What changed in this filing

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Item 1. Financial Statements

2010-11-15 compared with 2010-05-24 · 443 added, 500 removed, 255 unchanged (79% 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 $238,820

for March 31, 2010 and $205,397 for June 30, 2009

Notes receivable

Investment in marketable securities

Due from Flint Telecom, Ltd.

Due from related parties

for September 30, 2010 and $431,381 for June 30, 2010

Prepaid expenses and other current assets

5 unchanged sentences

Net fixed assets

Other intangible assets, net

LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)

Deferred offering costs

LIABILITIES & STOCKHOLDERS' (DEFICIT)

Current liabilities:

Accounts payable – trade

Accounts payable

Cash overdraft

3 unchanged sentences

Lines of credit

Due to Flint Telecom Limited

Notes payable

Notes payable – related parties, net of discount

Notes payable – related parties

Convertible notes payable, net of discount

Convertible notes payable – related parties, net of discount

Preferred convertible note payable – related party, net of discount

Due to Flint, Ltd.

Redeemable preferred stock

Convertible notes payable – related parties

Total current liabilities

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

Notes payable due to related parties – long term

Convertible notes payable – long term, net of discount

Lease obligations - long-term

1 unchanged sentence

Commitments and contingencies

Stockholders' equity (deficit)

Stockholders' (deficit)

Preferred stock:

$0.001 par value;

5,000,000 authorized:

21,575 Series C issued and outstanding at March 31, 2010, 1,250,000 Series C issued and outstanding at June 30, 2009;

302,000 Series E issued and outstanding at March 31, 2010, 0 Series E issued and outstanding at June 30, 2009

5,000,000 authorized, 608,780 issued and outstanding at September 30, 2010, 668,780 issued and outstanding at June 30, 2010

Common stock:

$0.01 par value;

200,000,000 authorized, 89,820,958 issued and 88,820,958 outstanding at March 31, 2010, 71,294,702 issued and outstanding at June 30, 2009

100,000,000 authorized, 316,900,384 issued and outstanding at September 30, 2010, 129,824,422 issued and outstanding at June 30, 2010

Common stock issuable

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders' equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Total stockholders' (deficit)

Total liabilities and stockholders’ equity

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

September 30,

Cost of revenues

3 unchanged sentences

Salaries and payroll related expense

Management fee to Flint Telecom, Ltd.

Management fee payable to Flint Telecom, Ltd.

Stock compensation and option expense:

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Interest expense

Loss on disposal of fixed asset

Foreign exchange

Discontinued operations, net of tax

Impairment of goodwill and other intangible assets

Impairment of fixed assets

Net loss per common share:

Net loss from continuing operations

Income from discontinued operations

Net income (loss) per common share:

Continuing operations

Discontinued operations

Net loss per share (basic & diluted)

Weighted average shares outstanding:

Basic & diluted

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

September 30,

Cash Flows from Operating Activities:

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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 disposal of fixed assets

Impairment of fixed assets

Gain on disposal of Semotus

Amortization of debt issuance costs / beneficial conversion feature

Accretion of debt discount

Amortization of beneficial conversion feature

Changes in assets and liabilities, net of acquisition and disposals:

1 unchanged sentence

Prepaid expense

Deferred offering costs

Accounts payable

Cash overdraft

Other accrued liabilities

Accrued liabilities

Net due from Flint Telecom, Ltd.

Deferred revenue

Due from related parties

Accrued interest

2 unchanged sentences

Purchases of fixed assets

Cash assumed in acquisition of Semotus

Increase in notes receivable

Investment in notes receivable

Net cash used in investing activities

1 unchanged sentence

Proceeds from lines of credit

Proceeds from related party debt

Proceeds from related parties debt

Proceeds from debt

Payments on debt

Investment from Flint Telecom Ltd.

Payments on related party debt

Payments on line of credit

Short term notes repaid

Proceeds from the offering

Payments on lease obligations

Net cash provided by financing activities

Redemption of preferred stock

Net cash provided (used) by financing activities

Cash Flows From Foreign Currency Activities:

Exchange (gain) loss on convertible notes

Net increase (decrease) in cash

Net cash provided by foreign currency activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the period

8 unchanged sentences

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:

Assets purchased under capital lease obligations

Conversion of notes payable and accrued interest (Note 11)

1 unchanged sentence

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

Transfer of due from Flint Telecom, Ltd.

to notes payable

Deferred stock compensation

Common stock issued upon conversion of notes payable and accrued interest

Purchase of marketable securities

Acquisition of Semotus Solutions, Inc.:

Accounts receivable

Prepaid expense

Accounts payable

Accrued liabilities

Deferred revenue

Disposition of Semotus Solutions, Inc.:

Accounts receivable

Prepaid expense

Accounts payable

Accrued liabilities

Deferred revenue

Acquisition of CHVC Subsidiaries:

Accounts receivable

Prepaid expense

Investment in marketable securities

Other intangible asset

Accounts payable

Accrued liabilities

Redeemable preferred stock

Reduction of Due to Flint Limited through assumption of notes payable

Conversion of series D preferred shares into common stock

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) AND OTHER COMPREHENSIVE LOSS

STATEMENT OF STOCKHOLDERS’ (DEFICIT)

Common Stock Issuable

Preferred Shares

Paid-In Capital

Compre-hensive Loss

(Series D, E, F & G)

Balances at June 30, 2010

Conversion of notes payable

Beneficial conversion feature on convertible notes payable

Shares issued to consultants for services

Issuance of warrants to holders of notes payable

Conversion of notes payable into equity

Stock compensation expense

Stock options expense

Comprehensive Loss:

Comprehensive loss

Net loss for the three months ended September 30, 2009

Balances at September 30, 2009

Beneficial conversion feature on convertible notes payable

Stock payable issued, net of cancellations

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

Beneficial conversion feature on convertible notes payable

Shares issued to consultants for services

Shares issued for cashless exercise of warrants

Conversion of notes payable

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

Stock payable issued

Stock compensation expense

Stock options compensation expense

Comprehensive loss:

Comprehensive loss

Net loss for the three months ended March 31, 2010

Balances at March 31, 2010

See accompanying notes to condensed consolidated financial statements.

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

Conversion of preferred stock into common shares

Net loss for the quarter ended September 30, 2010

Balances at September 30, 2010

See accompanying notes to consolidated financial statements.

FLINT TELECOM GROUP, INC.

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We were originally formed in 2005 as Flint Telecom, Inc., a Delaware Corporation, and started operations in April 2006 as a wholly owned subsidiary of Flint Telecom Limited, headquartered in Dublin, Ireland.

Telecom Limited is a holding company whose sole operating business in the United States was Flint Telecom, Inc.

Flint Telecom Limited is a holding company whose sole operating business in the United States was Flint Telecom, Inc.

Flint Telecom Limited was a vehicle for the initial funding of Flint and for the development of proprietary intellectual property.

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in exchange for 28,460,094 shares of restricted common stock pursuant to a definitive Contribution Agreement dated April 23, 2008.

Although Semotus is the legal acquirer, for accounting purposes

Flint is the accounting acquirer.

Although Semotus is the legal acquirer, for accounting purposes Flint is the accounting acquirer.

The name was changed to Flint Telecom Group, Inc.

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 four wholly-owned subsidiaries, Cable and Voice Corporation, Phone House, Inc., Flint Prepaid, Inc.

(previously named 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 are headquartered at 7500 College Blvd., Suite 500, Overland Park, Kansas 66210, and our telephone number is 913-815-1570.

The address of our website is www.flinttelecomgroup.com .

We operate our business through six wholly-owned subsidiaries, Cable and Voice Corporation, Phone House, Inc., Flint Prepaid, Inc.

(previously named Wize Communications, Inc.), Digital Phone Solutions, Inc., Ingedigit International, Inc.

and Gotham Ingedigit Financial Processing Corp.

dba Power2Process, as further described below.

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

We distribute telecommunications services and products through our distribution channels.

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

- Cable and Voice Corporation was established on June 1, 2008, and is a master distributor of advanced broadband products and services located in Tampa, Florida.

Cable and Voice Corporation – Cable and Voice Corporation was established on June 1, 2008, and is located in Tampa, Florida.

Through Cable and Voice, the Company is a leading value-added master distributor of advanced broadband products and services to cable, telecommunications, enterprise and service provider customers throughout the United States.

Through Cable and Voice, the Company offers a wide range of products and services which include cable modems, cables, UPS units, AV Powerline and Homeplug adapters, Wi-Fi and cellular wireless hardware and software applications, Intelligent Telephone Adapters (ITA) and IP Telephones for VoIP services and other customer premise equipment.

Phone House, Inc.

of California was established on June 12, 2001 and provides discount calling cards that enable users who purchase cards in the United States to call internationally.

– Phone House, Inc.

was established on June 12, 2001, and is located in Artesia, California.

Phone House is a master distributor for discount calling products that enable users who purchase cards in the United States to call China, India, Mexico, Africa, South America, Brazil, Bangladesh, and other countries throughout the world at significant savings.

The international calling cards may be used to call from the United States to other countries, to call from other countries to the United States, or to call between countries outside the United States.

These products are currently sold through a network of over 90 private distributors.

Through this network, the Company estimates that its calling products are sold through over 10,000 retail outlets in the United States, of which more than 5,000 retail outlets are located in Southern California.

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.

– Digital Phone Solutions, Inc.

was established on January 29, 2009, and is located in Overland Park, Kansas.

Through Digital Phone Solutions, the Company provides a suite of enhanced IP telephonic solutions aimed primarily at small and medium sized enterprises in the United States.

Digital Phone Solutions, Inc.

delivers all the value added services that manage the entire value-chain including billing, customer care, call routing, service provisioning.

Advanced features such as voicemail-delivered-to-email, free inter-office calling, and virtual phone numbers provide additional revenue opportunities.

Digital Phone Solutions enables its customers to establish reliable, feature rich and cost effective digital phone services very quickly with zero capital investment.

Flint Prepaid, Inc.

(previously named 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, as of March 31, 2010 we have shut down four of our other wholly owned subsidiaries:

– Flint Prepaid, Inc.

(previously Wize Communications, Inc.) was incorporated on March 30, 2009, and is located in Overland Park, Kansas.

Flint Prepaid is a retail focused company selling directly to end-users through master distributors and retailers.

Flint Prepaid provides pre-paid calling services primarily to immigrant customers wanting to make inexpensive quality calls to their home countries.

These value-based calling cards are regionalized and selectively marketed depending on the geographical area and user community.

Ingedigit International Inc.

(“III”) is a U.S.

based international pre-paid debit card company, partnered with both U.S.

banks and international banks to offer debit cards to their customers.

Included with the debit card services are additional services, allowing the partnering banks to add new customers, share funds between existing card holders and perform international fund remittance.

All transactions are fully compliant with U.S.

and international money laundering laws, as well as counter-terrorism regulations.

Transactions are practically instantaneous, available to the card-holder on a 24/7, 365-day basis.

The Company’s current markets include the United States, Canada, Mexico, India, Central and South America, Gulf Coast Countries, and the Philippines.

The Company intends to expand into the U.K., Africa, Sri Lanka, Bangladesh and the Pacific Rim markets in the near future.

Gotham Ingedigit Financial Processing Corp.

dba Power2Process is a U.S.

based advanced financial transaction processing and technology company, working with banking clients and other program sponsors globally.

Using Power2Process solutions, clients can deliver ‘own brand’ financial transaction processing services, such as pre-paid products, virtual accounts, money remittances and other stored value services.

Both MasterCard and fully PCI Certified, as well as being SAS-70 compliant, P2P is in the unique position of having complete control of all its services from applications development and processing to marketing and support for a full array of back office processing, including ATM and POS network integration and management.

As part of our ongoing emphasis on streamlining our operations and reaching sustainable profitability, during the fiscal year ended June 30, 2010 we shut down and disposed of four of our other wholly owned subsidiaries:

CVC Int’l, Phone House Inc.

of Florida, Dial-Tone Communications and Starcom Alliance.

Consequently, we recognized a loss in the form of a one-time impairment

charge of goodwill and other intangibles in the amount of $12,215,200.

Consequently, we recognized a loss in the form of a one-time impairment charge of goodwill and other intangibles in the amount of $12,215,200.

Following the corporate restructuring during the fiscal year ended June 30, 2010, the Company’s management decided to structure the business into three separate operating segments.

These segments are (1) the sale of third-party telecoms and networking equipment and software services (collectively referred to as equipment as “telecom software, services & equipment”), (2) the sale of Company produced and third-party prepaid calling products (collectively referred to as “prepaid telecom services”) (3) the delivery of wholesale and VoIP telecom services to other operators and direct to end users (collectively referred to as “telecom services”).

Selling, general and administrative expenses, primarily consisting of compensation of corporate employees, professional fees and overhead costs not directly related to a specific operating segment are reflected in the table below as “corporate activities.” See Note 18, Segment Information, for more details

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-X.

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 and nine months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010.

Operating results for the three months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.

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.

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 20, 2010.

Going Concern

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 $21,616,123 and $10,940,839 for the nine months ended March 31,

2010 and 2009, respectively, negative cash flow from operating activities of $2,005,556 for the nine months ended March 31, 2010, an accumulated stockholder’s deficit of $42,652,080 and a working capital deficit of $18,594,788 as of March 31, 2010.

Also, as of March 31, 2010, we had limited liquid and capital resources.

As reflected in the accompanying financial statements, Flint had a net loss of $2,089,583 and $28,865,778 for the three months ended September 30, 2010 and for the year ended June 30, 2010, respectively, negative cash flow from operating activities of $226,159 for the three months ended September 30, 2010, an accumulated stockholder’s deficit of $ 12,675,119 and a working capital deficit of $12,915,595 as of September 30, 2010.

Also, as of September 30, 2010, 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.

As of the date of this filing we are currently in default on a number of notes payable and other debt repayment plans.

As a result, all outstanding principal and accrued interest, if any, outstanding and owed as of the date of default shall be immediately due and payable, which include, but are not limited to, the following (these amounts reflect principal amounts only):

Thermocredit ($2,000,000), CHVC ($1,520,242), Tom Davis ($800,000), and Bill Burbank ($190,000) (See Related Parties Note 8, Notes Payable Note 11, and Subsequent Events Note 19 for more details).

We have also not made any dividend payments on our Series E preferred stock as these payments have become due (See Stockholders Equity Note 13).

The foregoing factors raise substantial doubt about our ability to continue as a going concern.

Ultimately, our ability to continue as a going concern is dependent upon our ability to attract new sources of capital, exploit the growing telecom services market in order to attain a reasonable threshold of operating efficiency and

achieve profitable operations.

Ultimately, our ability to continue as a going concern is dependent upon our ability to attract new sources of capital, exploit the growing telecom and prepaid financial services market in order to attain a reasonable threshold of operating efficiency and achieve profitable operations.

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

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 March 31, 2010 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 nine months ended March 31, 2010, $1,228,425 was paid to CHVC and 1,228,425 shares of Series C preferred stock was redeemed.

As of March 31, 2010, a total of $1,778,425 had been paid to CHVC and 1,778,425 shares of Series C preferred stock had been redeemed by CHVC, in accordance with the agreement, as amended and as described

above, leaving $21,575 to be paid to CHVC and 21,575 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 $570,000 and $712,500 in expense in the three and nine months ended March 31, 2010, respectively, related to the shares of restricted common stock granted to these executive officers and key employees.

During the three months ended March 31, 2010, 2,250,000 of these shares vested and the remaining 750,000 were cancelled.

We recorded approximately $167,519 in expense in the three

and nine months ended March 31, 2009, related to the shares of restricted common stock granted to these executive officers and key employees

Management expects that the successful outcome of these discussions will allow us to become EBITDA positive as soon as possible.

We have secured a $10 million Reserve Equity Financing agreement with AGS Capital Group, LLC that we can draw against when a planned S1 Registration Statement becomes effective with the SEC (See Note 19 for more details) and other 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.

Recent Accounting Pronouncements

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2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements.

This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons

for the transfers.

This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers.

Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements.

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We are currently evaluating the impact of this ASU;

however, we do not expect the adoption of

this ASU to have a material impact on our consolidated financial statements.

however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In February 2010, the FASB issued ASU No.

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Under this ASU, a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been evaluated.

This ASU is effective

upon the issuance of this ASU.

This ASU is effective upon the issuance of this ASU.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

1 unchanged sentence

2010-18 regarding improving comparability by eliminating diversity in practice about the treatment of modifications of loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Subtopic 310-30”).

the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration.

Furthermore, the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration.

Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors.

The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring

in the first interim or annual period ending on or after July 15, 2010.

The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.

The amendments are to be applied prospectively.

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

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

The guidance 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, 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.

It also requires expanded qualitative and quantitative disclosures.

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

1 unchanged sentence

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.

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 November 15, 2009.

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

our consolidated financial statements.

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 20% of the Company’s revenue for the three months ended March 31, 2010.

Two customers accounted for 44% of our revenue for the nine months ended March 31, 2010, comprising 31% and 13% each.

Two customers accounted for 14% and 15% of the accounts receivable at March 31, 2010, for a total

of 29% of the receivables.

Two customers accounted for 39% and 18% of our revenue, respectively, for the three months ended March 31, 2009.

Four customers accounted for 25%, 14%, 14% and 12% of our revenue, respectively, for the nine months ended March 31, 2009.

Three customers accounted for 54% of the accounts receivable at March 31, 2009, the largest of

which accounted for 25% of the receivables.

Investment in Marketable Securities

We acquired 15,000,000 shares of restricted common stock of CHVC in exchange for deferred payments totaling $1,500,000 and a Promissory Note to CHVC dated January 29, 2009, in an amount of $7,000,000.

We classify these securities as investments in marketable securities available for sale.

These securities are stated at their fair value.

Unrealized gains or losses in investments in marketable securities available for sale are recognized as an element of other comprehensive income on a monthly basis based on fluctuations in the

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

Realized gains or losses are recognized in the consolidated statements of operations when the securities are liquidated.

To date, the securities received from CHVC are quoted on the Pink Sheets.

The securities are restricted as to resale.

As the securities are restricted, we are unable to liquidate these securities until the restriction is removed.

Unrealized gains or losses on marketable securities available for sale are recognized as

an element of comprehensive income on a monthly basis based on changes in the fair value of the security as quoted on an exchange or an inter-dealer quotation system.

Once liquidated, realized gains or losses on the sale of marketable securities available for sale are reflected in our net income for the period in which the security was liquidated.

Marketable securities are evaluated periodically to determine whether a decline in their value is other than temporary.

Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary.

The term “other-than-temporary”

is not intended to indicate that the decline is permanent.

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 accounting principles regarding 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 accounting principles, 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 accounting principles,

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 nine months ended March 31, 2010, we shut down four of the CHVC subsidiaries, CVC Int’l, Phone House Inc.

of Florida, Dial-Tone Communications and Starcom Alliance.

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

nine months ended March 31, 2010 and determined that the goodwill and intangible assets were impaired in the amount of $12,215,200, which is primarily associated with the disposition of CVC Int’l, Phone House Inc.

of Florida, Dial-Tone Communications and Starcom Alliance.

During the nine months ended March 31, 2009, in accordance with accounting principles regarding 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.

3 customer(s) accounted for 59% of our revenue for the three months ended September 30, 2010.

3 customer(s) accounted for 61% of the accounts receivable at September 30, 2010, the largest of which accounted for 24% of the receivables.

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.

In May of 2010 we entered into a settlement agreement with Telmage Consulting LLC (“TelSpace”) in which TelSpace has furnished to us a perpetual software license as consideration for the repayment of the $250,000 promissory note due to us from TelSpace.

As a result, we recorded an additional $250,000 amount in fixed assets as of June 30, 2010, being amortized over five years.

Capital Leases

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

During the year ended June 30, 2010 we wrote down the value of this equipment to zero.

During the year ended June 30, 2010, as part of our debt restructuring plan, we renegotiated 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.

On September 15, 2010 we executed a Second Amendment to our equipment lease agreement with Data Sales, such that monthly payments in the amount of $20,000 shall commence as of November 1, 2010 and continue until April 1, 2011, at which time the monthly payments shall increase to $57,991 until January 1, 2012.

Additionally, Data Sales has waived all late fees and accrued interest, and we gave Data Sales the option to purchase up to a maximum of $61,000 worth of our restricted common stock at a 20% discount to the Market Price.

Market Price being the average closing price per share over the 20 trading days prior to notice of exercise, and having a minimum per share price of $0.0031 (50% of the Market Price as of September 15, 2010).

For the years ended June 30, 2011 and 2012, total cash payments will be $375,371 and $405,938, respectively.

As of the date of the filing of this quarterly report, we have not made the first monthly payment due November 1, 2010 and are therefore currently in default.

As a result, all outstanding payments owed as of the date of default are immediately due and payable.

Related Party Transactions

We have limited access to capital from either banking institutions or the capital markets.

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

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

Flint Telecom Ltd, which is controlled by Mr.

Browne, Flint’s CEO, has an amount due to it of $146,335 and $156,042 at September 30, 2010 and June 30, 2010, respectively.

This includes charges for management fees earned by Flint Telecom, Ltd., which during the three months ended September 30, 2010 and 2009 were $50,000 and $130,000, respectively.

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

Flint Telecom, Ltd.

also has a direct equity investment in us.

Michael Butler Debt Restructure

We had a number of loans outstanding from Mr.

Butler, one of our board members as of March 31, 2010, for which we issued various promissory notes, convertible promissory notes, warrants and shares of restricted common stock to him as consideration.

Butler, one of our board members as of December 31, 2009, 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.

loans were approximately $4,100,000.

Butler’s loans were approximately $4,100,000.

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

12 unchanged sentences

Butler has the right to rescind this agreement in the event that we should enter into a voluntary or involuntary bankruptcy.

We have therefore classified these shares of Series E Convertible Preferred as a separate line item on our Balance Sheet under current liabilities as “Preferred Convertible Note Payable –related

party, net of discount”.

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.

SEL Nominess:

We have therefore classified these shares of Series E Convertible Preferred as part of Preferred Shares in our Balance Sheet.

SEL Nominees:

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 annum, 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 was attached as Exhibit 4.3 to our SEC Form 10Q filed on march 25, 2010.

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 annum 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 was attached as Exhibit 4.4 to our SEC Form 10Q filed March 25, 2010.

“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.

These SEL notes also contain a most favored nations clause as it relates to the conversion price.

As of June 30, 2010, the conversion price is $0.00055 per share, resulting in the maximum potential total of 178,181,818 shares to be issued upon full conversion of both SEL notes.

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 given point in time without shareholder approval.

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

Butler, one of our board members as of March 31, 2010.

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

operating subsidiaries of China Voice Holding Corp.

(“CHVC”), (the “Acquisition Companies”) and 15,000,000 shares of CHVC’s restricted common stock, in exchange for 21,000,000 shares of our restricted common stock, $500,000 in cash at Closing, a $7,000,000 promissory note

and $2,500,000 in deferred payments.

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 March 31, 2010, $7,092,192 was due and owing to CHVC.

Flint Telecom Ltd.

Flint Telecom Ltd, which is controlled by Mr.

Browne, Flint’s CEO, has a loan balance of $55,325 at March 31, 2010.

During the nine months ended March 31, 2010, Flint Telecom Ltd.

assigned a portion, $147,175, of its $202,500 promissory note to a number of unrelated third parties.

This note has a 15%

interest rate and originally matured on March 30, 2009 but was extended to September 30, 2011.

The loan does not include charges for management fees earned by Flint Telecom, Ltd., which during the nine months ended March 31, 2010 and 2009 were $450,000 and $286,205, respectively.

$280,000 of these management fees were reclassified as note payables and assigned to third parties.

See Note 13 for more details on these transactions.

The management fees are for the executive, operating

and financial services provided by Flint Telecom, Ltd.

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.

also has a direct equity investment in us.

Loans from other Officers

During the nine months ended March 31, 2010, 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 one additional $10,000 payment for a total of $95,000.

Additionally, during the nine months ended March 31, 2010, Mr.

Burbank loaned $100,000 to us.

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

This loan is due on demand by Mr.

The balance of the loan as of March 31, 2010 was $100,000.

Butler, who was one of our board members in March of 2010.

For the year ended June 30, 2010 we recognized $98,000 in interest expense for beneficial conversion features on these notes.

Employment Agreements :

Effective October 6, 2008, we entered into a four year employment agreement with our CEO, Mr.

Browne receives a salary in the amount of $180,000 per year, which shall immediately increase to $240,000 when the Company achieves sustainable profitability for one quarter, and 2,500,000 shares of restricted common stock , vesting over a period of four years, such that ј 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.

Browne’s emplo yment is terminated by the Company without cause or by Mr.

Browne for good reason as provided in the Agreement, or if the Company is acquired or dissolves and a new employment agreement satisfactory to Mr.

Browne cannot be reached (a “Severance Event”), all stock and stock options of the Company then owned by Mr.

Browne which are unvested shall become immediately fully vested, and the Company shall pay to Mr.

Browne severance pay equal to the remaining years and/or months of his then current base salary that are due, based on a four year agreement term.

If a Severance Event occurs, Mr.

Browne would receive between $480,000 (using a Severance Event date of October 6, 2010 and assuming the Company has achieved sustained profitability) and $0 (using a Severance Event date of October 6, 2012), depending on the actual date the Severance Event occurs.

Effective February 23, 2010, we entered into a two year employment agreement with Bernard A.

Fried, effectuating the following:

Fried’s title is President and Chief Operating Officer;

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

Fried 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 ј 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 Company may ter minate this agreement without cause at any time by giving Mr.

Fried 60 days prior written notice, and the Company shall have no further liability other than for the payment of any unpaid salary through the termination date and reimbursement of reasonable business expenses incurred prior to the termination date.

Separation Agreement with Bill Burbank:

1 unchanged sentence

In connection with Mr.

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

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

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

The Separation Agreement

provides that Mr.

The Separation Agreement provides that Mr.

Burbank will be paid an aggregate of approximately $150,000 in cash and $842,500 worth of shares of restricted common stock, consisting of:

5 unchanged sentences

Additionally, 500,000 vested on January 29, 2010.

The 2,000,000 previously issued shares that vested

were valued at $0.38 per share (date of original grant).

The 2,000,000 previously issued shares that vested were valued at $0.38 per share (date of original grant).

The closing price of our common stock on February 5, 2010 was $0.08 per share, and therefore the additional 4,000,000 shares were valued at $320,000, for a total fair market value of these shares was $842,500.

Employment Agreement with Bernard Fried:

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;

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

Fried 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 as Exhibit 10.1 to our SEC Form 10Q filed on March 25, 2010, and is incorporated herein by reference.

Capital Leases

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

During the three months ended March 31, 2010 we wrote down the value of this equipment to approximately $190,000.

During the nine months ended March 31, 2010, as part of our debt restructuring

plan, we renegotiated 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.

However, as of March 31, 2010 we are currently in default because we failed to make the minimum monthly cash payments of principal and interest when due, and the entire outstanding balance of $653,309 is therefore immediately due and payable.

Subsequently, effective May 28, 2010, we entered into an Addendum to the Separation Agreement with Mr.

Burbank, agreeing to pay a total of $150,000 cash to Mr.

Burbank over a period of 8 months;

monthly payments in the amount of $18,750 shall commence as of July 31, 2010.

As of the date of the filing of this report we have not made these payments and are therefore currently in default.

As a result, a default interest rate of 18% shall be applied to any outstanding payments owed as of the date of default and an additional cash payment of $40,000 is also immediately due and payable.

Burbank has filed a lawsuit against us for breach of contract, seeking to collect this total amount due (See Note 12, Commitments & Contingencies).

Settlement Agreement with China Voice Holding Corp.

Effective as of May 28, 2010, we executed a settlement agreement with China Voice Holding Corp.

(CHVC) whereby CHVC has agreed to, among other things, cancel and terminate any and all rights it has under its $7,000,000 promissory note issued by us (the “Note”) and the Series C Preferred Shares of Flint (the “Preferred Shares”), including the repayment of any and all principal amounts underneath the Note and the Preferred Shares, and to return 15,800,000 shares of our common stock to Flint (thereby allowing CHVC to keep 5,200,000 shares of our common stock), and in exchange we agreed to pay a total of $1,520,242 to CHVC through installment payments over a period commencing August 31, 2010 and ending May 31, 2011 and abandon its claim to 15,000,000 shares of CHVC’s common stock.

As of the date of the filing of this quarterly report, we have not made any payments to China Voice Holding Corp.

(CHVC) pursuant to this settlement agreement, and we are therefore in default.

A default interest rate of 18% shall be applied to any outstanding payments owed as of the date of default.

An additional cash payment of $500,000 will also be immediately due and payable.

Effective June 30, 2010 the settlement agreement was amended to delete CHVC’s option to be repaid through the issuance of shares of Flint’s common stock.

CHVC will also be entitled to apply to the court and obtain judgment against Flint for the outstanding payments outstanding and not made as of the Default Event.

Loans from other ex-Officers

On September 24, 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.

In June of 2010, we agreed to allow Mr.

Keaveney to convert a portion of this note, $20,000, into 2,000,000 shares at $0.01 per share.

As of September 30, 2010, there is a total outstanding principal balance and accrued interest due on the note of $75,000.

See Note 19, Subsequent Events for more information on this note.

Accounts Payable

Accounts payable at March 31, 2010 were $3,361,226.

One vendor accounted for 12% of the payables at March 31, 2010.

Accounts payable at September 30, 2010 were $3,927,178.

4 vendors accounted for 40% of the payables at September 30, 2010, the largest of which accounted for 13% of the payables.

Accounts payable at June 30, 2010 were $3,641,554.

Three vendors accounted for 53% of the payables at June 30, 2009, the largest of which accounted for 31% of the payables.

3 vendors accounted for 30% of the payables at June 30, 2010, at 13%, 11% and 6% each.

Although we believe that we have adequate alternative vendors to purchase services and products, there can be no assurance of comparability, which could have a detrimental effect on the business.

Further, when the vendor provides services for direct access to and call routing for residential or business customers, a reduction in or elimination

of that vendor service will probably have a detrimental effect on that portion of our business.

Further, when the vendor provides services for direct access to and call routing for residential or business customers, a reduction in or elimination of that vendor service will probably have a detrimental effect on that portion of our business.

Lines of Credit

Effective June 4, 2009, we entered into a Loan and Security Agreement with Thermo Credit LLC (“Thermo”), for a line of credit in an amount not to exceed $2,000,000 (the “Agreement”).

Under the terms of the Agreement, we agreed to pay a commitment fee equal to 2% of the amount of the Credit Facility, an unused

facility fee of 0.25% per annum and a monitoring fee equal to the greater of $1,500.00 per month, or 0.05% of the Credit Facility per week.

Under the terms of the Agreement, we agreed to pay a commitment fee equal to 2%of the amount of the Credit Facility, an unused facility fee of 0.25% per annum and a monitoring fee equal to the greater of $1,500.00 per month, or 0.05% of the Credit Facility per week.

The line of credit is evidenced by a Loan and Security Agreement and a Promissory Note in the maximum amount of $2,000,000.

The Note carries an interest rate of the greater of the prime rate plus 8%, or 15%.

The indebtedness is secured by a pledge and grant to Thermo of a security interest in all of our property or assets, real or personal, tangible or intangible,

now existing or hereafter acquired.

As of March 31 2010, 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 March 31, 2010, payment has not been made.

Therefore, as of March 31, 2010 we were in default and the total balance has therefore been classified as a current liability.

Flint management and Thermo have reached an oral agreement 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.

An amendment to the existing line of credit agreement is currently still being formalized and will be publicly disclosed once it has been fully executed by both parties.

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 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.

As of March 31, 2010 the total value of this line of credit was $1,078,320 and is included in the "Preferred convertible notes payable, related party" line item in the Balance Sheet.

The indebtedness is secured by a pledge and grant to Thermo of a security interest in all of our property or assets, real or personal, tangible or intangible, now existing or hereafter acquired.

As of September 30, 2010, we owed $2,000,000 under the Thermo line of credit.

Effective as of June 8, 2010, Flint executed an amendment to the $2,000,000 promissory note issued to Thermo, whereby Thermo has agreed to a forbearance of principal payments, with the first principal payment of $100,000 due on or before August 31, 2010, and an extension of the Maturity Date to March 31, 2012.

Principal payments shall then be due in equal installments of $100,000 per month from August 31, 2010 until the note is paid in full.

Additionally, two one-time commitment fees of $20,000 each shall be paid on August 31, 2010, and an additional waiver/forbearance fee of $20,000 shall be paid on or before the one year anniversary of the execution of the Amendment, or June 8, 2011.

As of the date of the filing of this quarterly report, the first principal payment, which was due on or before August 31, 2010, has not been made and we are therefore in default and the total balance has therefore been classified as a current liability.

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 September 30, 2010 was $2,254,828 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.

One of our subsidiaries, Phone House, Inc., has a line of credit with Wells Fargo bank in the amount of $ 35,312 and $38,102 as of September 30, 2010 and June 30, 2010, respectively.

Promissory Notes and Convertible Promissory Notes

During the three months ended March 31, 2010, we issued $148,000 principal amount of convertible promissory notes.

During the nine months ended March 31, 2010, we issued $1,068,150 principal amount of promissory notes, some with warrants attached and some with shares of restricted common stock.

During the nine months

ended March 31, 2010 we restructured $540,000 principal amount of promissory notes into U.S.

Dollar Convertible Promissory Notes issued with warrants, and restructured $171,850 principal amount of promissory notes originally issued to Flint Telecom, Ltd.

into convertible notes, which were assigned to third parties and partially 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 year ended June 30, 2009, we issued $7,110,743 principal amount of Promissory Notes, some with warrants and some with shares of restricted common stock, $3,661,646 principal amount of U.S.

Dollar Convertible Promissory Notes and €2,322,830 principal amount of Euro Convertible Promissory Notes.

As of March 31, 2010, the following notes were outstanding:

$7,092,192 principal amount of a promissory note issued to CHVC, $3,247,705 principal amount of other promissory notes, some issued with warrants and some with shares of restricted common stock, and $1,087,765 principal amount of U.S.

Dollar Convertible Promissory Notes.

Additionally,

we restructured $4,100,000 worth of debt owed to Michael Butler into Series E Convertible Preferred Shares;

See Note 9, Related Party Transactions.

Promissory Notes:

During the nine months ended March 31, 2010, 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.

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

As of March 31, 2010, we had a total of $3,247,705 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 March 31, 2010 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:

During the three months ended March 31, 2010, SEL Nominees Ltd.

(“SEL”) loaned us a total of $98,000 and we issued SEL two convertible promissory notes accruing interest at a rate of eighteen percent (18%) per annum, 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.

As of March 31, 2010 the total potential number of common shares to be issued upon conversion of these notes is approximately 10,000,000.

Related Party Transactions for more details on these notes.

Also during the three months ended March 31, 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.

and conditions of these notes are qualified in its entirety by reference to the full text of the notes, which were attached as Exhibits 4.2, 4.3 and 4.4 to our SEC Form 10Q filed on March 25, 2010.

$10,000 worth of this note was partially converted in March of 2010 into 571,429 shares of our common stock.

Additional conversions were completed after March 31, 2010;

Subsequent Events for more details.

During the nine months ended March 31, 2010 Flint Telecom Ltd.

assigned a portion of its debt in the amount of $280,000, to certain third parties and we agreed to modify the terms of that debt into convertible promissory notes, $80,000 of which has a set conversion price of $0.04 per share and $50,000 of which has a variable

conversion price of 50% of the Market Price, as defined below.

Also during the nine months ended March 31, 2010 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.

As of March 31, 2010, the total potential number of common shares to be issued upon conversion of this note is 5,000,000.

The terms and conditions of this Note is qualified in its entirety by reference to the full text of the Note, which was attached as Exhibit 4.1 to our last SEC Form 10Q filed on March 25, 2010, 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.

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

One Note holder, RedQuartz, having a principal amount

as of March 31, 2010 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, 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.

Convertible Promissory Notes issued with Warrants:

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 March 31, 2010,

equals $0.01 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 March 31, 2010, we have $1,140,000 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 March 31, 2010 is $0.01 per share, into an aggregate of 114,000,000 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.

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 nine months ended March 31, 2010, the warrant component of the promissory notes was valued at $779,091.

For the nine months ended March 31, 2010, $1,576,379 of all debt discounts related to the promissory notes was amortized and included in interest expense.

3 Months Ended September 30, 2010

During the three months ended September 30, 2010, we issued $150,000 of total principal in the form of convertible promissory notes.

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

During the three months ended September 30, 2010 we also restructured $74,850 principal amount of promissory notes into convertible promissory notes, which were assigned to third parties and subsequently partially converted into shares of common stock.

As of September 30, 2010, we had (taking into consideration the calculation of debt discounts) $4,055,927 of total principal owed under promissory notes and $1,785,563 of total principal owed under convertible promissory notes.

New Convertible Promissory Notes

In August of 2010 a $35,000 note was issued accruing interest at 18% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion, and containing a most favored nations clause relating to this variable conversion price.

As of the date of the filing of this quarterly report, the lowest conversion price is $0.0006 per share, resulting in a potential total issuance of 58,333,333 shares of common stock.

However, in accordance with the terms of this note, the note holder cannot beneficially own greater than 4.99% of our total issued and outstanding common stock at any given point in time.

In September of 2010 a $40,000 note was issued accruing a rate of 10% per annum and convertible into shares of common stock at 33% of the Market Price at the date of conversion or $0.007 per share, whichever is higher.

Assuming a $0.007 per share conversion price, a total of 5,714,286 shares of common stock are potentially issuable.

On September 13, 2010 we issued a $25,000 convertible note, accruing interest at 6% per annum and having a maturity date of September 13, 2011, and convertible at a 50% discount to the lowest closing bid price on any of the previous 4 trading days from the date of conversion.

On September 22, 2010 a $50,000 convertible promissory note was issued accruing interest at a rate of 18% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion, and containing a most favored nations clause relating to this variable conversion price.

As of the date of the filing of this annual report, the lowest conversion price is $0.0006 per share, resulting in a potential total issuance of 83,333,333 shares of common stock.

However, in accordance with the terms of this note, the note holder cannot beneficially own greater than 4.99% of our total issued and outstanding common stock at any given point in time.

Note Conversions and Restructures

Subsequent to the special meeting of the shareholders held on August 10, 2010, which authorized an increase in our total authorized common shares to 900 million shares, in August of 2010, the Company issued a total of 99,135,000 shares of common stock to ten investors as a result of conversions of all of the principal and accrued interest in a previously issued and outstanding $50,000 convertible promissory note, converting a total of $59,481 of existing debt into shares of the Company’s common stock.

During the three months ended September 30, 2010, $15,800 from a $50,000 convertible note issued on December 18, 2009 was converted into 15,133,141 shares of common stock, leaving $18,200 outstanding.

Additionally, in September 2010, $9,000 from a $25,750 convertible note issued in April of 2009 and assigned in May of 2010 was converted into 11,820,979 shares of common stock, leaving $7,000 outstanding.

During the three months ended September 30, 2010, a 100,000 EURO note originally issued in May of 2009 was partially converted ($6,600 into 12,000,000 shares), and partially sold ($8,250) and subsequently converted into 15,000,000 shares of common stock.

In September, $50,000 of this 100,000 EURO note was assigned to a third party and 15,000,000 shares were issued into an escrow account for the subsequent conversion of this note.

The $50,000 note was amended to include the following terms:

accruing interest at 6% per annum and having a maturity date of September 13, 2011, and convertible at a 50% discount to the lowest closing bid price on any of the previous 4 trading days from the date of conversion.

Also during the three months ended September 30, 2010, $27,500 from the remaining $98,500 convertible note originally assigned in April of 2009 was assigned to a third party.

The $27,500 note accrues no interest and is convertible into shares of common stock at $0.00075 per share.

In September 2010 $10,000 worth of a $100,000 note issued in August of 2009 was made convertible at $0.005 per share and was converted into 2,000,000 shares of common stock.

Warrant Component:

As of September 30, 2010, the warrant component of the promissory notes was valued at $1,200,000 and was recorded as a discount to the promissory note and was netted against the debt during the three months ending September 30, 2010.

The unamortized value of the debt discount at September 30, 2010 is $265,136 and is being amortized over the life of the existing debt.

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

Nine Months Ended

March 31, 2010

Three Months Ended

September 30, 2010

Expected term (in years)

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Line of credit

Preferred Shares – related parties

Notes payable – related parties

Convertible notes payable – related parties

For the Year Ended June 30, 2010

During the year ended June 30, 2010, we issued $870,000 of total principal in the form of promissory notes ($350,000 of which had warrants attached to them), and $358,000 of total principal in the form of convertible promissory notes.

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

During the year ended June 30, 2010 we also restructured $540,000 principal amount of promissory notes into U.S.

Dollar Convertible Promissory Notes issued with warrants, and restructured $193,350 principal amount of debt owed to Flint Telecom, Ltd.

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

As of June 30, 2010, we had (taking into consideration the calculation of debt discounts) $3,997,024 of total principal owed under promissory notes and $1,214,056 of total principal owed under convertible promissory notes.

Commitments and Contingencies

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

Based on evaluation of these matters and discussions with counsel, we believe that any potential liabilities arising from these matters will not have a material adverse effect on our consolidated results of operations or financial position.

A judgment was entered against us on October 26, 2009 in the amount of $72,852, plus accruing interest from that date at the rate of $20 per day and post judgment costs incurred in enforcing the judgment.

A stipulation for judgment was filed by Carmel Solutions, Inc.

(Carmel) in the Superior Court of California, Orange County, California, in accordance with, and upon our default of, a settlement agreement we entered into with Carmel on May 5, 2009.

As of September 30, 2010 the total judgment is $79,632.

We are a defendant in a pending legal proceeding filed by AT&T on December 11, 2009 in the U.S District Court of the District of Connecticut.

This suit alleges one cause of action for breach of contract.

The Complaint claims that we owe money for services rendered, that we subsequently entered into a settlement agreement with AT&T to settle the amount owed to AT&T, and that we failed to make any payments due under such settlement agreement.

AT&T seeks an automatic entry of judgment against us in the amount of $440,672 plus interest, attorney’s fees and costs.

We are also one of a number of defendants in a pending legal proceeding filed by First Citizens Bank & Trust, Inc.

on June 17, 2010 in the Superior Court of Fulton County, Georgia.

This suit alleges five causes of action, three of which relate to the breach of Flint’s loan agreement entered into with the Georgian Bank in the principal amount of $199,000 plus interest, attorney’s fees and costs.

We did not respond within the time period allowed.

Bill Burbank, our previous President and COO, filed a lawsuit against us in the 15 th Judicial Circuit in Palm Beach County, Florida on September 22, 2010.

This suit alleges one cause of action for breach of agreement.

The Complaint claims that we entered into a settlement agreement with Bill Burbank to settle the amount owed to him, and that we failed to make the first payment due under such settlement agreement.

Burbank seeks a judgment for damages in the amount of $190,000 plus interest, attorney’s fees and costs.

Because Thermocredit has a first priority secured interest against all of our assets, we expect that Thermocredit will stop the actual collection on this judgment, and management hopes to be able to negotiate further with Mr.

Burbank and come to a reasonable settlement.

Because Thermocredit has a first priority secured interest against all of Flint’s assets, Flint expects that Thermocredit will stop the actual collection on any of these judgments, and management hopes to be able to negotiate further with these plaintiffs and come to a reasonable settlement.

We are also a party to other legal proceedings in the normal course of business.

Based on evaluation of these matters and discussions with counsel, we believe that liabilities arising from these matters will not have a material adverse effect on the consolidated results of our operations or financial position.

Due to the regulatory nature of the industry, the Company periodically receives and responds to various correspondence and inquiries from state and federal regulatory agencies.

Management does not expect the outcome on these inquiries to have a material impact on our operations or financial condition.

Below is a list of our leased offices and space as of September 30, 2010:

Lease Expiration

17918 Pioneer Blvd.

Artesia, CA 90701

Month to Month

Phone House, Inc.

3507 East Frontage Rd., Ste 190

Tampa, FL 33607

December 31, 2012

Cable & VoiceCorp.

(1) This lease has a total annual rent of $20,758 in year 2010, and is subject to increase to $21,484 in year 2011 and $22,232 in year 2012.

We believe that our leased facilities are adequate to meet our current needs and that additional facilities are available to meet our development and expansion needs in existing and projected target markets.

Stockholder’s Equity

Common Stock:

As of March 31, 2010 we had 200,000,000 total shares of common stock authorized, 89,820,958 shares issued and 88,820,958 shares outstanding .

There are 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.

Effective August 10, 2010 we filed an amendment to our articles of incorporation increasing our total authorized shares of common stock to 900,000,000, par value $0.01.

As of September 30, 2010 we had 900,000,000 total shares of common stock authorized and 316,900,384 were issued and outstanding.

There is no special voting or economic rights or privileges.

As of June 30, 2010, we had 200,000,000, par value $0.01, total shares of common stock authorized and 129,824,422 shares were issued and outstanding.

There were no special voting or economic rights or privileges.

Preferred Stock:

As of March 31, 2010, 5,000,000 total shares of preferred stock were authorized and 21,575 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 March 31, 2010, 302,000 shares of Series E Convertible Preferred Shares were

issued and outstanding, convertible into a maximum potential of 10,981,818 shares of common stock and with other terms, see Note 9:

Related Party Transactions for more details.

As of March 31, 2010, there were no shares of Series A or B preferred stock issued or outstanding.

As of September 30, 2010, 5,000,000 total shares of preferred stock, par value $0.001, were authorized and 608,780 shares were issued and outstanding, which is comprised of:

Effective February of 2010 we designated 302,000 shares of Series E preferred stock, with no par value (the “Series E”), convertible into a maximum potential total of 10,981,818 shares of common stock, using the following calculation:

Convertible 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 our common stock over the twenty trading days preceding the conversion request date.

This Series E has one vote per share of preferred stock and yields a 14% annual dividend payment, payable monthly, the first payment of which will be February 28, 2010.

A penalty rate of one half of one percent (0.5%) per month on the total amount outstanding will apply for dividend payments that are more than ten (10) business days late, and will continue to apply and accrue until default payments are caught up in full.

As of June 30, 2010 we owed $238,792 in unpaid dividends and as of the date of filing of this quarterly report we owed a total of $394,148 in unpaid dividends on our Series E.

Effective June 17, 2010, we designated 153,000 shares of Series F preferred stock, valued at $10.00 per share, and yielding a 14% annual dividend payment, based on the total value of the Shares, payable annually beginning on June 17, 2011;

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 paid in full.

These shares of Series F preferred stock are convertible at any time after January 1, 2011 into a maximum potential total of 30,600,000 shares, using the following calculation:

Convertible 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 $0.05 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 Shares will be transferable at Mr.

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

and at no time shall Mr.

Davis’ beneficial ownership exceed 4.99% of our total issued and outstanding shares.

Effective June 17, 2010 we also designated 153,779.66 shares of Series G preferred stock, par value $0.001 per share and convertible into 15,377,966 shares of common stock.

The Series G preferred carries no dividend and a one vote per preferred share voting right.

At no time shall the Series G Holder’s beneficial ownership exceed 4.99% of our total issued and outstanding shares.

As of June 30, 2010, there are no shares of Series A, B, C or D preferred stock outstanding.

Effective May 2010, we designated 60,000 shares of Series D preferred stock, par value $0.001, convertible into 6,000,000 shares of common stock, accruing no dividends and having one vote per share of preferred stock.

These shares of Series D preferred stock were 100% converted in August 2010.

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

During the three months ended March 31, 2010, 2,454,545 warrants issued on September 1, 2009 were cashlessly exercised into 1,963,636 shares.

The following summarizes the information relating to all warrants issued and outstanding as of March 31, 2010:

The following summarizes the information relating to all warrants issued and outstanding as of September 30, 2010:

Number of Warrants

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All warrants are fully exercisable.

$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, also exercisable at $0.01 per share.

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, also exercisable at $0.01 per share.

Of which, 2,454,545 have been cashlessly exercised into 1,963,636 shares.

1 unchanged sentence

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.

During the three months ended March 31, 2010, 6,240,000 shares were cancelled due to various employee and officer resignations, 6,000,000 shares vesting over a period of three years were issued to new officers and 13,200,000 shares with immediate vesting and 3,000,000 with three year vesting were issued to various consultants.

31, 2010, 29,510,000 shares are issued and outstanding, of which, 18,635,000 have vested.

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 September 30, 2010, 44,510,000 shares are issued and outstanding, of which, 34,135,000 have vested.

We intend to propose an increase in the total authorized shares reserved for issuance under the 2009 Plan in our upcoming annual shareholders’ meeting.

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

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 the Plan.

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

Stock Option Plans:

As part of the reverse merger with Semotus that closed on October 1, 2008, we assumed Semotus’ 1996 and 2005 Stock Option Plans.

The 2005 Stock Option Plan (the “2005 Plan”) was adopted by Semotus in July 2005 and in September 2005 the 2005 Plan was approved by its shareholders.

In September 2007 the 2005 Plan was amended to provide for the granting of stock options to purchase up to 1,150,000 shares of our common stock, 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.

The 2005 Plan expires in July 2015, ten years after its adoption.

Under the 2005 Plan, the Option Committee may grant incentive stock options to purchase shares of our common stock only to employees, and may grant non-qualified stock options to purchase shares of our common stock to our directors, officers, consultants and advisers.

The Option Committee

may grant options to purchase shares of our common stock at prices not less than fair market value, as defined under the 2005 Plan, at the date of grant for all stock options.

The Option Committee also has the authority to set exercise dates (no longer than ten years from the date of grant), payment terms and other provisions for each grant.

In addition, incentive options may be granted to persons owning more than 10% of the voting power of all classes of stock, at a price no lower than 110% of the fair market

value at the date of grant, as determined by the Option Committee.

Incentive options granted under the Plan generally vest over three years at a rate of 33% after year one and then equally on a monthly basis over the next two years from the date of grant.

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

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

Stock Based Compensation, for stock option activity.

The 1996 Stock Option Incentive Plan (the “Plan”) was originally adopted by Semotus in June 1996.

The Plan provided for the granting of stock options to acquire common stock and/or the granting of stock appreciation rights to obtain, in cash or shares of common stock, the benefit of the appreciation of the value of shares of common

stock after the grant date.

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

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

Earnings (Loss) Per Share

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Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period.

Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible

Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities.

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

Since we incurred a net loss for the three and nine months ended March 31, 2010, 62,359,000 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 nine months ended March 31, 2009,

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 $8,509,926 and $21,616,123, respectively, for the three and nine months ended March 31, 2010.

We reported a net loss of $1,246,295 and $10,940,839, respectively, for the three and nine months ended March 31, 2009.

Since we incurred a net loss for the three months ended September 30, 2010, 516,555,124 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, 2009, 16,047,182 potential shares were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive .

We reported a net loss of $2,089,583 and $3,052,220 for the three months ended September 30, 2010 and 2009, respectively.

Stock Based Compensation

2 unchanged sentences

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 option expense recognized by us during the three and nine months ended March 31, 2010 was $15,206 and $46,247, respectively.

Total stock expense recognized by us during the three months ended September 30, 2009 was $15,609.

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.

Expected volatilities are based on the historical volatility of our stock.

We use actual data to estimate option exercises, forfeitures and

cancellations within the valuation model.

We use actual data to estimate option exercises, forfeitures and cancellations within the valuation model.

The expected term of options granted represents the period of time that options granted are expected to be outstanding.

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Black-Scholes -Based Option Valuation Assumptions

March 31, 2010

September 30, 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 March 31, 2010 based upon a closing stock price of $0.02 per share as of March 31, 2010:

Stock Options

Average Exercise Price ($)

Weighted Average Remaining Contractual Life

Weighted Average Grant Date Fair Value ($)

Intrinsic Value ($)

Outstanding at January 1, 2010

Outstanding at March 31, 2010

Exercisable at March 31, 2010

The aggregate intrinsic value of outstanding options as of March 31, 2010 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 $0.02 market price of our common stock at March 31, 2010.

No options were exercised during the three months ended March 31, 2010 or 2009.

No stock option transactions occurred during the three months ended September 30, 2010 or 2009, and no stock options remain issued or outstanding.

Restricted Common Stock:

During the three months ended September 30, 2010 we issued a total of 15,000,000 shares of restricted stock to management, as a hiring and retention incentive, and 12,250,000 shares of restricted stock to consultants for services rendered.

We recorded $196,500 in expense for the three months ended September 30, 2010 related to these issuances.

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

Exchange Gains and Losses

As of March 31, 2010 have issued and outstanding €3,020,000 worth of Convertible Preferred Series E shares, €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.

As of September 30, 2010 have issued and outstanding €48,936 in one non-convertible note payable, which has been partially converted and partially assigned and converted (See Note 11, Convertible Notes Payable for more details), and one million dollars (USD$1,000,000) due may, at CHVC's option, have to be paid through a payment of GBP 721,000, 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.

1 unchanged sentence

Dollar so that transactions and balances are translated into dollars.

We recorded a $160,787 gain and a $149,980 gain on translation for the three and nine months ended March 31, 2010, respectively.

We recorded a $68,885 and $5,845 loss on translation for the three months ended September 30, 2010 and 2009, respectively.

$10 Million Reserve Equity Financing Agreement

On June 17, 2010, we entered into a Reserve Equity Financing Agreement (the “REF Agreement”) with AGS Capital Group, LLC (“AGS”), pursuant to which AGS committed to purchase, from time to time over a period of two years, shares of our common stock for cash consideration up to $10 million, subject to certain conditions and limitations.

In connection with the REF Agreement, we also entered into a registration rights agreement with AGS, dated June 17, 2010 (the “RRA Agreement”).

The Company is also required to pay AGS a total of $15,000 in cash, and issued to AGS 11,288,700 shares of restricted common stock and 153,779.66 shares of Series G Convertible Preferred Stock, valued at $0.60 per share.

Such convertible shares are convertible at any time into a total of 15,377,966 shares of common stock.

For a period of 24 months from the effectiveness of a registration statement filed pursuant to the RRA Agreement, we may, from time to time, at our discretion, and subject to certain conditions that we must satisfy, draw down funds under the REF Agreement by selling shares of our common stock to AGS up to an aggregate of $10.0 million, subject to various limitations that may reduce the total amount available to us.

The purchase price of these shares will be between 50% and 5% of the lowest “VWAP” of our common stock during the pricing period (the “Pricing Period,”) which is the five consecutive trading days after we give AGS a notice of an advance of funds (an “Advance”), under the REF Agreement.

The “VWAP” means, as of any date, the daily dollar volume weighted average price of the Common Stock as reported by Bloomberg, L.P.

or comparable financial news service.

The amount of an Advance will automatically be reduced by a percentage for each day during the Pricing Period that the VWAP for that day does not meet or exceed 98% of the average closing price of our common stock for the ten trading days prior to the notice of Advance, which is referred to as the “Floor Price.” In addition, the Advance will automatically be reduced if trading in our common stock is halted for any reason during the Pricing Period.

Our ability to require AGS to purchase our common stock is subject to various conditions and limitations.

The maximum amount of each Advance is equal to $250,000 or 500% of the quotient obtained by dividing the average daily trading volume for the ten days immediately preceding the notice of Advance, as reported by Bloomberg or comparable financial news service, by the VWAP.

In addition, a minimum of five calendar days must elapse between each notice of Advance.

The REF Agreement contains representations and warranties by us and AGS which are typical for transactions of this type.

AGS agreed that during the term of the REF Agreement, AGS will not enter into or execute any short sale of any shares of our common stock as defined in Regulation SHO promulgated under the Exchange Act.

The REF Agreement also contains a variety of covenants by us which are typical for transactions of this type.

The REF Agreement obligates us to indemnify AGS for certain losses resulting from a misrepresentation or breach of any representation or warranty made by us or breach of any obligation of ours.

AGS also indemnifies us for similar matters.

Registration Rights Agreement .

The shares of Common Stock that may be issued to AGS under the REF Agreement will be issued pursuant to an exemption from registration under the Securities Act of 1933, as amended, (the “Securities Act”).

Pursuant to the registration rights agreement, we will file a registration statement, covering the possible resale by AGS of the shares that we may issue to AGS under the REF.

The registration statement may cover only a portion of the total shares of our common stock issuable pursuant to the REF with AGS.

We may file subsequent registration statements covering the resale of additional shares of common stock issuable pursuant to the REF Agreement.

As described above, the effectiveness of the registration statement is a condition precedent to our ability to sell common stock to AGS under the REF Agreement.

We intend to file the registration statement as soon as practicable after the date hereof.

Segment Information

Following the corporate restructuring during the financial year ended June 30, 2010, the Company’s management decided to structure the business into three separate operating segments.

These segments are (1) the sale of third-party telecoms and networking equipment and software services (collectively referred to as equipment as “telecom software, services & equipment”), (2) the sale of Company produced and third-party prepaid calling products (collectively refered to as “prepaid telecom services”) (3) the delivery of wholesale and VoIP telecom services to other operators and direct to end users (collectively referred to as “telecom services”).

During the course of normal business our segments enter into transactions with one another.

Examples of these intersegment transactions include, but are not limited to, the telecom services segment carrying calls generated by the prepaid telecom services segment.

These intersegment activities are recorded by each segment at prices approximating market and treated as if they are third-party transactions.

Consequently, these transactions impact segment performance.

However, revenues and corresponding costs are eliminated in consolidation and do not impact consolidate results.

Three Months Ended September 30, 2010

Three Months Ended September 30, 2009

Software & equipment

Prepaid services

Gross profit (loss):

Software & equipment

Prepaid services

Telecom services

Operating income (loss):

Software & equipment

Prepaid services

Telecom services

Corporate activities

Income (loss) before income taxes:

Software & equipment

Prepaid services

Telecom services

Discontinued operations

Corporate activities

Depreciation and amortization:

Software & equipment

Prepaid services

Telecom services

Discontinued operations

Interest expense:

Software & equipment

Prepaid services

Telecom services

Corporate activities

Three Months Ended September 30, 2010

Year Ended June 30, 2010

Total fixed assets:

Prepaid Services

Subsequent Events

We have evaluated subsequent events through May 24, 2010, which is the date the financial statements were issued.

On April 22, 2010 we were loaned $40,000 by an institution and we issued a $40,000 convertible promissory note accruing interest at a rate of eight percent (8%) per annum with a maturity date of January 22, 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.

As of the date of the filing of this report, the total potential number of common shares to be issued upon conversion of this note is approximately 8,000,000 shares.

The terms and conditions of this promissory note is qualified in its entirety by reference to the full text of the Note, which is attached as Exhibit 4.5, and is incorporated herein by reference.

In May of 2010, a third party institution that holds a convertible promissory note partially converted $20,000 of its $50,000 note into 3,347,339 shares.

The terms and conditions of this settlement agreement is qualified

in its entirety by reference to the full text of the settlement agreement, which is attached as Exhibit 10.4 and is incorporated herein by reference.

Effective May 14, 2010 Michael Butler resigned as a Director.

We have evaluated subsequent events through November 15, 2010, which is the date the financial statements were available to be issued.

Acquisition of Ingedigit International, Inc.

and Gotham Ingedigit Financial Processing Corp.

On October 25, 2010, Flint Telecom Group, Inc.

(“Flint”) acquired all of the stock of Ingedigit International, Inc.

and Gotham Ingedigit Financial Processing Corp dba Power2Process, both Florida corporations, through a merger of each of those companies into two wholly-owned subsidiaries of Flint, in exchange for a maximum potential total of 600,000 shares of Flint’s Series H Convertible Preferred Stock (the “Merger Stock”), pursuant to an Agreement and Plan of Merger dated October 5, 2010 (the “Merger Agreement”).

300,000 shares of the Merger Stock were issued on the Closing Date.

The remaining 300,000 shares of the Merger Stock may be issued, in two tranches of 150,000 each, during the 12 and 24 months following the Closing Date if either or both of the Targets meet or exceed the revenue and/or other operating targets as mutually agreed upon by Flint and the Targets as of the Closing Date.

The Series H Convertible Preferred Stock has a $10.00 per share liquidation value, a $0.001 par value, one vote for each preferred share issued, and is convertible on or after a period of twelve months from the Closing Date into common stock at a 25% discount to the Market Price.

Market Price is defined as the average closing price per share over the twenty trading days prior to the date of conversion.

Provided, however, that the conversion price shall never be lower than ten percent of the Market Price on the Closing Date.

Based on the current Market Price of $0.004 per share and assuming that the Market Price does not improve over the next 12 months, the maximum number of common shares potentially convertible from the 300,000 shares of Series H Convertible Preferred Stock issued at the Closing is 750,000,000 common shares, with an additional 750,000,000 shares potentially to be issued upon conversion at the end of the 24 and 36 months following the Closing Date, should an additional 300,000 shares of preferred stock be issued pursuant to the Merger Agreement.

However, the Power2Process and Ingedigit shareholders as a group cannot hold more than 4.99% of Flint’s total issued and outstanding common stock at any one time.

Debt Defaults:

As of the date of the filing of this quarterly report, the first principal payment due to Thermocredit (Thermo), which was due on or before August 31, 2010 pursuant to an Amendment executed with Thermo in June 2010, has not been made and we are therefore in default and the total balance has therefore been classified as a current liability.

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 November 12, 2010 was $2,312,285, shall, at the option of Thermo, become immediately due and payable without further notice.

As of the date of the filing of this annual report, we have not made any payments to China Voice Holding Corp.

(CHVC) pursuant to a settlement agreement we executed in June 2010, and we are therefore in default.

A default interest rate of 18% shall be applied to any outstanding payments owed as of the date of default.

An additional cash payment of $500,000 will also be immediately due and payable.

Effective June 30, 2010 the settlement agreement was amended to delete CHVC’s option to be repaid through the issuance of shares of Flint’s common stock.

CHVC will also be entitled to apply to the court and obtain judgment against Flint for the outstanding payments outstanding and not made as of the Default Event.

New Restricted Stock Issuances:

In October of 2010 we issued 10,000,000 shares to a key employee as a retention incentive, and 2,375,000 shares to certain consultants for services rendered.

New Convertible Notes Issued and/or Restructured

In October of 2010, we issued a new $25,000 convertible note, accruing interest at 6% per annum and having a maturity date of October 2011, and convertible at a 50% discount to the lowest closing bid price on any of the previous 4 trading days from the date of conversion.

Additionally, $50,000 of the 100,000 EURO note was assigned to this third party and 15,000,000 shares were issued into an escrow account for the subsequent conversion of this note.

The $50,000 note includes the following terms:

accruing interest at 6% per annum and having a maturity date of October, 2011, and convertible at a 50% discount to the lowest closing bid price on any of the previous 4 trading days from the date of conversion.

Also in October of 2010, we issued another new $25,000 convertible note, accruing interest at 8% per annum and having a maturity date of October 2011 and convertible at 25% of the average of the lowest 3 intraday trading price on any of the previous 20 trading days from the date of conversion.

Additionally, $25,000 of the 100,000 EURO note was sold to this third party, and restated to be convertible at 25% of the average of the three lowest intra-day trading prices over the 20 days preceding the date of conversion.

$13,950 was converted into 18,000,000 shares of common stock.

Also in October of 2010, we issued a new convertible note in the amount of $30,000, accruing interest at 8% per annum and having a maturity date of July 25, 2011 and having a variable conversion price of 50% of the Market Price.

In November, the $75,000 promissory note issued September 24, 2009 was made convertible and $50,000 of Mr.

Keaveney’s promissory note was purchased by a third party and partially converted.

Also in November, a new promissory note was issued in the amount of $47,000, accruing interest at a rate of 18% per annum, convertible at a 50% discount to the market price at the time of conversion and having a maturity date of November 2011.

Convertible Note Conversions

In October 2010, 13 convertible note holders converted a total of $165,400 of existing debt into 98,370,035 shares of our common stock.

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