What changed in this filing

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Item 1. Financial Statements

2010-03-25 compared with 2009-11-23 · 394 added, 184 removed, 333 unchanged (63% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets:

1 unchanged sentence

Accounts receivable, net of allowance for doubtful accounts of $302,155

for September 30, 2009 and $205,397 for June 30, 2009

for December 31, 2009 and $205,397 for June 30, 2009

Notes receivable

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Convertible notes payable – related parties, net of discount

Due to Flint, Ltd.

Redeemable preferred stock

Total current liabilities

Convertible notes payable – long term, net of discount

Convertible notes payable – long term - due to related parties, net of discount

1 unchanged sentence

Lease obligations - long-term

Line of credit – long term

Total liabilities

3 unchanged sentences

$0.001 par value;

5,000,000 authorized, 886,981 issued and outstanding at September 30, 2009, 1,250,000 issued and outstanding at June 30, 2009

5,000,000 authorized, 864,385 issued and outstanding at December 31, 2009, 1,250,000 issued and outstanding at June 30, 2009

Common stock:

$0.01 par value;

100,000,000 authorized, 76,285,811 issued and outstanding at September 30, 2009, 71,294,702 issued and outstanding at June 30, 2009

200,000,000 authorized, 78,035,893 issued and outstanding at December 31, 2009, 71,294,702 issued and outstanding at June 30, 2009

Common stock issuable

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

September 30,

Three Months Ended

Six Months Ended

Cost of revenues

8 unchanged sentences

Depreciation and amortization expense

Total operating expenses

Total General and Administrative

Operating loss

1 unchanged sentence

Interest expense

Provision for income taxes

Loss on disposal of fixed asset

Foreign Exchange

Discontinued operations, net of tax

Impairment of goodwill and other intangible assets

Net loss per common share:

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

September 30,

Six Months Ended

Cash Flows from Operating Activities:

2 unchanged sentences

Other non-cash transactions:

Impairment of goodwill and other intangible assets

Stock and option compensation expense

Loss on purchase of non-convertible notes

Amortization of debt discounts & warrants

Loss on fixed assets

Accretion of debt discount

6 unchanged sentences

Accrued liabilities

Net due from Flint Telecom, Ltd.

Due to Flint Telecom, Ltd.

Deferred revenue

Due from Related Parties

3 unchanged sentences

Purchases of fixed assets

Cash assumed in acquisition of Semotus

Investment in notes receivable

2 unchanged sentences

Proceeds from lines of credit

Proceeds from related parties debt

Proceeds from related party debt

Proceeds from debt

Debt issuance fees and expenses

Payments on debt

Paid to Flint Telecom Ltd.

Redemption of preferred stock

Investment from Flint Telecom Ltd.

Payments on related party debt

Payments on line of credit

Payments on lease obligations

2 unchanged sentences

Exchange gain (loss) on convertible notes

Net cash provided by (used in) foreign currency activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash

Cash and cash equivalents, beginning of the period

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Discounts – beneficial conversion

Payment on lease obligations through issuance of stock

Capitalization of accrued interest to a note payable

Due from related party satisfied with redeemable preferred stock

Deferred stock compensation

Acquisition of Semotus Solutions, Inc.

Accounts receivable

Prepaid expense

Accounts payable

Accrued liabilities

Deferred revenue

Common stock issued upon conversion of notes payable and accrued interest

See accompanying notes to condensed consolidated financial statements.

6 unchanged sentences

Balances at June 30, 2009

$(21,035,869)

Conversion of notes payable

9 unchanged sentences

Balances at September 30, 2009

$(24,088,089)

Beneficial conversion feature on convertible notes payable

Stock payable issued, net of adjustments

Shares issued for payments of debt

Issuance of warrants to holders of notes payable

Shares issued to officers, directors, employees for vested stock compensation

Stock compensation expense

Stock options expense

Comprehensive Loss:

Comprehensive loss

Net loss for the three months ended December 31, 2009

Balances at December 31, 2009

See accompanying notes to condensed consolidated financial statements.

16 unchanged sentences

The existing Semotus operations became a division of Flint, and were subsequently sold in January 2009.

We are headquartered in Overland Park, Kansas and operate in the United States.

We operate our business through eight wholly-owned subsidiaries, CVC Int’l Inc., Cable and Voice Corporation, StarCom Alliance Inc, Dial-Tone Communication Inc, Phone House of Florida, Inc., Phone House, Inc., Wize Communications, Inc., and Digital Phone

Solutions, Inc.

We provide next generation turnkey voice, data and wireless services through partner channels primarily in the United States.

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.

are headquartered in Boca Raton, Florida and operate in the United States.

On 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.

The Acquisition Companies provide the following telecom services and / or distribute the following telecom products:

We distribute telecommunications services and products through our distribution channels.

The subsidiaries provide the following telecom services and / or distribute the following telecom products:

- CVC Int’l, Inc.

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Each provides discount calling cards that enable users who purchase cards in the United States to call internationally.

- Digital Phone Solutions, Inc.

was established on January 29, 2009, and provides a suite of enhanced services solutions for IP Telephony Service Providers facilitated by the Flint network.

- Wize Communications, Inc.

was established on March 30, 2009, and is a provider and master distributor of prepaid cellular and calling card products and services.

As part of our ongoing emphasis on streamlining our operations and reaching profitability, we are in the process of shutting down CVC Int’l, Phone House Inc.

of Florida and Starcom Alliance.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by us, without audit and in accordance with the instructions to Form 10-Q and Regulation S-K.

In the opinion of our management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included.

results for the three months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.

We believe that the disclosures provided are adequate to make the information

presented not misleading.

The accompanying condensed consolidated financial statements have been prepared by us, without audit and in accordance with the instructions to Form 10-Q and Regulation S-X.

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, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010.

Certain information and footnote

disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.

We believe that the disclosures provided are adequate to make the information presented not misleading.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our SEC Form 10K filed on October 13, 2009.

1 unchanged sentence

These financial statements have been prepared on a going concern basis, which 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 $3,052,220 and $1,145,947 for the three months ended September

30, 2009 and 2008, respectively, negative cash flow from operating activities of $1,052,944 for the three months ended September 30, 2009, an accumulated stockholder’s deficit of $921,186 and a working capital deficit of $12,071,300 as of September 30, 2009.

Also, as of September 30, 2009, we had limited liquid and capital resources.

As reflected in the accompanying financial statements, Flint had a net loss of $13,106,197 and $9,694,543 for the six months ended December 31,

2009 and 2008, respectively, negative cash flow from operating activities of $1,678,061 for the six months ended December 31, 2009, an accumulated stockholder’s deficit of $34,142,154 and a working capital deficit of $16,340,861 as of December 31, 2009.

Also, as of December 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 our operations.

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The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have secured indicative funding commitments from investors for additional capital, which management believes is sufficient to fund our cash flow needs for the next twelve months.

We recently announced significant reductions in our operating costs and are in ongoing discussions with our creditors to restructure our balance sheet and future debt payments.

Management expects that the successful outcome of these discussions will allow the Company to become EBITDA positive in the short term and we have secured indicative

funding commitments from investors for additional capital following the planned restructure that management believes is sufficient to fund our operating cash flow needs, before debt repayments, for the next twelve months.

Acquisition of the CHVC Acquisition Companies

On 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.

As part of the closing of the transaction and in addition to the issuance of the common 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 $1,500,000.

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”).

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.

As of December 31, 2009 the Note is in default because we were not able to make the first

installment payment due on or before December 31, 2009.

15,000,000 shares of CHVC restricted common stock are attached to the Note as collateral, pursuant to a Security Agreement.

On April 25, 2009 the Merger Agreement and Stock Purchase Agreement were amended, to, among other things, extend the payment schedules to CHVC 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 Acquisition Companies’ 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.

In addition to the aforementioned 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 schedule:

$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.

Alternatively, 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 whatever net amount we actually receive.

Additionally, effective March 16, 2009, we agreed to omit the Acquisition Companies’ future minimum revenue targets and our right of offset;

we therefore released to CHVC the 6,300,000 shares of restricted common stock that were being held in escrow pursuant to the Merger Agreement.

The First 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, 2009.

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 schedule:

$275,000 in May of 2009, with the remaining $725,000 redeemable in five equal monthly installment payments of $145,000 each, starting 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 receive.

Additionally, we 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 Acquisition Companies.

Notwithstanding, CHVC agrees to subordinate its security interest in the Acquisition Companies

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 one 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 translation gain or loss for either party.

In the six months ended December 31, 2009, $385,615 was paid to CHVC and 385,615 shares of Series C preferred stock was redeemed.

As of December 31, 2009, $935,615 had been paid to CHVC and 935,615 shares of Series C preferred stock had been redeemed by CHVC, in accordance with the agreement, as amended and as described above, leaving

$864,385 to be paid to CHVC and 864,385 shares of Series C preferred stock issued and outstanding.

Separate 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 previous fiscal year ended June 30, 2009 we issued 3,000,000 shares of restricted common stock, vesting over a period of four years, to executive officers and key employees of

the Acquisition Companies.

These shares of restricted common stock were valued at $0.38 per share.

We recorded $78,437 and $156,874 in expense in the three and six months ended December 31, 2009, respectively, related to the shares of restricted common stock granted to these executive officers and key employees.

Recent Accounting Pronouncements

In September 2009, the FASB issued authoritative guidance that applies to arrangements with multiple deliverables and provides another alternative for determining the selling price of deliverables.

In September 2009, in accordance with accounting pronouncements that applies to arrangements with multiple deliverables and provides another alternative for determining the selling price of deliverables.

In addition, the residual method of allocating arrangement consideration is no longer permitted under this guidance.

The guidance is

effective for fiscal years beginning on or after July 15, 2010.

is effective for fiscal years beginning on or after July 15, 2010.

We are currently evaluating the potential impact, if any, of the adoption of this guidance on our consolidated financial statements.

In September 2009, the FASB issued authoritative guidance which removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products.

It also requires expanded qualitative

and quantitative disclosures.

In September 2009, in accordance with accounting pronouncements which removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products.

It also requires expanded

qualitative and quantitative disclosures.

The guidance is effective for fiscal years beginning on or after June 15, 2010.

We are currently evaluating the potential impact, if any, of the adoption of this guidance on our consolidated financial statements.

In June 2009, the FASB issued authoritative guidance for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE.

Under this guidance, an enterprise

has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.

The guidance also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether

it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance.

In June 2009, in accordance with accounting pronouncements for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE.

Under this guidance, an

enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.

The guidance also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining

whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance.

The guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities.

The guidance is

effective for fiscal years beginning after Novermber 15, 2009.

We are currently evaluating the potential impact, if any, of the adoption of this guidance on our consolidated financial statements.

The guidance is effective for fiscal years beginning after November 15, 2009.

We are currently evaluating the potential impact, if any, of the adoption of this guidance on

our consolidated financial statements.

Management does not believe that there are any recently-issued, but not yet effective, accounting standards that could have a material effect on the accompanying financial statements.

Accounts Receivable and Concentration of Credit Risk

One customer accounted for 65% of our revenue for the three months ended September 30, 2009.

Two customers accounted for 38% of the accounts receivable at September 30, 2009, the largest of which accounted for 28% of the receivables.

Two customers together accounted for 89% of our revenue for the three months ended September 30,

2008, 45% and 44% respectfully.

Two other customers accounted for 37% and 30% of the accounts receivable at September 30, 2008.

Two customers accounted for 39% and 27% of the Company’s revenue for the three months ended December 31, 2009.

Two customer(s) accounted for 52% of our revenue for the six months ended December 31, 2009.

Three customers accounted for 44% of the accounts receivable at December 31, 2009, the largest of which accounted

for 15% of the receivables.

Two 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 31, 2008.

Seven customers accounted for 73% of the accounts receivable at December

31, 2008, the largest of which accounted for 25% of the receivables.

Investment in Marketable Securities

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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.

Goodwill and Other Intangible Assets

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 4, Acquisition of the CHVC Acquisition Companies.) in the amount of $2,687,080.

We also acquired identifiable intangible assets which are the customer relationships from the CHVC Acquisition Companies.

Under SAS 141R, we engaged an independent third party appraiser to value the customer relationships and the value of these identifiable assets were deemed to be $11,400,000 as of June 30, 2009.

In accordance with Statement of Financial Accounting Standards 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.

During the three months ended December 31, 2009, we began the process of shutting down three of the CHVC subsidiaries, CVC Int’l, Phone House Inc.

of Florida and Starcom Alliance.

Consequently, we performed an evaluation of the fair values of all of the CHVC subsidiaries

during the three months ended December 31, 2009 and determined that the goodwill was impaired in the amount of $7,760,028, which is primarily associated with the disposition of CVC Int’l, Phone House Inc.

of Florida and Starcom Alliance.

During the three and six months ended December 31, 2008, in 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.

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

date of the Semotus acquisition in the amount of $2,538,148, and was mainly associated with the Hiplink family of products.

Related Party Transactions

1 unchanged sentence

Consequently, we have loans from a number of third parties, including related parties, as follows.

We have a number of loans outstanding from Mr.

Butler, one of our board members, for which we issued various promissory notes, convertible promissory notes, warrants and shares of restricted common stock to him as consideration.

As of December 31, 2009, the total outstanding balance on all of Mr.

Butler’s loans was $4,100,000.

executed a settlement agreement with Mr.

Butler on December 31, 2009 related to the restructuring of this debt into Shares of Series E Convertible Preferred Stock;

See Note 19, “Subsequent Events” for more detail.

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

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and $2,500,000 in deferred payments.

See Note 4 for more details on the transaction.

Bill Burbank, our President and Chief Operating Officer, was and still currently remains the President and Chief Executive Officer of CHVC.

As of September 30, 2009, $7,886,981 was due and owing to CHVC.

Additionally, during the three months ended September 30, 2009, Mr.

Burbank, our President, loaned $40,000 to us.

See Note 4 for more details on this transaction.

Bill Burbank, our President and Chief Operating Officer at the time, was and still currently remains the President and Chief Executive Officer of CHVC.

As of December 31, 2009, $7,886,981 was due and owing to CHVC.

Additionally, during the six months ended December 31, 2009, Mr.

Burbank loaned $40,000 to us.

This loan bears no interest or contains any additional cash fees.

loan is due on demand by Mr.

The balance of the loan as of September 30, 2009 was $40,000.

is due on demand by Mr.

The balance of the loan as of December 31, 2009 was $40,000.

Flint Telecom Ltd, which is controlled by Mr.

Browne, Flint’s CEO, and Mr.

Butler, one of Flint’s board members, has a loan balance of $88,731 at September 30, 2009.

During the three months ended September 30, 2009, Flint Telecom Ltd.

Butler, one of Flint’s board members, has a loan balance of $109,959 at December 31, 2009.

During the six months ended December 31, 2009, Flint Telecom Ltd.

assigned a portion, $141,850, of its $202,500 promissory note to a number of unrelated

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The management fees are for the executive, operating and financial services provided by Flint Telecom, Ltd.

The investment from Flint Telecom, Ltd.

was $258,731 at September 30, 2009.

The investment

is for capital needed for our operations.

The loan is for working capital needed for our operations.

Flint Telecom, Ltd.

was also issued warrants on September 30, 2008 exercisable into 1,202,500 common shares at $0.50 per share which expire on September 30, 2011.Flint Telecom, Ltd.

was also issued

warrants on September 30, 2008 exercisable into 1,202,500 common shares at $0.50 per share which expire on September 30, 2011.

Flint Telecom, Ltd.

also has a direct equity investment in us.

On May 13, 2009 we issued to Mr.

Butler a 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.On June 30, 2009 we issued Mr.

Butler a subordinated secured convertible promissory note having an interest at a rate of 10% per annum, convertible at $0.275 per share into an aggregate of up to 2,181,818 shares of restricted common stock, with a maturity date 18 months after the Closing (the “Notes”) and warrants to purchase an aggregate of up to 2,181,818 shares

of our restricted common stock at $0.35 per share, having a five year term and a cashless exercise provision (the “Warrants”).

The Warrants are not exercisable until our Articles of Incorporation are amended to increase the number of total authorized shares of common stock to 200,000,000.

$150,000 was due and payable to Mr.

Butler by no later than August 11, 2009, which has not yet been repaid and is currently in default, but management is negotiating an extension and believes

it will come to an agreement to extend this Note.

Upon default, the Note holder may declare this Note immediately due and payable and demand payment of all principal and the Note holder may proceed to collect such amount.

We also have a number of loans outstanding from Mr.

Butler, one of our directors, with a total outstanding balance of $2,266,000 as of September 30, 2009.

We issued to Mr.

Butler various promissory notes, convertible promissory notes, warrants and shares of restricted common stock as consideration

for these loans.

During the three months ended September 30, 2009, Mr.

Keaveney, our CFO, loaned $75,000 to us and we issued to him a promissory note in the amount of $75,000, due and payable with a cash fee of $10,000 on or before October 24, 2009.

During the six months ended December 31, 2009, Mr.

Keaveney, our CFO at the time, loaned $75,000 to us and we issued to him a promissory note in the amount of $75,000, due and payable with a cash fee of $10,000 on or before October 24, 2009.

As of the date of this filing, this note has not yet been repaid and Mr.

Keaveney is entitled to

additional cash fees of $10,000 per month for every month the note is not repaid.

Keaveney is entitled

to one additional $10,000 payment for a total of $95,000.

Capital Leases

We have acquired $819,025 in equipment through capital lease obligations primarily for computer and telephony equipment.

During the three months ended December 31, 2009, as part of our debt restructuring plan, we renegotaited the terms of our capital lease with our equipment vendor, which resulted in the disposal of certain

assets under this agreement and the restructure of the payment terms for the remaining equipment.

The future minimum payments under these capital leases are $222,500 for the remainder of fiscal 2010, $210,000 in fiscal 2011 and $260,891 in fiscal 2012.

The lease terms expire from November 2010 to June 2011.

The interest rates range from 9.1% to 21.8%.

Accounts Payable

Accounts payable at September 30, 2009 were $4,110,169.

Five vendors accounted for 47% of the payables at September 30, 2009, the largest of which accounted for 12% of the payables.

Accounts payable at September 30, 2008 were $892,678.

Three vendors accounted for 42% of the payables at September 30, 2008, the largest

Accounts payable at December 31, 2009 were $4,026,450.

Six vendors accounted for 51% of the payables at December 31, 2009, the largest of which accounted for 15% of the payables.

Accounts payable at June 30, 2009 were $5,140,268.

Three vendors accounted for 53% of the payables at June 30, 2009, the largest

of which accounted for 31% of the payables.

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now existing or hereafter acquired.

As of September 30, 2009, we owed $2,000,000 under the Thermo line of credit.

The first principal payment was due to Thermo on September 30, 2009 and as of the date of the filing of this quarterly report, payment has not been made and we are in default and the total balance has therefore been classified as a current liability.

Management is currently negotiating an extension and/or restructure of the terms of this line of credit with Thermo, and we believe that Thermo will agree to such an extension or restructuring of the terms of this line of credit.

Upon default, the entire unpaid balance of principal, together with all accrued but unpaid interest thereon, and all other indebtedness owing to Thermo at such time, which as of October 10, 2009 was $2,143,961, shall, at the option of Thermo, become immediately due and payable without further notice.

In addition, Thermo shall be entitled to

foreclose upon its security interests granted under the Agreement and to cause the Collateral to be immediately seized wherever found and sold with or without appraisal.

As of December 31 2009, we owed $2,000,000 under the Thermo line of credit.

The first principal payment was due to Thermo on September 30, 2009 and as of December 31, 2009, payment has not been made.

Therefore, as of December 31, 2009 we were in default and the total balance has therefore been classified as a current liability.

However, management has subsequently reached an agreement with Thermo to extend

and restructure the terms of this line of credit, and Flint is therefore no longer in default as of the date of the filing of this quarterly report;

see Note 19, “Subsequent Events”.

Upon default, the entire unpaid balance of principal, together with all accrued but unpaid interest thereon, and all other indebtedness owing to Thermo at such time, shall, at the option of Thermo, become immediately due and payable without further notice.

In addition, Thermo shall be entitled to foreclose upon its security interests granted

under the Agreement and to cause the Collateral to be immediately seized wherever found and sold with or without appraisal.

Collateral consists of any and all of our subsidiaries’ property or assets, real or personal, tangible or intangible, now existing or hereafter acquired, and all supporting obligations, products and proceeds of all of the foregoing.

We have a second line of credit with the Ulster Bank of Ireland in the amount of €800,000, which has a total value as of September 30, 2009 of approximately $1,167,360.

This line of credit has a 4.45% variable interest rate and continues for an indefinite period of time with no set maturity date, but which is subject to

review on an annual basis.

We had a second line of credit with the Ulster Bank of Ireland in the amount of €800,000, which had a total value as of December 31, 2009 of approximately $1,152,480.

As of December 31, 2009, Mr.

Butler repaid this line of credit on our behalf, and the amount repaid was restructured into the Series E Convertible Preferred Shares

that were subsequently issued to Mr.

Butler, See Note 19, “Subsequent Events”.

Promissory Notes and Convertible Promissory Notes

During the three months ended September 30, 2009, we issued $315,000 principal amount of Promissory Notes, some with warrants and some with shares of restricted common stock, restructured $540,000 principal amount of promissory notes into U.S.

Dollar Convertible Promissory Notes issued with warrants, and restructured $91,850 principal amount

of promissory notes originally issued to Flint Telecom, Ltd.

During the three months ended December 31, 2009, we issued $665,150 principal amount of promissory notes, some with warrants attached and some with shares of restricted common stock.

During the six months ended December 31, 2009, we issued $920,150 principal amount of promissory notes, some with warrants attached and some with shares

of restricted common stock.

During the six months ended December 31, 2009 we restructured $540,000 principal amount of promissory notes into U.S.

Dollar Convertible Promissory Notes issued with warrants, and restructured $91,850 principal amount of promissory notes originally issued to Flint Telecom, Ltd.

into convertible notes, which were assigned to third parties and converted into 334,000 shares of restricted common stock.

Substantially all of the proceeds have been used for the expansion of our business, including capital expenditures and working capital.

During the three months ended September 30, 2008, we issued $315,000 principal amount of Promissory Notes, $723,330 principal amount of U.S.

Substantially all of the proceeds have been used for the

expansion of our business, including capital expenditures and working capital.

During the three months ended December 31, 2008, we issued $250,000 principal amount of Promissory Notes, principal amount of U.S.

Dollar Convertible Promissory Notes.

As of September 30, 2009, $7,000,000 principal amount of a promissory note issued to CHVC, $2,675,976 principal amount of other promissory notes, some issued with warrants and some with shares of restricted common stock, $1,607,000 principal amount of U.S.

As of December 31, 2009, $7,147,976 principal amount of a promissory note issued to CHVC, $3,331,783 principal amount of other promissory notes, some issued with warrants and some with shares of restricted common stock, $121,500 principal amount of U.S.

Dollar Convertible Promissory Notes, $2,619,530 principal amount of U.S.

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Promissory Notes:

During the three months ended September 30, 2009, we issued a $100,000 promissory note due September 18, 2009, with warrants to purchase up to 200,000 shares of common stock at $0.50 per share and having a 3 year term.

As of September 30, 2009 this note had not been repaid and is currently in default.

Management is negotiating an

extension with this note holder and we believe we will come to a mutual agreement to extend this note.

three months ended September 30, 2009 we also issued a $125,000 promissory note with a $25,000 cash fee due on or before October 28, 2009, and a $75,000 promissory note with a $10,000 cash fee due on or before October 24, 2009.

Additional cash fees of $10,000 per month accrue for every month the note is not repaid.

As of September 30, 2009, we had a total of $2,675,976 worth of principal amounts outstanding under various promissory notes issued to approximately 20 individuals and entities, with interest rates ranging from 0% to 15%, to be repaid between 30 September 2009 and 30 September 2011.

Approximately $1,500,000 worth of principal under

these notes has not been repaid as of September 30, 2009 and is currently in default.

Management is negotiating extensions with these note holders and we believe we will come to a mutual agreement to extend these notes.

During the three months ended December 31, 2009, the following promissory notes were issued by Flint:

On October 22, 2009 we were loaned $250,000 and we issued a promissory note in the amount of $250,000, due and payable with a cash fee of $25,000 by no later than the earlier of (i) November 20, 2009, (ii) the day after we receive additional funding from a third party investor, (iii) the issuance of any debt or equity, (iv) in the event of

a warrant exercise, or (v) in the event of any other capital invested (the “Note”), and we issued a warrant to purchase up to 250,000 shares of our common stock at $0.50 per share and having a three year term.

The Note is currently in default and we received a notice of default on November 23, 2009.

The Note is secured by two million (2,000,000) shares of our restricted common stock held directly by Flint Telecom, Ltd.

Upon default, the note holder shall have the option

of either taking the security of the two million (2,000,000) shares or leaving the Note and fee in place plus interest at the highest legally valid interest rate until the Note is paid in full.

On October 28, 2009 we were loaned $230,000 and we issued a promissory note in the amount of $260,000 including accrued interest of $30,000, due and payable on or before December 28, 2009;

Flint has been unable to make this payment.

See Note 19, “Subsequent Events”;

we received a notice of default on March 2, 2010.

As of December 31, 2009, we had a total of $3,331,783 worth of principal amounts outstanding under various promissory notes issued to approximately 10 individuals and entities, with interest rates ranging from 0% to 15%, to be repaid between 30 September 2009 and 30 September 2011.

None of the principal under these notes has been

repaid as of December 31, 2009 and all of these notes are currently in default.

Upon default, the Note holders may declare their notes immediately due and payable and demand payment of all principal and the note holders may proceed to collect such amounts.

Management is in continuing discussions to restructure these notes with all of the above note holders as part of our balance sheet restructuring activities and we believe we will come to a mutual agreement to either extend these notes or convert them to equity.

Dollar Convertible Promissory Notes:

On December 18, 2009 we were loaned $50,000 by an institution and we issued a $50,000 convertible promissory note accruing interest at a rate of eight percent (8%) per annum with a maturity date of September 2010 and having a variable conversion price of 50% of the Market Price.

“Market Price” means the average of the lowest three

(3) Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent.

The terms and conditions of this Note is qualified in its entirety by reference to the full text of the Note, which is attached hereto as Exhibit 4.1, and is incorporated herein by reference.

The other U.S.

Dollar Convertible Promissory Notes were issued from December 2007 to June 30, 2008 to approximately 50 different individuals and entities with an interest rate of 12% and maturities ranging from six months to one year.

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principal plus accrued interest was converted into 92,411 shares.

One Note holder, RedQuartz, having a principal amount as of June 30, 2009 of $75,000, executed an extension to September 30, 2011.

One Note holder, RedQuartz, having a principal amount as of December 31, 2009 of $55,500, executed an extension to September 30, 2011.

The remaining $16,000 in principal is held by one note holder and was due as of December 31, 2008 and has not been repaid.

Management is negotiating an extension with this note holder and we believe that he will agree to an extension or convert the note.

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, 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 holder may at any time at his option declare the entire unpaid principal balance of the Note, together with all interest accrued hereon, due and payable.

As of September 30, 2009, a total of $1,607,000 worth of principal in U.S.

As of December 31, 2009, a total of $121,500 worth of principal in U.S.

Convertible promissory notes was outstanding.

$91,000 of that is under the promissory notes as described in the above paragraph, and the remaining $1,516,000 is owed to Mr.

Butler and is described in Footnote 9:

Related Party Transactions.

Convertible Promissory Notes issued with Warrants:

Effective September 1, 2009, we entered into an agreement with a holder of $740,000 worth of Promissory Notes to cancel all principal and cash fees due under the Notes and to invest a portion of that amount, $540,000, under the same terms and conditions of the Private Equity Offering that closed on June 30, 2009, which includes a subordinated

secured convertible promissory note having an interest at a rate of 10% per annum, convertible at $0.275 per share into an aggregate of up to 1,963,636 shares of restricted common stock, with a maturity date 18 months after the Closing (the “Notes”) and warrants to purchase an aggregate of up to 1,963,636 shares of our restricted common stock at $0.35 per share, having a five year term and a cashless exercise provision (the “Warrants”).

The Warrants are not exercisable until

our Articles of Incorporation are amended to increase the number of total authorized shares of common stock to 200,000,000.

The holder was also granted a subordinated security interest in all of our assets.

The remaining $200,000 continues to be due and payable by no later than September 30, 2009.

To date, the $200,000 has not yet been repaid and is in default.

Management believes that the Note holder will agree to another extension.

This Note is secured by 5,000,000 shares of

China Voice Holding Corp.’s restricted common stock held directly by Flint;

additionally, Mr.

Keaveney, our CFO, and Mr.

Browne, our CEO, jointly and severally, also personally guaranteed this Note.

Upon default, the Note holder may declare this Note immediately due and payable and demand payment of all principal and the Note holder may proceed to collect such amount.

As of September 30, 2009, we also have $1,200,000 worth in principal amount of subordinated convertible promissory notes outstanding having an interest rate of 10% per anum, convertible at $0.275 per share into an aggregate of 4,363,636 shares of restricted common stock, with a maturity date 18 months after the issuance dates, and warrants

to purchase an aggregate of up to 4,363,636 shares of our restricted common stock at $0.35 per share, having a five year term and a cashless exercise provision.

As a result of the issuance of the convertible promissory note in the three months ending December 31, 2009, the conversion prices of the already outstanding convertible promissory notes issued in the total principal amount of $1,140,000 have been adjusted to match the variable conversion price in the new note, which, as of December 31, 2009,

equals $0.025 per share.

Additionally, because Flint was not been able to repay a number of its other promissory notes in accordance with their existing terms and conditions, an event of default occurred on the existing convertible promissory notes and therefore the exercise price of the related warrants issued to purchase up to 4,145,454 shares of Flint’s common stock has been reduced from $0.35 per share to $0.01 per share.

Finally, additional warrants to purchase up to 1,036,363 shares of

Flint’s common stock at an exercise price of $0.01 per share, having a five year term, were also issued.

As of December 31, 2009, we have $1,740,000 worth in principal amount of subordinated convertible promissory notes outstanding having an interest rate of 10% per annum, convertible at a variable conversion price, which as of December 31, 2009 is $0.09 per share, into an aggregate of 19,333,333 shares of restricted common stock, with a maturity

date 18 months after the issuance dates, and warrants to purchase an aggregate of up to 5,181,817 shares of our restricted common stock at a revised exercise price of $0.01 per share, having a five year term and a cashless exercise provision.

These holders were also granted a subordinated security interest in all of our assets.

For the three months ended September 30, 2009, the warrant component of the promissory notes was valued at $1,640,807.

The value was recorded as a discount to the promissory note and $619,764was expensed in the three months ending September 30, 2009.

The following are the assumptions used for the Black Scholes calculation:

Three Months Ended

September 30, 2009

However, $600,000 worth in principal amount of these notes were held by Mr.

Butler and were subsequently restructured into Shares of Series E Convertible Preferred

Stock along with the remaining $879,530 Notes that did not carry this feature;

see Note 19, “Subsequent Events”.

Also, in accordance with the terms of the agreements related to these notes, each note holder cannot beneficially own greater than 4.99% of our total issued and outstanding common stock at any given point in time.

For the three and six months ended December 31, 2009, the warrant component of the promissory notes was valued at $913,012 and $2,375,537, respectively.

The value was recorded as a discount to the promissory note and $70,300 and $779,091 was expensed in the three and six months ending December 30, 2009, respectively.

The following are the

assumptions used for the Black Scholes calculation:

Six Months Ended

December 31, 2009

Expected term (in years)

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Common Stock:

As of September 30, 2009, we had 100,000,000 total shares of common stock authorized and 88,785,975 shares were issued and outstanding, however, 12,500,082 of these shares have not yet vested and vesting is contingent upon continued employment with the Company;

these shares will not be considered issued and outstanding until the shares vest,

and therefore as of September 30, 2009, 76,285,811 shares were issued and outstanding.

Effective December 2, 2009, as approved by our stockholders at our annual stockholders meeting, we filed an amendment to our articles of incorporation increasing our total authorized shares of common stock to 200,000,000.

As of December 31, 2009, we had 200,000,000 total shares of common stock authorized and 89,285,975 shares were issued and outstanding, however, 11,250,082 of these shares have not yet vested

and vesting is contingent upon continued employment with the Company;

these shares will not be considered issued and outstanding until the shares vest, and therefore as of December 31, 2009, 78,035,893 shares were issued and outstanding.

There is no special voting or economic rights or privileges.

A small portion of the remaining unvested shares vested in January 2010 and the remaining unvested shares were cancelled due to various officer and employee resignations, See Note 19, “Subsequent Events”.

Preferred Stock:

As of September 30, 2009, 5,000,000 total shares of preferred stock were authorized and 886,981 shares of Series C preferred stock were issued and outstanding, par value $0.001.

As of December 31, 2009, 5,000,000 total shares of preferred stock were authorized.

864,385 shares of Series C preferred stock were issued and outstanding, par value $0.001.

These shares are not convertible into common stock and have no voting rights.

As of September 30, 2009, there are no shares of Series A or B preferred stock issued

or outstanding.

As of December 31, 2009, there are no shares of Series A or B preferred stock issued or outstanding.

shares of Series E Convertible Preferred Shares were issued in February, 2010 pursuant to a settlement agreement signed on December 31, 2009 with Michael Butler, one of our board members;

Subsequent Events for more details.

We have, as part of various debt and other agreements, issued warrants to purchase our common stock.

The following summarizes the information relating to all warrants issued and outstanding as of September 30, 2009:

The following summarizes the information relating to all warrants issued and outstanding as of December 31, 2009:

Number of Warrants

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Expiration Date

All warrants are fully exercisable upon issuance other than the June 30, 2009 and September 1, 2009 subscription warrants, which cannot be exercised until our total authorized common shares have been increased to at least 200,000,000, which we expect to occur at our next annual shareholders’ meeting to be held on December 2, 2009.

shareholders holding more than a majority of our common shares outstanding have agreed to vote for an increase in our total authorized shares from 100,000,000 to 200,000,000 at our next annual shareholders’ meeting.

All warrants are fully exercisable.

Because Flint has not been able to repay a number of its other promissory notes issued to various third parties on time and under their existing terms and conditions, an event of default has occurred and therefore the exercise price of the warrants issued to purchase up to 4,145,454 shares of Flint’s common stock has been reduced from $0.35 per share to $0.01 per share, and additional warrants to purchase up to

1,036,363 shares of Flint’s common stock were issued.

2009 Restricted Stock Plan:

The 2009 Restricted Stock Plan (the “2009 Plan”) was adopted by us and our board of directors in October 2009 and on December 2, 2009 the 2009 Plan was approved by our stockholders.

The purpose of the 2009 Restricted Stock Plan is to provide the Company’s employees, directors, officers and consultants, whose present

and potential contributions are important to the success of the Company, an incentive, through ownership of the Company’s common stock, to encourage the Company’s employees, directors, officers and consultants to accept or continue in service with the Company, and to help the Company compete effectively with other enterprises for the services of qualified individuals.

A total of 35,000,000 shares of our common stock has been initially reserved for issuance under the 2009 Plan, subject to adjustment

only in the event of a stock split, stock or other extraordinary dividend, or other similar change in the common stock or capital structure of the Company.

As of December 31, 2009, 11,500,000 shares have been issued, of which, 1,250,000 have vested as of October 6, 2009.

The 2009 Restricted Stock Plan provides for the grant of restricted stock, subject to terms, conditions and restrictions as determined by the Board.

The Board shall have the power, from time to time, in its discretion, to select those employees, officers, directors or consultants to whom Awards shall be granted under the Plan, to

determine the number of Shares to be granted pursuant to each Award, and, pursuant to the provisions of the Plan, to determine the terms and conditions of each Award (which need not be identical) including any additional restrictions applicable to such Shares, including the time or times at which the Shares shall be sellable, and to interpret the Plan's provisions, prescribe, amend and rescind rules and regulations for the Plan, and make all other determinations necessary or advisable for the administration of

All awards shall be granted within ten years from the date of adoption of the Plan by the Board.

Stock Option Plans:

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Non-qualified options granted under the Plan generally vest 100% immediately.

As of September 30, 2009, 1,163,750 options were outstanding under the 2005 Plan.

As of December 31, 2009, 1,163,750 options were outstanding under the 2005 Plan.

Stock Based Compensation, for stock option activity.

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The Plan expired in June of 2006, ten years after its adoption.

As of September 30, 2009, 54,975 options remain outstanding and exercisable under the 1996 Plan.

As of December 31, 2009, 54,975 options remain outstanding and exercisable under the 1996 Plan.

Earnings (Loss) Per Share

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Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

Since we incurred a net loss for the three months ended September 30, 2009, 16,047,182 potential shares were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive .

Since we incurred a net loss for the three months ended September 30, 2008, 8,741,215

Since we incurred a net loss for the three and six months ended December 31, 2009, 12,930,818 potential shares were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive .

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

24,262,188 potential shares were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive.

We reported a net loss of $3,052,220)for the three months ended September 30, 2009.

We reported a net loss of $1,145,957 for the three months ended September 30, 2008.

We reported a net loss of $10,093,977 and $13,106,197, respectively, for the three and six months ended December 31, 2009.

We reported a net loss of $8,548,596 and $9,694,543, respectively, for the three and six months ended December 31, 2008.

Stock Based Compensation

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We recognize expense related to the fair value of employee stock option awards on a straight line vesting basis over the vesting period of the award.

Total stock expense recognized by us during the three months ended September 30, 2009 was $582,858.

Total stock option expense recognized by us during the three and six months ended December 31, 2009 was $15,432 and $31,141, respectively.

We have estimated the fair value of our option awards granted on or after October 1, 2008 using the Black-Scholes option valuation model that uses the assumptions noted in the following table.

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Black-Scholes -Based Option Valuation Assumptions

September 30, 2009

December 31, 2009

4.0 – 7.0 yrs

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Risk-free rate

The following table summarizes the stock option transactions for the three months ended September 30, 2009 based upon a closing stock price of $0.22 per share as of September 30, 2009:

The following table summarizes the stock option transactions for the three months ended December 31, 2009 based upon a closing stock price of $0.09 per share as of December 31, 2009:

Stock Options

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Intrinsic Value ($)

Outstanding at July 1, 2009

Outstanding at September 30, 2009

Exercisable at September 30, 2009

The aggregate intrinsic value of outstanding options as of September 30, 2009 was $450, and is calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the shares that had exercise prices that were lower than the $0.22 market price of our common stock at September 30, 2009.

No options were exercised during the three months ended September 30, 2009 or 2008.

Outstanding at October 1, 2009

Outstanding at December 31, 2009

Exercisable at December 31, 2009

The aggregate intrinsic value of outstanding options as of December 31, 2009 was $0, and is calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the shares that had exercise prices that were lower than the $0.09 market price of our common stock at December 31, 2009.

No options were exercised during the three months ended December 31, 2009 or 2008.

Restricted Common Stock:

During the three months ended September 30, 2009, we issued a total of 501,515 shares of restricted stock to consultants as settlements for services rendered.

We recorded approximately $185,561 in expense for the three months ended September 30, 2009 related to these shares of restricted common stock granted to these consultants.

During the three months ended December 31, 2009, 1,250,000 shares of unvested restricted common stock issued to employees under our 2009 Restricted Stock Plan vested, and we recorded approximately $381,688 and $763,374 in expense for the three and six months ended December 31, 2009, respectively, related to the vesting of these shares.

also issued a total of 501,515 shares of restricted stock to consultants as settlements for services rendered during the six months ended December 31, 2009.

We recorded $0 and $185,561 in expense for the three and six months ended December 31, 2009, respectively, related to these shares of restricted common stock granted to these consultants.

Exchange Gains and Losses

We maintain certain bank accounts denominated in Euros and as of September 30, 2009 have issued and outstanding €1,123,840 convertible notes, €100,000 in non-convertible notes payable, and a portion equal to one million dollars (USD$1,000,000) of the balance due on a $7,000,000 note must be paid through a payment

We maintain certain bank accounts denominated in Euros and as of December 31, 2009 have issued and outstanding €1,123,840 convertible notes, €100,000 in non-convertible notes payable, and a portion equal to one million dollars (USD$1,000,000) of the balance due on a $7,000,000 note must be paid through a payment

of GBP£721,000, regardless of whether the U.S.

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Dollar so that transactions and balances are translated into dollars.

We recorded a $5,845 loss and a $245,883 gain on translation for the three months ended September 30, 2009 and 2008, respectively.

We recorded a $10,807 loss and a $245,883 gain on translation for the three and six months ended December 31, 2009 and 2008, respectively.

Subsequent Events

We have evaluated subsequent events through November 23, 2009, which is the date the financial statements were available to be issued.

The Note is currently in default and we received a notice of default on November 23, 2009.

The Note is secured by two million (2,000,000) shares of our restricted common stock held directly by Flint Telecom, Ltd.

Upon default, the note holder shall have the option

of either taking the security of the two million (2,000,000) shares or leaving the Note and fee in place plus interest at the highest legally valid interest rate until the Note is paid in full.

On October 28, 2009 we were loaned $230,000 and we issued a promissory note in the amount of $260,000 including accrued interest of $30,000, due and payable on or before December 28, 2009.

We have evaluated subsequent events through March 25, 2010, which is the date the financial statements were issued.

On January 29, 2010 Flint issued a $50,000 convertible promissory note to an institution with a variable conversion price of 50% of the lowest closing price for Flint’s common stock during the previous 20 trading days.

The terms and conditions of this Note is qualified in its entirety by reference to the full text of the Note, which

is attached hereto as Exhibit 4.2, and is incorporated herein by reference.

As a result of this issuance, the conversion prices of the outstanding convertible promissory notes issued in June and September 2009, having a total combined principal amount of $1,140,000, have been adjusted to match the above variable conversion price calculation, which, as of the date of this filing, equals $0.02 per share and could result in a maximum total potential issuance of 57,000,000 shares.

However, in accordance with the

terms of the agreements related to these notes, each note holder cannot beneficially own greater than 4.99% of our total issued and outstanding common stock at any one point in time.

On March 8, 2010 SEL Nominees Ltd.

(“SEL”) loaned us $58,000 and we issued a $58,000 convertible promissory note accruing interest at a rate of eighteen percent (18%) per month, with interest only payments due each month and a maturity date of March 2011, and having a variable conversion price of 50% of the Market Price.

Price” means the average of the lowest three (3) Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent.

The terms and conditions of this Note is qualified in its entirety by reference to the full text of the Note, which is attached hereto as Exhibit 4.3, and is incorporated herein by reference.

On March 12, 2010 SEL loaned us $40,000 and we issued a $40,000 convertible promissory note accruing interest at a rate of eighteen percent (18%) per month with interest only payments due each month and a maturity date of March 2011, and having a variable conversion price of 50% of the Market Price.

“Market Price” means the average

of the lowest three (3) Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent.

The terms and conditions of this Note is qualified in its entirety by reference to the full text of the Note, which is attached hereto as Exhibit 4.4, and is incorporated herein by reference.

SEL is a related party due to the fact that SEL is controlled by Mr.

Butler, one of our board members.

Resignation of Certain Officers

In order to pursue other interests, effective February 4, 2010, Steve Keaveney resigned as the Chief Financial Officer and as a Director, and Tali Durant resigned as Chief Legal Officer and Corporate Secretary of Flint Telecom Group, Inc.

(the “Company”).

Keaveney and Ms.

Durant have been retained as consultants.

effective February 4, 2010, John Iacovelli resigned as the Chief Technology Officer and Jose Ferrer resigned as the Vice President of Business Development of the Company.

Vincent Browne, the CEO of the Company, has been appointed to serve as CFO and Corporate Secretary for the foreseeable future.

Additionally, Bill Burbank resigned as the President and Chief Operating Officer of the Company, effective February 4, 2010.

In connection with Mr.

Burbank’s resignation, the Company entered into a Separation Agreement with Mr.

Burbank (the “Separation Agreement”), effective February 5, 2010.

The Separation

Agreement provides that Mr.

Burbank will be paid an aggregate of approximately $150,000 in cash and $495,000 worth of shares of restricted common stock, consisting of:

payment for past wages owed, of approximately $45,785;

repayment for various loans made to the Company, in the amount of $100,000;

reimbursement for approved expenses in an amount that has yet to be determined;

all such cash payments as listed above shall be paid in the future as funds become available;

acceleration of 1,500,000 shares of his unvested restricted stock and the grant and issuance of 4,000,000 additional shares of immediately vested restricted common stock, for a total of 5,500,000 shares of restricted common stock.

The closing price of our common stock on February 5, 2010 was $0.09 per share, and therefore the total fair market value of these shares as of February 5, 2010 was $495,000.

Resignation of Certain Directors

Effective February 4, 2010, Bill Burbank resigned as a Director.

Effective February 17, 2010, Anthony LaPine resigned as the Chairman of the Board of Flint, and Robert Lanz resigned as a Director and as Chairman of the Audit Committee.

In connection with Mr.

Lanz’s resignation, the Company issued Mr.

Lanz 200,000 shares of restricted common stock.

Vincent Browne, the CEO of the

Company, has been appointed to serve as Chairman of the Board.

Election of Director and Officer

Effective February 23, 2010, Bernard A.

Fried was elected as President and Chief Operating Officer of the Company, and was appointed as a member of the Board of Directors.

Flint entered into an employment agreement with Mr.

Fried, effectuating the following:

Fried’s title is President and COO of Flint;

Fried was appointed as a member of Flint’s Board of Directors, (iii) Mr.

will receive a salary in the amount of $186,000 per year, and (iv) Mr.

Fried was issued 6,000,000 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 vested at his four year anniversary with Flint.

The foregoing description of Mr.

Fried’s Employment

Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

The following is a description of the business experience of Mr.

Fried for at least the past five years:

Fried, age 64.

Fried currently serves as managing member of FCI Companies, LLC, a successor company to Fried Consulting, Inc.

Previously, he served as Vice President and Managing Director of Condado Group, Inc., a customer relationship management and call

center consulting firm.

Prior to joining Condado Group, Mr.

Fried was President of Fried Consulting, Inc, a call center and telecommunications consulting firm.

During his career, he has held numerous executive positions in the call center, telecommunications, and biometric industries.

Fried currently also serves on the Board of Directors of the United States Internet Industry Association, and is a former board member of Ascent (which merged into Comptel), one of the primary associations for the wholesale telecommunications industry.

Fried also currently teaches management and leadership courses in

the School of Professional and Graduate Studies at Baker University in Kansas.

Fried received his MBA, with distinction, from Pace University in New York.

Michael Butler Debt Restructure

Subject to an agreement that was executed December 31, 2009 that became effective February 5, 2010 we executed a settlement agreement with Mr.

Butler in which all of Mr.

Butler’s loans to Flint were cancelled in exchange for 302,000 shares of Series E preferred stock of Flint, valued at €10.00 per share, having the following material terms:

Yielding a 14% annual dividend payment, payable monthly in Euros, from February 28, 2010;

Convertible at any time into that number of shares of Common Stock as is determined by the quotient of (i) €10.00 over (ii) the Conversion Price in effect at the time of conversion.

The Conversion Price has a 20% discount to the Market Price at time of conversion and subject to a minimum conversion price of $0.275 per Common Share

Market Price means the average closing price of Flint’s common stock over the twenty trading days preceding the conversion request date

The common stock issued at the time of conversion will be restricted stock and subject to SEC 144 Rule

Based on the minimum conversion price, Mr.

Butler would receive 10,981,818 shares of common stock if all preferred shares were converted into common stock.

The Preference Shares will be transferable at Mr.

Butler’s discretion, after giving Flint a right of first refusal;

A penalty rate of 0.5% per month on the total amount outstanding will apply for dividend payments that are more than 10 days late, and will continue to apply until default payments are caught up.

The foregoing description of the Settlement Agreement and Certification of Designation of Series E Preferred Stock are qualified in their entirety by reference to the full text of those agreements, which were attached to an SEC Form 8-K that was filed on February 11, 2010.

Thermocredit Line of Credit Restructure

Flint management and Thermo have reached an agreement to extend and restructure the terms of the Thermo line of credit, and Flint is therefore no longer in default as of the date of the filing of this quarterly report.

An amendment to the existing line of credit agreement is currently being formalized and will be publicly disclosed

once it has been fully executed by both parties.

Legal Proceedings.

On February 9, 2010 Mr.

Thomas Davis and the Davis Group (“Davis”) filed a complaint against us in the United States District Court for the Southern District of New York.

This suit alleges three causes of action for payment due under certain promissory notes issued, and four causes of action for breach of contract.

Complaint claims that we failed to make payments as they became due under a number of promissory notes issued by us to Davis and under other loans made by Davis to Flint.

Davis seeks damages in the total amount of $1,325,000 plus interest, attorney’s fees and costs.

We have not responded to this complaint and expect summary judgment to be entered.

Davis is in active discussions with management to restructure the amounts due to him and management is confident that a successful resolution

will come from these discussions.

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