What changed in this filing

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Item 1. Financial Statements

2011-05-27 compared with 2011-05-26 · 157 added, 233 removed, 779 unchanged (33% of the section changed)

6 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of $218,015

for March 31, 2011 and $431,381 for June 30, 2010

for December 31, 2010 and $431,381 for June 30, 2010

Prepaid expenses and other current assets

19 unchanged sentences

Notes payable – related parties

Convertible notes payable

Convertible notes payable, net of discount

Convertible notes payable – related parties

3 unchanged sentences

Lease obligations - long-term

Lines of credit

Line of credit – long term

Total liabilities

5 unchanged sentences

$0.001 par value;

5,000,000 authorized, 607,000 issued and outstanding at March 31, 2011, 668,780 issued and outstanding at June 30, 2010

5,000,000 authorized, 607,000 issued and outstanding at December 31, 2010, 366,788 issued and outstanding at June 30, 2010

Common stock:

$0.01 par value;

900,000,000 authorized, 75,975,475 issued and outstanding at March 31, 2011, 6,491,221 issued and outstanding at June 30, 2010

900,000,000 authorized, 41,147,225 issued and outstanding at December 31, 2010, 6,491,221 issued and outstanding at June 30, 2010

Common stock issuable

9 unchanged sentences

Three Months Ended

Nine Months Ended

Six Months Ended

Cost of revenues

2 unchanged sentences

Bad debt expense

Research & Development Expenses

Salaries and payroll related expense

Research and development

Management fee to Flint Telecom, Ltd.

2 unchanged sentences

Depreciation and amortization expense

Total operating expenses

Total general and administrative

Operating loss

1 unchanged sentence

Interest expense

Loss on disposal of fixed asset

Foreign Exchange

Impairment of goodwill

Debt issuance costs

Discontinued operations, net of tax

Preferred stock beneficial conversion feature

Accrued dividends and penalties

Discount on convertible equities

Net loss attributable to common stockholders

Net loss per common share:

Net loss per share (basic & diluted)

Weighted average shares outstanding:

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Six Months Ended

Cash Flows from Operating Activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

2 unchanged sentences

Stock and option compensation expense

Loss on fixed assets

Accretion of debt discount

Amortization of debt discounts & warrants

Loss on disposal of fixed assets

Impairment of fixed assets

Amortization of debt issuance costs / beneficial conversion feature

Amortization of beneficial conversion feature

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

1 unchanged sentence

Prepaid expense

Deferred offering costs & debt issuance costs

Accounts payable

Other payables

Debt issuance and deferred offering costs

Cash overdraft

Other accrued liabilities

Net due from Flint Telecom, Ltd.

Accrued liabilities

Net due to (from) Flint Telecom, Ltd.

Due from related parties

Accrued interest

2 unchanged sentences

Purchases of fixed assets

Cash assumed in acquisition

Increase in notes receivable

Net cash used in investing activities

Investment in notes receivable

Cash from acquisition

Net cash provided by (used in) investing activities

Cash Flows From Financing Activities:

Proceeds from lines of credit

Proceeds from related party debt

Proceeds from debt

Proceeds from related parties debt

Proceeds from new debt

Payments on debt

Payments on related party debt

Payments on line of credit

Proceeds from sale of common stock

Payments on related party debt

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 debt

Net increase (decrease) in cash

Exchange (gain) loss on convertible notes

Net cash provided by (used in) foreign currency activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the period

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Months Ended

SUPPLEMENTAL CASH FLOW DISCLOSURE:

2 unchanged sentences

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:

Conversion of notes payable and accrued interest (Note 13)

Conversion of notes payable and accrued interest

Discounts – warrants

Discounts – beneficial conversion

Payment on lease obligations through issuance of stock

Capitalization of accrued interest to a note payable

Payment on lease obligations

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

Common stock issued for deferred offering costs

Preferred shares issued for acquisitions:

4 unchanged sentences

Line of credit

Preferred stock beneficial conversion feature

Accrued dividends and penalties

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

Preferred Shares

2 unchanged sentences

Additional Paid in Capital

Deferred Offering Costs

Accumulated Deficit

17 unchanged sentences

Stock compensation expense

Discount on Series H Convertible Equities

Issuance of preferred stock

Beneficial conversion feature on preferred shares

Accrual of redeemable equity securities, dividends and penalties

Issue of warrents to holder of note payable

Deferred Offering Costs paid in Stock

Net loss for the quarter

Balances at December 31, 2010

Conversion of notes payable

Beneficial conversion feature on convertible notes payable

Shares issued to consultants for services

Stock compensation expense

Issuance of common stock

Accrual of redeemable equity securities, dividends and penalties

Discount on preferred stock

Net loss for the quarter

Balances at March 31, 2011

See accompanying notes to condensed consolidated financial statements.

77 unchanged sentences

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

Operating results for the three and nine months ended March 31, 2011 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.

Operating results for the six months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.

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.

3 unchanged sentences

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 $6,463,091 for the nine months ended March 31, 2011 and $28,865,778 for the year ended June 30, 2010, negative cash flow from operating activities of $830,997 for the nine months ended March 31, 2011, an accumulated stockholder’s deficit of $57,535,819 and a working capital deficit of $15,859,159 as of March 31, 2011.

Also, as of March 31, 2011, we had limited liquid and capital resources.

As reflected in the accompanying financial statements, Flint had a net loss of $4,311,246 and $28,865,778 for the six months ended December 31, 2010 and for the year ended June 30, 2010, respectively, negative cash flow from operating activities of $589,215 for the six months ended December 31, 2010, an accumulated stockholder’s deficit of $17,612,167 and a working capital deficit of $14,741,401 as of December 31, 2010.

Also, as of December 31, 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.

3 unchanged sentences

We are in active discussions with these parties about the outstanding debt and rescheduling payments in the future based on the business progress during 2010 and the ability of the Company to meet the new arrangements from the Kodiak funding.

Of the 14 parties, five have initiated legal proceedings, the remainder, including our secured lender, have not initiated legal proceedings.

Of the five that have taken legal steps, we believe, based on discussions with them, that suitable payment terms will be agreed upon over the duration of the Kodiak funding.

They are waiting to finalize these terms once the Registration Statement is deemed effective and a structured funding environment is in place.

Of the 11 parties, four have initiated legal proceedings, the remainder, including our secured lender, have not initiated legal proceedings.

Of the four that have taken legal steps, we believe, based on discussions with them, that suitable payment terms will be agreed upon over the duration of the Kodiak funding.

In addition to these loans, we have approximately $1.2 million of trade payables that are past due.

Four parties have received summary judgments, as reported in our Form 10-K for the year ended June 30, 2010 and in this quarterly report, and we have been served with a pending action from another.

Two parties have received summary judgments, as reported in our Form 10-K for the year ended June 30, 2010 and in this quarterly report, and we have been served with a pending action from another.

Despite receiving these judgments, we have agreed to terms to pay down one of the larger amounts over two years.

48 unchanged sentences

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.

16 unchanged sentences

Therefore, the applicable conversion price for the full amount of Series H preferred stock at the transaction date was $0.0885 per share, representing a potential total of 67,796,610 common shares on the transaction date.

Under ASC 470-20, we have recorded a beneficial conversion feature of $1,000,000 as a discount on the Series H Convertible Preferred Stock of which we accreted $566,438 during the nine months ended March 31, 2011.

Under ASC 470-20, we have recorded a beneficial conversion feature of $1,000,000 as a discount on the Series H Convertible Preferred Stock of which we accreted $183,562 during the six months ended December 31, 2010.

Under ASC-10-S99, we have presented the total net value of the Series H Convertible Preferred Stock as temporary equity.

If the 300,000 currently issued Series H Convertible Preferred Shares were converted as of March 31, 2011, a total of 25,423,728 common shares would be issued based on the lowest per share conversion price of $0.0118.

If the 300,000 currently issued Series H Convertible Preferred Shares were converted as of December 31, 2010, a total of 254,237,288 common shares would be issued based on the lowest per share conversion price of $0.0118.

However, these preferred shares are not convertible until October 25, 2011, and, 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.

8 unchanged sentences

The amount of contingent consideration that was recognized at the acquisition date, October 25, 2010, was $3,000,000 for the contingent future payments through the issuance of additional Series H Convertible Preferred Stock.

The amounts of revenues and earnings included in the statement of operations from October 25, 2010 through March 31, 2011 was $0.00 and $(1,466,559), respectively.

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 nine months ended March 31, 2011 we issued a total of 390,000 shares of restricted common stock, vesting over a period of three years with one third vesting at the first annual anniversary of employment with the company and quarterly thereafter, to the officers and employees at III and P2P.

The amounts of revenues and earnings included in the statement of operations from October 25, 2010 through December 31, 2010 was $0.00 and $(597,312), respectively.

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 three months ended December 31, 2010 we issued a total of 390,000 shares of restricted common stock, vesting over a period of three years with one third vesting at the first annual anniversary of employment with the company and quarterly thereafter, to the officers and employees at III and P2P.

These shares of restricted common stock were valued at $0.118 per share.

We recorded approximately $3,835 and $11,505 in expense in the three and nine months ended March 31, 2011, related to the shares of restricted common stock granted to these officers and employees.

We recorded approximately $3,835 in expense in the three and six months ended December 31, 2010, related to the shares of restricted common stock granted to these officers and employees.

The following are condensed pro forma financial information as though the acquisition of III and P2P had occurred as of July 1, 2009.

3 unchanged sentences

Three Months Ended

Nine Months Ended

Six Months Ended

December 31, 2010

Net income (loss)

2 unchanged sentences

Accounts Receivable and Concentration of Credit Risk

Four customer accounted for 63% of the Company’s revenue for the three months ended March 31, 2011.

Five customers accounted for 70% of our revenue for the nine months ended March 31, 2011.

Five customers accounted for 65% of the accounts receivable at March 31, 2011, the largest of which accounted for 24% of the receivables.

Four customer(s) accounted for 64% of our revenue for the three months ended December 31, 2010.

Four customer(s) accounted for 63% of our revenue for the six months ended December 31, 2010.

Four customer(s) accounted for 72% of the accounts receivable at December 31, 2010, the largest of which accounted for 27% of the receivables.

The allowance for doubtful accounts at June 30, 2010 was $431,381.

During the nine months ended March 31, 2011, we elected to write off approximately $289,483 in accounts receivable that were deemed no longer collectable.

During the period ended December 31, 2010, the Company elected to write off $289,484 in accounts receivable that were deemed no longer collectable.

These amounts had been fully provided for in the allowance for doubtful accounts at June 30, 2010.

The allowance for doubtful accounts required at as at March 31, 2011 was $246,333.

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.

As the accounts receivable balance over 90 days was reduced by the amounts written off, the allowance for doubtful accounts required at as at December 31, 2010 was $218,015.

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

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

Three customers accounted for 44% of the accounts receivable at December 31, 2009, the largest of which accounted for 15% of the receivables.

On October 25, 2010 we acquired all of the stock of two companies, III and P2P.

11 unchanged sentences

If an asset is deemed impaired, the impairment loss is recognized in current earnings.

As of March 31, 2011, Other Intangible Assets consisted of the following:

Other Intangible Assets

Intangible Asset

Customer Contracts

13 unchanged sentences

Flint Telecom Ltd, which is controlled by Mr.

Browne, Flint’s CEO, has an amount due to it of $213,160 and $156,042 at March 31, 2011 and June 30, 2010, respectively.

This includes charges for management fees earned by Flint Telecom, Ltd., which during the nine months ended March 31, 2011 and 2010 were $150.000 and $450,000, respectively.

Browne, Flint’s CEO, has an amount due to it of $163,160 and $156,042 at December 31, 2010 and June 30, 2010, respectively.

This includes charges for management fees earned by Flint Telecom, Ltd., which during the six months ended December 31, 2010 and 2009 were $100,000 and $250,000, respectively.

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

23 unchanged sentences

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

As of March 31, 2011, $702,315 in dividends and $35,116 in penalties have accrued.

Equity Reclassification:

8 unchanged sentences

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

As of March 31, 2011, the conversion price is $0.0017 per share, resulting in the maximum potential total of 57,547,058 shares to be issued upon full conversion of both SEL notes.

As of December 31, 2010, the conversion price is $0.011 per share, resulting in the maximum potential total of 8,909,090 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.

As of March 31, 2011, neither of these promissory notes have been repaid and are therefore in default.

As a result, a default interest rate of 25% applies and the notes are immediately due and payable and we shall pay an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of the notes plus (x) accrued and unpaid interest plus (y) default interest (the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of common stock issuable upon conversion of or otherwise pursuant to such Default Sum.

SEL is recorded in the accounts as a related party due to the fact that SEL is controlled by Mr.

59 unchanged sentences

Keaveney sold the remaining principal balance and accrued interest due on the note to a third party, who converted the assigned note into a total of 1,729,336 shares of common stock.

As of March 31, 2011, there is no outstanding principal balance or remaining accrued interest due on the note.

As of December 31, 2010, there is no outstanding principal balance or remaining accrued interest due on the note.

Accounts Payable

Accounts payable at March 31, 2011 were $4,468,353.

Six vendors accounted for 40% of the payables at March 31, 2011, the largest of which accounted for 8% of the payables.

Accounts payable at December 31, 2010 were $4,706,432.

Three vendors accounted for 33% of the payables at December 31, 2010, the largest of which accounted for 17% of the payables.

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

12 unchanged sentences

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.

During the three months ended March 31, 2011, a total of $100,000 of the Thermo note was sold and assigned to two third parties (See Note 13, Promissory Notes and Convertible Promissory Notes for more details.) However, as of March 31, 2011, we remain in default on this note 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 March 31, 2011 was approximately $2,498,000, shall, at the option of Thermo, become immediately due and payable without further notice.

As of December 31, 2010, the first principal payment, which was due on or before August 31, 2010, had 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 December 31, 2010 was $2,421,000 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.

2 unchanged sentences

Management are confident that a new payment schedule will be agreed with Thermo when our Form S1 registration is deemed effective by the SEC, allowing us to commence drawing against the equity funding line with Kodiak capital.

One of our subsidiaries, Phone House, Inc., has a line of credit with Wells Fargo bank in the amount of $32,472 and $38,102 as of March 31, 2011 and June 30, 2010, respectively.

In February of 2011, $50,000 of the principal of the Thermo note was sold and assigned to a third party (See Note 21, Subsequent Events for more details.)

One of our subsidiaries, Phone House, Inc., has a line of credit with Wells Fargo bank in the amount of $ 33,825 and $38,102 as of December 31, 2010 and June 30, 2010, respectively.

Another one of our subsidiaries, Ingedigit International Inc.

(III) has a line of credit with the Florida Export Finance Corporation (“FEFC”) in the amount of $1,233,155 of principal and accrued interest, with monthly payments to commence July 15, 2011 in the principal amount of $65,000 plus 6% per annum interest on the then outstanding balance.

III has another line of credit with another third party in the amount of $100,000, payable at December 31, 2011.

Power2Process also has a line of credit in the amount of $249,980 of principal and accrued interest due and payable on December 31, 2011.

has a line of credit with the Florida Export Finance Corporation (“FEFC”) in the amount of $1,072,916, with monthly payments to commence July 15, 2011 in the principal amount of $65,000.00 plus 6% per annum interest on the then outstanding balance.

Promissory Notes and Convertible Promissory Notes

Three and Nine Months Ended March 31, 2011:

During the three and nine months ended March 31, 2011, we issued $32,500 and $82,500 of total principal in the form of promissory notes, respectively, and $168,500 and $637,500, respectively, of total principal in the form of convertible promissory notes.

3 & 6 Months Ended December 31, 2010

During the three and six months ended December 31, 2010, we issued $122,000 of total principal in the form of promissory notes, and $324,000 and $474,000, respectively, 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 and nine months ended March 31, 2011 we also restructured $130,000 and $408,500, respectively, 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 March 31, 2011, we had (taking into consideration the calculation of debt discounts) $3,974,352 of total principal owed under promissory notes and $2,029,092 of total principal owed under convertible promissory notes.

Three Months Ended March 31, 2011:

New Convertible Promissory Notes

On January 11, 2011 we issued a $20,000 convertible note, accruing interest at 18% per annum and having a maturity date of January 11, 2012;

this note is convertible at a 50% discount to the lowest 3 closing bid prices on any of the previous 10 trading days from the date of conversion and contains a most favored nations clause relating to this variable conversion price.