquisition of six CHVC subsidiaries and $700,000 cash

consideration payment for the acquisition of the six CHVC subsidiaries.

the nine months ended March 31, 2008, $48,659 was used in investing activities

of purchase telephony equipment.

provided by financing activities for the nine months ended March 31, 2009

consisted of the sale of short term promissory notes, which provided $3,526,060

in cash and convertible notes payable in the amount of $150,000, which was

offset by the repayment of some short term notes in the amount of $886,000, the

repayment of $209,702 due to Flint, Ltd., and payments of $98,558 on certain

lease obligations.

Cash provided by financing activities for the nine months

ended March 31, 2008 consisted principally of proceeds from convertible notes

issued of $2,840,089 and advances from Flint, Ltd.

of cash was used in foreign currency transactions for the nine months ended

March 31, 2009.

There were no foreign currency transactions for the

nine months ended March 31, 2008.

March 31, 2009, we had cash and cash equivalents of $323,459, a decrease of

$1,163,562 from the balance at June 30, 2008, which was

Our working capital deficit increased as of March 31,

2009 to ($7,908,813) as compared to a working capital deficit of ($2,814,281) at

June 30, 2008 .

We have not yet

generated sufficient revenues to cover the costs of continued product and

service development and support, sales and marketing efforts and general and

administrative expenses.

still largely dependent on financing in order to generate cash to maintain its

We are currently investigating the capital markets for additional

However, there is no assurance that any additional capital will be

We closely monitor our cash balances and our

operating costs in order to maintain an adequate level of cash.

capital lease for our telecom equipment for which future minimum lease payments

are $112,651 in fiscal 2009 and $450,605 in fiscal 2010.

operating lease for our facility in New York, NY for which the future minimum

lease payments are $63,363 in fiscal 2009 and $93,000 in fiscal

There were no material commitments for capital expenditures at

March 31, 2008.

ACCOUNTING PRONOUNCEMENTS

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.

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

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 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.

141(revised 2007), “Business

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 our consolidated financial statements will

depend on the nature and extent of our future acquisition

December 2007, the FASB issued SFAS No.

160, “Noncontrolling Interests in

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

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.

We 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.

LOOKING STATEMENTS AND RISK FACTORS

report includes forward-looking statements relating to, among other things,

projections of future results of operations, our plans, objectives and

expectations regarding our future services and operations, and general industry

and business conditions applicable to us.

We have based these forward-looking

statements on our current expectations and projections about future events.

can find many of these forward-looking statements by looking for words such as

"may", "should", "believes", "expects", "anticipates", "estimates", "intends",

"projects", "goals", "objectives", or similar expressions in this document or in

documents incorporated herein.

These forward-looking statements are subject to a

number of risks, uncertainties and assumptions about us that could cause actual

results to differ materially from those in such forward-looking statements.

risks, uncertainties and assumptions include, but are not limited to, our

limited operating history, our historical losses, our ability to secure

additional sources of finance, our ability to adapt to rapid technological

changes and the other factors that we describe in the section entitled "Risk

Factors" in the Form 10KSB for the year ended March 31, 2008.

protection of the safe harbor for forward-looking statements contained in the

Private Securities Litigation Reform Act of 1995.

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by foreign currency activities

Net increase (decrease) in cash and cash equivalents

During the three months ended September 30, 2009, cash used in operating activities was $1,052,944 resulting from a gross loss of $3,052,220 and operating expenses of $2,556,911.

The loss included non cash charges for stock and option compensation, accretion of debt discount of $582,858 and $804,371 respectively.

Other operating activities that increased cash were a decrease in accounts receivable of $134,715, of prepaid expenses of $8,724, Inventory of $399,565, due from related parties of $294,174 and an increase in accrued liabilities of $4,929 and accrued interest of $239,781.

Operating activities that decreased cash were an increase

in deposits of $12,610, a decrease in cash overdraft of $100,842 and a decrease in accounts payable of $1,030,011.

Cash provided by financing activities for the three months ended September 30, 2009 consisted of an increase in the line of credit of $16,176, the sale of short term promissory notes, which provided $200,000 in cash, the issuance of notes payable of $115,000 to related parties, and the redemption of preferred stock in the amount

$5,845 of cash was used in foreign currency transactions related to exchange losses on convertible notes payable during the three months ended September 30, 2009 and $245,883 was provided by foreign currency exchange gains in the three months ending 30 September 2008.

As of September 30, 2009, we had cash and cash equivalents of $124,457, a decrease of $1,212,545from the balance at June 30, 2009, which was $1,337,002.

Our working capital deficit increased as of September 30, 2009 to ($10,260,012) as compared to a working capital deficit of ($12,071,300) at June 30, 2009 .

have not yet generated sufficient revenues to cover the costs of continued product and service development and support, sales and marketing efforts and general and administrative expenses

We are still largely dependent on financing in order to generate cash to maintain its operations.

We are currently investigating the capital markets for additional financings.

However, there is no assurance that any additional capital will be raised.

We closely monitor our cash balances and our operating costs in order to maintain

an adequate level of cash.

FORWARD LOOKING STATEMENTS

Certain statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,”

“estimates,” “we believe,” “could be,” and other words of similar meaning, are forward-looking statements.

These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited to, risks associated with the

integration of businesses following an acquisition, concentration of revenue from one source, competitors with broader product lines and greater resources, emergence into new markets, the termination of any of the Company’s significant contracts or partnerships, the Company’s inability to maintain working capital requirements to fund future operations or the Company’s inability to attract and retain highly qualified management, technical and sales personnel, changes in laws regulating telecommunications

providers, changes in laws affecting the telecommunications products and services we provide.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

We disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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 2. Management’s Discussion and Analysis