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EX-31 - FLINT TELECOM GROUP INC.ex31.htm
EX-32 - FLINT TELECOM GROUP INC.ex32.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 2
FORM 10-Q
 
 (Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2010
 
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
COMMISSION FILE NUMBER 001-15569
 
FLINT TELECOM GROUP, INC.
(Exact name of registrant as specified in its charter)

 
Nevada
36-3574355
 
 
(State or other jurisdiction of Incorporation or Organization)
(IRS Employer Identification Number)
 
 
7500 College Blvd, Suite 500, Overland Park, KS, 66210
(Address of Principal Executive Offices including zip code)

(913) 815-1570
(Issuer's telephone number)
  
 (Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ]   No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [   ]
Accelerated filer                     [   ]
Non-accelerated filer   [   ]
Smaller reporting company [X]
   

 
 
1

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]   No [X]
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
 As of May 26, 2011, the Issuer had 179,793,173 Shares of Common Stock outstanding.
 
*All common stock share amounts and per share stock prices have been adjusted retroactively to account for a 1:20 stock split that went effective on January 14, 2011.
 
EXPLANATORY NOTE
 
The purpose of this Amendment No. 2 to the Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2010, of Flint Telecom Group, Inc. (the “Company”), filed with the U.S. Securities and Exchange Commission on February 22, 2011 (the “Form 10-Q”) is to amend the following sections:

(i)  
The Condensed Consolidated Balance Sheet of the unaudited financial statements, related to a reclassification of the Series H Convertible Preferred Stock;
 
(ii)  
The Condensed Consolidated Statement of Stockholders' Deficit, related to a reclassification of the Series H Convertible Preferred Stock;
 
(iii)  
Note 5 to the unaudited financial statements, related to the Series H Convertible Preferred Stock;

(iv)  
Note 15 of the unaudited financial statements, related to the Series H Convertible Preferred Stock; and
 
(v)  
Item 4: Controls and Procedures.

No other material changes have been made to the Form 10-Q.  This Amendment No. 2 to the Form 10-Q is written as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.
 
 

 
 
 
 
 
2

 
 
 


  

FLINT TELECOM GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2010

TABLE OF CONTENTS
 
       
Page
 
   
PART I - FINANCIAL INFORMATION
     
           
ITEM 1.
 
FINANCIAL STATEMENTS:
     
  a.  
Condensed Consolidated Balance Sheets as of December 31, 2010 (unaudited) and June 30, 2010
    4  
  b.  
Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2010 and 2009 (unaudited)
    6  
  c.  
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2010 and 2009 (unaudited)
    8  
  e.  
Condensed Consolidated Statement of Stockholders’ Deficit for the six months ended December 31, 2010 (unaudited)
      12  
  d.  
Notes to the Condensed Consolidated Financial Statements (unaudited)
    14  
ITEM 2.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    38  
ITEM 3.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    41  
ITEM 4.
 
CONTROLS AND PROCEDURES
     41  
     
PART II - OTHER INFORMATION
       
               
ITEM 1.
 
LEGAL PROCEEDINGS
     42  
ITEM 1A.
 
RISK FACTORS
     43  
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     43  
ITEM 3.
 
DEFAULTS UPON SENIOR SECURITIES
     43  
ITEM 4.
 
REMOVED AND RESERVED
     43  
ITEM 5.
 
OTHER INFORMATION
     43  
ITEM 6.
 
EXHIBITS
     43  
            44   
     
SIGNATURES
    46   
     
CERTIFICATIONS
       



 
 
 
 
 
3

 
 
 



PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

FLINT TELECOM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
   
December 31,
2010
   
June 30,
2010
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 86,311     $ 19,419  
Accounts receivable, net of allowance for doubtful accounts of $218,015
               
   for December 31, 2010 and $431,381 for June 30, 2010
    1,884,223       1,049,648  
Inventories
    343,812       361,784  
Prepaid expenses and other current assets
    --       --  
Current assets
    2,314,346       1,430,851  
                 
Fixed assets:
               
   Equipment
    6,453,737       1,885,604  
   Capitalized leases – equipment
    194,839       194,839  
Total fixed assets
    6,648,576       2,080,443  
Less: accumulated depreciation
    (2,024,394 )     (1,839,372 )
   Net fixed assets
    4,624,182       241,071  
                 
Deferred offering costs
    28,333       --  
Deposit
    3,200       3,200  
Other intangible assets, net
    3,197,382       --  
Debt issuance costs, net
    9,100       --  
Other assets
    10,296       --  
Total assets
  $ 10,186,839     $ 1,675,122  
                 
LIABILITIES & STOCKHOLDERS' (DEFICIT)
               
Current liabilities:
               
Accounts payable
  $ 4,706,430     $ 3,641,554  
Cash overdraft
    29,550       --  
Other accrued liabilities
    786,233       587,033  
Accrued interest payable
    1,817,392       650,897  
Lease obligations – current
    781,309       375,371  
Lines of credit
    2,773,805       2,038,102  
Due to Flint Telecom Limited
    163,160       156,042  
Notes payable
    1,856,637       1,935,163  
Notes payable – related parties
    2,123,351       2,061,861  
Convertible notes payable, net of discount
    1,883,919       517,059  
Convertible notes payable – related parties
    98,000       98,000  
Other payable
    35,961       --  
Total current liabilities
    17,055,747       12,061,082  
 
 
 
4

 
                 
Convertible notes payable – long term, net of discount
    --       598,997  
Lease obligations - long-term
    --       405,938  
Line of credit – long term
    682,916       --  
Total liabilities
    17,738,663       13,066,017  
                 
Commitments and contingencies
               
 
Redeemable equity securities
    4,876,782       4,515,379  
Convertible preferred stock, net of discount     5,183,561        --  
Stockholders' (deficit)
               
Preferred stock: $0.001 par value; 5,000,000 authorized, 607,000 issued and outstanding at December 31, 2010, 366,788 issued and outstanding at June 30, 2010
    307       367  
Common stock: $0.01 par value; 900,000,000 authorized, 41,147,225 issued and outstanding at December 31, 2010, 6,491,221 issued and outstanding at June 30, 2010
    411,472       64,912  
Common stock issuable
    --       2,368  
Additional paid-in capital
    36,986,813       34,114,627  
Deferred offering costs paid in common stock
    (66,000 )     --  
Accumulated deficit
    (54,944,759 )     (50,088,548 )
Total stockholders' (deficit)
    (17,612,167 )     (15,906,274 )
Total liabilities, redeemable equity securities, convertible preferred stock and stockholders’ (deficit)
  $ 10,186,839     $ 1,675,122  

See accompanying notes to condensed consolidated financial statements.


 
 
 
 
 
5

 
 
 



FLINT TELECOM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
   
Three Months Ended
December 31,
   
Six Months Ended
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues
  $ 4,423,909     $ 4,134,368     $ 8,860,669     $ 8,675,006  
                                 
Cost of revenues
    4,240,772       3,711,114       8,428,665       7,906,879  
                                 
Gross profit
    183,137       423,254       432,004       768,126  
                                 
Operating expenses:
                               
General and administrative:
                               
    Consultants
    --       15,500       --       35,152  
    Bad debt expense
    74,636       --       79,470       130,506  
    Research & Development Expenses
    206,214       -       206,214       -  
    Salaries and payroll related expense
    260,884       663,957       467,269       962,836  
    Management fee to Flint Telecom, Ltd.
    50,000       118,650       100,000       250,000  
    Stock compensation and option expense:
                               
        Directors and officers
    138,937       116,535       325,125       699,392  
        Consultants
    72,084       185,561       230,417       185,561  
        Employees
    76,000       89,624       76,000       89,624  
    Depreciation and amortization expense
    297,950       576,704       306,879       1,221,405  
Other
    179,624       105,661       252,771       564,130  
Total general and administrative
    1,356,329       1,872,192       2,044,145       4,138,606  
                                 
Operating loss
    (1,173,193 )     (1,448,938 )     (1,612,142 )     (3,370,480 )
                                 
Other income (expense)
                            42,090  
Interest expense
    (1,074,034 )     (771,529 )     (2,655,783 )     (1,948,735 )
Loss on disposal of fixed asset
                               
Foreign Exchange
    25,564       (4,962 )     (43,321 )     (10,807 )
Impairment of goodwill
                               
Debt issuance costs
                               
Discontinued operations, net of tax
    --       (7,828,549 )     --       (7,818,265 )
Net loss
  $ (2,221,663 )   $ (10,053,978 )   $ (4,311,246 )   $ (13,106,197 )
 
 
 
6

 
 
Preferred stock beneficial conversion feature
 
    (183,562 )     --       (183,562 )     --  
 
Accrued dividends and penalties
 
    (249,315 )     --       (361,403 )     --  
 
 
Net loss attributable to common stockholders
  $  (2,654,539 )   $ (10,053,978 )   $ (4,856,211 )   $ (13,106,197 )
Net loss per share (basic & diluted)
  $ (0.10 )   $ (2.62 )   $ (0.26 )   $ (3.37 )
                                 
Weighted average shares outstanding:
                               
    Basic
    27,701,151       3,833,479       18,763,119       3,892,729  
    Diluted
    27,701,151       3,833,479       18,763,119       3,892,729  
                                 

See accompanying notes to condensed consolidated financial statements.

 
 
 
 
 
7

 
 
 


FLINT TELCOM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
   
Six Months Ended
December 31,
 
   
2010
   
2009
 
Cash Flows from Operating Activities:
           
Net loss
  $ (4,311,246 )   $ (13,106,197 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    306,879       1,279,246  
Bad debts     79,470        130,506   
Other non-cash transactions:
               
Impairment of goodwill and other intangible assets
    --       7,760,028  
Stock and option compensation expense
    631,542       974,577  
Loss on fixed assets
    --       332,023  
Accretion of debt discount
    652,229       1,152,889  
Amortization of beneficial conversion feature
    867,445       --  
                 
Changes in assets and liabilities, net of acquisition and disposals:
               
Accounts receivable
    (914,045 )     (164,350 )
Prepaid expense
    --       8,234  
Inventories
    17,972       401,146  
Deferred offering costs & debt issuance costs
    (37,433 )     --  
Deposit
    --       (109 )
Accounts payable
    703,810       (1,113,818 )
Cash overdraft
    29,550       (175,096 )
Accrued liabilities
    160,638       117,206  
Net due to (from) Flint Telecom, Ltd.
    71,626       359,690  
Due from related parties
    --       124,174  
Accrued interest
    1,152,348       241,770  
Net cash used in operating activities
    (589,215 )     (1,678,061 )
                 
Cash Flows from Investing Activities:
               
Purchases of fixed assets
    --       (8,532 )
Investment in notes receivable
    --       (125,000 )
Cash from acquisition
    15,063       --  
Net cash provided by (used in) investing activities
    15,063       (133,532 )
 
 
 
8

 
                 
Cash Flows From Financing Activities:
               
Proceeds from lines of credit
    --       16,176  
Proceeds from related parties debt
    78,000       165,150  
Proceeds from new debt
    524,000       805,000  
Payments on debt
    --       (175,000 )
Payments on line of credit
    (4,277 )     (3,925 )
Payments on related party debt
    --       (50,279 )
Payments on lease obligations
    --       (6,088 )
Redemption of preferred stock
    --       --  
Net cash provided (used) by financing activities
    597,723       751,034  
                 
Cash Flows From Foreign Currency Activities:
               
Exchange (gain) loss on convertible notes
    43,321       10,807  
Net cash provided by (used in) foreign currency activities
    43,321       10,807  
Net increase (decrease) in cash and cash equivalents
    66,892       (1,049,752 )
Cash and cash equivalents, beginning of the period
    19,419       1,337,002  
Cash and cash equivalents, end of the period
  $ 86,311     $ 287,250  
 
See accompanying notes to condensed consolidated financial statements.

 
 
 
 
 
9

 
 
 



FLINT TELECOM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)

   
Six Months Ended
December 31,
 
 
       2010
2009
 
 
SUPPLEMENTAL CASH FLOW DISCLOSURE:
       
         
Cash paid for interest
  $ --     $ 26,000  
Cash paid for income taxes
  $ --     $ --  
                   
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
                 
                   
Conversion of notes payable and accrued interest
  $ 600,581     $ 117,263  
                   
Discounts – warrants
  $ 50,000     $ 779,091  
                   
Discounts – beneficial conversion
  $ 652,229     $ 141,572  
                   
Capitalization of accrued interest to a note payable
  $ --     $ 190,000  
                   
Payment on lease obligations
  $ --     $ 36,000  
                   
Due from related party satisfied with redeemable preferred stock
  $ --     $ 384,548  
                   
Common stock issued upon conversion of notes payable and accrued interest
  $ --     $ 266,415  
                   
Common stock issued for deferred offering costs
  $ 66,000     $ --  
Preferred shares issued for acquisitions:
                 
Cash
  $ 15,063     $ --  
Other assets
    10,297       --  
Fixed assets
    4,568,133       --  
Other intangible assets
    3,319,239       --  
Accounts payable
    (361,068 )     --  
Accrued interest
    (92,807 )     --  
Other payable
    (35,961 )     --  
Line of credit
    (1,422,896 )     --  
    $ 6,000,000     $ --  
 
 
 
10

 
 
             
Preferred stock beneficial conversion feature
  $ 1,000,000     $ --  
Accrued dividends and penalties
  $ 361,403     $ --  
 

See accompanying notes to condensed consolidated financial statements.
 


 
11

 
 
FLINT TELECOM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
(Unaudited)
   
Preferred Shares
(Series D, F & G)
   
Common Stock
   
Common Stock Issuable
   
Additional Paid in Capital
 
 Deferred
Offering
Costs
Accumulated Deficit
   
Total
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Amount
   Amount
Amount
   
Amount
 
Balances at June 30, 2010
    366,780     $ 367       6,491,221     $ 64,912       236,842     $ 2,368     $ 34,114,627   $             -  $ (50,088,548 )   $ (15,906,274 )
Conversion of notes payable
    -       -       7,754,456       77,545       -       -       31,586     -       109,131  
Beneficial conversion feature on convertible notes payable
    -       -       -       -       -       -       350,957     -       350,957  
Shares issued to consultants for services
    -       -       312,500       3,125       118,750       1,188       146,438     -       150,750  
Shares issued to officer, directors, employees for vested stock compensation
    -       -       750,000       7,500                       39,000     -       46,500  
Stock payable issued
    -       -       236,842       2,368       (236,842 )     (2,368 )     -     -       -  
Stock compensation expense
    -       -       -       -       -       -       148,021     -       148,021  
Conversion of preferred stock shares into common shares
    (60,000 )     (60 )     300,000       3,000       -       -       (2,940 )   -       -  
 Accrual of redeemable equity securities, dividends and penalties
    -       -       -       -       -       -       -     (112,088 )     (112,088 )
Net loss for the quarter
    -       -       -       -       -       -       -     (2,089,583 )     (2,089,583 )
Balances at September 30, 2010
    306,780     $ 307       15,845,019     $ 158,450       118,750     $ 1,188     $ 34,827,689   $             -  $ (52,290,219 )   $ (17,302,586 )
 
 
 
12

 
Conversion of notes payable
    -       -       20,933,456       209,335       -       -       282,115     -       491,450  
Beneficial conversion feature on convertible notes payable
    -       -       -       -       -       -       516,488    -   -       516,488  
Shares issued to consultants for services
    -       -       2,250,000       22,500       -       -       48,833    -   -       71,333  
Shares issued for deferred offering costs
    -       -       1,500,000       15,000       -       -       51,000    -   -       66,000  
Shares issued to officer, directors, employees for vested stock compensation
    -       -       500,000       5,000       -       -       71,000    -   -       76,000  
Stock payable issued
    -       -       118,750       1,188       (118,750 )     (1,188 )     --    -   -       -  
Stock compensation expense
    -       -       -       -       -       -       139,688    -   -       139,688  
Issuance of preferred stock
    300,000       300       -       -       -       -       5,999,700    -   -       6,000,000  
Beneficial conversion feature on preferred shares
    -       -       -       -       -       -       1,000,000    -   (183,562 )     (816,438
Accrual of redeemable equity securities, dividends and penalties
    -       -       -       -       -       -       -    -   (249,315 )     (249,315 )
Issue of warrents to holder of note payable
    -       -       -       -       -       -       50,000    -   -       50,000  
Deferred Offering Costs paid in Stock
    -       -       -       -       -       -       -    (66,000 -       (66,000 )
Net loss for the quarter
    -       -       -       -               -       -     (2,221,663 )     (2,221,663 )
Balances at December 31, 2010
    306,780     $ 307       41,147,225     $ 411,472       -     $ -     $ 36,986,813   $(66,000)  $ (54,944,759 )   $ (17,612,167 )

See accompanying notes to condensed consolidated financial statements.                                                                                                                      

 
 
 
 
 
13

 
 
 


FLINT TELECOM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.           Organization and Formation

Flint Telecom Group, Inc. (“Flint”, “We” or the “Company”), is a Nevada Corporation.  We were originally formed in 2005 as Flint Telecom, Inc., a Delaware Corporation, and started operations in April 2006 as a wholly owned subsidiary of Flint Telecom Limited, headquartered in Dublin, Ireland. Flint Telecom Limited is a holding company whose sole operating business in the United States was Flint Telecom, Inc.  Flint Telecom Limited was a vehicle for the initial funding of Flint and for the development of proprietary intellectual property.

On October 1, 2008, Semotus Solutions, Inc. (“Semotus”) acquired substantially all of the assets and liabilities of Flint Telecom, Inc. in exchange for 28,460,094 shares of restricted common stock pursuant to a definitive Contribution Agreement dated April 23, 2008. Although Semotus is the legal acquirer, for accounting purposes Flint is the accounting acquirer. 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 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:

(1)  
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.

(2)  
Phone House, Inc. – 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.

(3)  
Digital Phone Solutions, Inc. – 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.

 
 
 
 
 
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(4)  
Flint Prepaid, Inc. – 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.

(5)  
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.  As of December 31, 2010, this company has not yet generated any revenue.

(6)  
Gotham Ingedigit Financial Processing Corp. dba Power2Process (“P2P”) 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 of December 31, 2010, this company has not yet generated any revenue.

As part of our 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, which were originally acquired in January of 2009: 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.

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”).  Following the acquisition of III and P2P in October 2010, the Company’s management elected to report these units under a new segment for the sale of financial processing services, debit card programs and mobile payment & remittance services (collectively referred to as “financial processing services”). These have been included for the current reporting period and for each period thereafter. 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

2.           Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by us, without audit and in accordance with the instructions to Form 10-Q and Regulation S-K.  On January 14, 2011 a 1:20 reverse stock split went effective and we have retroactively adjusted all our common share amounts and per share stock prices accordingly.  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 six months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.  Certain

 
 
 
 
 
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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 20, 2010.
 
Certain reclassifications have been made to the prior year in order to conform to the current year.
 
3.           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 $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.

As of the date of the filing of this report, we have a total of approximately $2.8 million of loan principal that is past due from a total principal balance of approximately $6.7 million, representing 11 individual parties. Under the terms of the loan agreements the $6.7 million principal is payable. In addition, approximately $2.1 million of accumulated interest, preferred share dividends and related penalties is past due on these loans. 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. 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. 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. Management is confident the Company will be successful in satisfying these obligations prior to foreclosure or bankruptcy. However, there is no assurance that any additional capital will be raised.

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 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.

In June of 2010 we announced significant reductions in our operating costs and are in ongoing discussions with our creditors to restructure our balance sheet and future debt payments.

In November of 2010 we secured an Equity Line of Credit Agreement with Kodiak Capital. This agreement allows us to place up to $15 million worth of our common stock to Kodiak over two years, subject to certain conditions, which will become available to us when a registration statement on Form S-1 is deemed effective by the SEC. (See Note 19 for more details).

 
 
 
 
 
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4.           Recent Accounting Pronouncements
 
On December 21, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-29, which impacts any public entity that enters into business combinations that are material on an individual or aggregate basis. The guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenues and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred at the beginning of the prior annual period when preparing the pro forma financial information for both the current and prior reporting periods. The guidance also requires that pro forma disclosures be accompanied by a narrative description regarding the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in reported pro forma revenues and earnings. This guidance is effective for business combinations consummated in periods beginning after December 15, 2010.  We are currently evaluating the impact of this ASU.
 
In January 2010, the FASB issued ASU No. 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.  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.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  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.

In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements.  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.  The adoption of this ASU did not have a material impact on our consolidated financial statements.

In April 2010, the FASB issued ASU No. 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”).  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 are to be applied prospectively.  Early adoption is permitted.  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.

In September 2009, in accordance with accounting pronouncements that applies to arrangements with multiple deliverables and provides another alternative for determining the selling price of deliverables. In addition, the residual method of allocating arrangement consideration is no longer permitted under this guidance.  The guidance is effective for fiscal years beginning on or after July 15, 2010.  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. The guidance is effective for fiscal years beginning on or after June 15, 2010. We are currently evaluating the potential impact, if any, of the adoption of this guidance on our consolidated financial statements.

In June 2009, in accordance with accounting pronouncements for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under this guidance, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The guidance also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. The guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. The guidance is effective for fiscal years beginning after November 15, 2009. We are currently evaluating the potential

 
 
 
 
 
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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.

5.          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. (“III”) and Gotham Ingedigit Financial Processing Corp dba Power2Process (“P2P”), 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 $0.001 per share par value, and one vote for each preferred share issued. The fair value of the common stock into which the Series H Convertible Preferred Stock can be converted is $10.00 per preferred share. Each preferred share has a conversion value of $10.00 of common stock. The 600,000 shares of Series H Convertible Preferred Stock therefore represents an aggregate value of $6 million in common stock when converted. The Series H Convertible Preferred Stock are not redeemable and the holders have no right to receive cash in lieu of converting into common stock under the conversion terms.

Further, the Series H Convertible Preferred Stock 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, or $0.0118. The closing price for our common stock on October 25, 2010 was $0.118. 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 $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 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.

Our preliminary allocation of the consideration to the assets and liabilities are as follows:
Cash
 
$
15,063
 
Other assets
   
10,297
 
Fixed assets
   
4,568,133
 
Other intangible assets
   
3,319,239
 
Accounts payable
   
(361,068
)
Accrued interest
   
(92,807
)
Other payable
   
(35,961
)
Line of credit
   
(1,422,896
)
   
$
6,000,000
 

The allocation of the consideration to the assets and liabilities as listed above is preliminary and was not carried out by a third party expert valuation firm. The company intends to have such a valuation completed and included in its audited statements for the year ending June 30, 2011. 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 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 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.

 
 
 
 
 
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The following are condensed pro forma financial information as though the acquisition of III and P2P had occurred as of July 1, 2009. In association with the acquisition of III and P2P, we recorded the purchase price in excess of the net assets acquired as of the acquisition date as intangible assets.  

Flint Telecom Group, Inc.
Condensed Pro Forma Statement of Operations
(unaudited)

   
Three Months Ended
December 31,
   
Six Months Ended
December 31, 2010
 
   
2010
   
2009
   
2010
   
2009
 
Revenues
  $ 4,423,909     $ 5,251,852     $ 8,860,669     $ 9,136,454  
Net income (loss)
    (2,606,172 )     (10,643,834 )     (4,537,422 )     (13,868,295 )
Net income (loss) per common share
  $ (0.09 )   $ (2.78 )   $ (0.24 )   $ (3.56 )
Weighted average shares outstanding
    27,701,151       3,833,479       18,763,119       3,892,729  

 
6.         Accounts Receivable and Concentration of Credit Risk

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 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. 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.

7.           Fixed Assets

On October 25, 2010 we acquired all of the stock of two companies, III and P2P. See Note 5 above for more details. As a result, we recorded an additional $4,568,133 amount in fixed assets as of December 31, 2010, being depreciated over 5 years.

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 depreciated over five years.

8.           Intangible Assets and Impairment
 
Intangible assets that are determined to have definite lives are amortized over their useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. Intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually in our fourth fiscal quarter, or when events indicate that impairment exists.  We have a capitalized intangible asset with a definite life, which are customer contracts. In recognition of the right to receive future cash flows related to transactions of the asset, we will amortize this value over five years, as it is anticipated that the customer contracts would continue to evolve with our needs and have at least 5 year minimum terms. We periodically review intangibles for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to measure the amount of the impairment loss, if any. If an asset is deemed impaired, the impairment loss is recognized in current earnings.
 
Intangible Asset
 
Useful Life
   
Cost
   
Accum. Amortization
   
Net Value
 
Customer Contracts
    5     $ 3,319,239     $ 121,857     $ 3,197,382  

 
 
 
 
 
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9.           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.

 10.           Related Party Transactions

Loans:
We have limited access to capital from either banking institutions or the capital markets. Consequently, we have loans from a number of third parties, including related parties, as follows.

Flint, Ltd.:
Flint Telecom Ltd, which is controlled by Mr. 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. to us. Flint Telecom, Ltd. also has a direct equity investment in us. 

Executive Officer Loans
On November 8, 2010 and November 19, 2010, Vincent Browne, our Chief Executive Officer, invested $48,000 and $24,000, respectively and was issued promissory notes for those principal amounts, accruing no interest and having a maturity date of one year from the date of issuance.

Michael Butler Debt Restructure
We had a number of loans outstanding from Mr. 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. 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. Butler in which all of Mr. Butler’s loans to Flint were cancelled in exchange for 302,000 shares of Series E preferred stock of Flint, valued at €10.00 per share, having the following material terms:

 
1.
Yielding a 14% annual dividend payment, payable monthly in Euros, from February 28, 2010;
 
 
2.
Convertible at any time into that number of shares of Common Stock as is determined by the quotient of (i) €10.00 over (ii) the Conversion Price in effect at the time of conversion.
 
 
a.
The Conversion Price has a 20% discount to the Market Price at time of conversion and subject to a minimum conversion price of $5.50 per Common Share.

 
 
 
 
 
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b.
Market Price means the average closing price of Flint’s common stock over the twenty trading days preceding the conversion request date.
 
 
c.
The common stock issued at the time of conversion will be restricted stock and subject to SEC 144 Rule.
 
 
d.
Based on the minimum conversion price, Mr. Butler would receive 10,981,818 shares of common stock if all preferred shares were converted into common stock.
 
 
3.
The Preference Shares will be transferable at Mr. Butler’s discretion, after giving Flint a right of first refusal;
 
 
4.
A penalty rate of 0.5% per month on the total amount outstanding will apply for dividend payments that are more than 10 days late, and will continue to apply until default payments are caught up.
 
Mr. 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 part of Preferred Shares in our Balance Sheet.

Equity Reclassification: The Series E preferred shares issued to Mr. Butler pursuant to a settlement agreement dated December 31, 2009 have been moved from equity to the mezzanine area of the balance sheet. The equity statement has been updated to account for this reclassification.

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. 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. These SEL notes also contain a most favored nations clause as it relates to the conversion price.  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.  SEL is recorded in the accounts as a related party due to the fact that SEL is controlled by Mr. Butler, who was one of our board members in March of 2010. 

Employment Agreements:
Effective October 6, 2008, we entered into a four year employment agreement with our CEO, Mr. Browne. 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 125,000 shares of restricted common stock, vesting over a period of four years, such that one-fourth 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. If Mr. Browne’s employment 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.
 

 
 
 
 
 
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Effective February 23, 2010, we entered into a two year employment agreement with Bernard A. Fried, effectuating the following:  (i) Mr. Fried’s title is President and Chief Operating Officer; (ii) Mr. 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 300,000 shares of restricted common stock vesting over a period of four years, such that one-fourth 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 terminate 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:
Bill Burbank resigned as the President and Chief Operating Officer of the Company, effective February 4, 2010.  In connection 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. Burbank will be paid an aggregate of approximately $150,000 in cash and $842,500 worth of shares of restricted common stock, consisting of:
 
·
payment for past wages owed, of approximately $45,785;
 
·
repayment for various loans made to the Company, in the amount of $100,000;
 
·
reimbursement for approved expenses in an amount that has yet to be determined;
 
·
all such cash payments as listed above shall be paid in the future as funds become available;
   
acceleration of 75,000 shares of his unvested restricted stock and the grant and issuance of 200,000 additional shares of immediately vested restricted common stock, for a total of 5,500,000 shares of restricted common stock.  Additionally, 500,000 vested on January 29, 2010. The 275,000 previously issued shares that vested were valued at $7.60 per share (date of original grant).  The closing price of our common stock on February 5, 2010 was $1.60 per share, and therefore the additional 200,000 shares were valued at $320,000, for a total fair market value of these shares was $842,500.

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.  Mr. 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.
China Voice Holding Corp. (CHVC) was a related party due to the fact that it was a greater than 10% shareholder at the time of our acquisition of six of its U.S. subsidiaries in January of 2009. Additionally, Bill Burbank became our President and COO and at the same time was CEO of CHVC. Effective as of May 28, 2010, we executed a settlement agreement with 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 790,000 shares of our common stock to Flint (thereby allowing CHVC to keep 260,000 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.

 
 
 
 
 
22

 
 
 



Misc. 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 100,000 shares at $0.20 per share. During the three months ended December 31, 2010, Mr. 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 December 31, 2010, there is no outstanding principal balance or remaining accrued interest due on the note.  

11.           Accounts Payable

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.  Three 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.

12.           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. 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 December 31, 2010, we owed $2,000,000 in principal and $421,000 in outstanding interest and penalties 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 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. 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.  Despite the default status, Thermo remains supportive of the company and have not initiated any legal process to foreclose on the outstanding amount. 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.

 
 
 
 
 
23

 
 
 



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. 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.

13.           Promissory Notes and Convertible Promissory Notes

3 & 6 Months Ended December 31, 2010

Summary:
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 six months ended December 31, 2010 we also restructured $260,000 and $334,850, 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 December 31, 2010, we had (taking into consideration the calculation of debt discounts) $4,007,321 of total principal owed under promissory notes and $1,981,918 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.  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 $0.14 per share, whichever is higher. 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.

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. 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.

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. 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.

On October 8, 2010, $25,000 was invested and a $25,000 note was issued to an institution accruing interest at 8% per annum and convertible into shares of common stock at 25% of the Market Price at the date of conversion.  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.

 
 
 
 
 
24

 
 
 



On October 11, 2010, $25,000 was invested and a $25,000 note was issued to an institution accruing interest at 6% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion. 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.

On October 13, 2010, $40,000 was invested and a $40,000 note was issued to an institution accruing interest at 18% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion.  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.

On October 21, 2010, $30,000 was invested and a $30,000 note was issued to an institution accruing interest at 8% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion.  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.

On October 25, 2010, $25,000 was invested and a $25,000 note was issued to an institution accruing interest at 18% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion. 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.

On November 5, 2010, $15,000 was invested and a $15,000 note was issued to an institution accruing interest at 18% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion. 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.

On November 22, 2010, $35,000 was invested and a $35,000 note was issued to an institution accruing interest at 8% per annum and convertible into shares of common stock at 52% of the Market Price at the date of conversion.  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.

On November 25, 2010, $14,000 was invested and a $14,000 note was issued to an institution accruing interest at 18% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion.  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.

On December 3, 2010, $75,000 was invested and a $75,000 note was issued to an institution accruing interest at 6% per annum and convertible into shares of common stock at 50% of the Market Price at the date of conversion.  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.

On December 7, 2010, $40,000 was invested and a $40,000 note was issued to an institution accruing interest at 8% per annum and convertible into shares of common stock at 52% of the Market Price at the date of conversion. 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.

New Promissory Notes and Related Warrants

On November 8, 2010 and November 19, 2010, Vincent Browne invested $48,000 and $24,000, respectively and was issued promissory notes for those principal amounts, accruing no interest and having a Maturity Date of one year.

 
 
 
 
 
25

 
 
 



On December 15, 2010, a third party invested $50,000 and was issued a $50,000 promissory note, accruing interest at 18% per annum and having a Maturity Date of January 31, 2011.  Warrants to purchase up to 1,666,667 shares of common stock at an exercise price of $0.02 per share and having an expiration date of December 15, 2013 were also issued in connection with this $50,000 promissory note.   The warrant component of this promissory note was valued at $50,000 and was recorded as a discount to the promissory note and was netted against the debt. As of December 31, 2010, the unamortized discount totaled $33,333.

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 4,956,750 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.  

In August and September of 2010, $15,800 from a $50,000 convertible note issued on December 18, 2009 was converted into 756,657 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 591,049 shares of common stock, leaving $7,000 outstanding.

In August of 2010, a 100,000 EURO note originally issued in May of 2009 was partially converted ($6,600 into 600,000 shares), and partially sold ($8,250) and subsequently converted into 750,000 shares of common stock. In September of 2010, $50,000 of this 100,000 EURO note was assigned to a third party and 750,000 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 in August of 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 $0.015 per share.  In September of 2010 $10,000 worth of a $100,000 note issued in August of 2009 was made convertible at $0.10 per share and was converted into 100,000 shares of common stock.

On October 8, 2010, $25,000 from a 100,000 EURO note original issued in May of 2009 was sold to a third party and partially converted into 900,000 shares of common stock at $0.015 per share, with $11,050 of the $25,000 remaining outstanding as of December 31, 2010.

On October 11, 2010, $50,000 from the remaining balance on a 100,000 EURO note originally issued in May of 2009 was sold to a third party and 1,500,000 shares were issued into an escrow account for the subsequent conversion of the note.  The $50,000 note was amended to include the following terms: accruing interest at 6% per annum and having a maturity date of October 11, 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.

During October through December of 2010, $44,000 from the remaining balance of $71,000 from a $98,500 promissory note originally issued on April 30, 2009 was assigned to various third parties and converted into a total of 3,000,000 shares of common stock.  The remaining $27,000 outstanding balance was converted by the note holder into 2,250,000 shares of common stock.

On October 25, 2010, a portion, $16,000 out of a $100,000 promissory note issued on August 17, 2009 was amended to become convertible at $0.16 per share and converted into100,000 shares of common stock, leaving an outstanding principal balance of $67,817.

On November 3, 2010, the remaining outstanding balance of $75,000 on a promissory note originally issued on September 24, 2009 was assigned and converted into 2,709,445 shares of common stock.

 
 
 
 
 
26

 
 
 



On December 3, 2010, $50,000 out of a $540,000 convertible promissory note was purchased by a third party. The $50,000 note was amended to include the following terms: accruing interest at 6% per annum and having a maturity date of December 3, 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.

Debt Schedule:
 
The following table sets forth the summary schedule of the cash payments required to be made by us, broken down by the type of loan:
 
Type of Loan
 
2011
   
2012
   
Total
 
Notes payable
  $ 1,889,969     $ --     $ 1,889,969  
Convertible notes payable
    1,883,919       --       1,883,919  
Line of credit
    2,773,775       682,916       3,456,691  
Notes payable – related parties
    2,123,391       --       2,123,391  
Convertible notes payable – related parties
    98,000       --       98,000  
Total:
  $ 8,838,895     $ 715,277     $ 9,521,812  

For the Year Ended June 30, 2010

Summary
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.  

14.           Commitments and Contingencies

A stipulation for judgment was filed by Carmel Solutions, Inc. ("Carmel") in the Superior Court of California, Orange County, in accordance with, and upon our default of, a settlement agreement we entered into with Carmel on May 5, 2009, and 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. As of December 31, 2010, the financial statements contain a payable amount of $60,000 in relation to this action. Our management is confident that the lower amount will be more reflective of the end settlements amount. There are currently no discussions taking place between the parties on settling this amount and no approach has been received from Carmel since the judgment was entered.

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 alleges 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 was granted an automatic entry of judgment against us in the amount of $440,672 plus interest, attorney’s fees and costs.  In December of 2010, AT&T obtained an Order of Garnishment against one of our bank accounts in the amount of $510,525, $76,653 of which was actually garnished. We are currently negotiating a payment schedule with AT&T that management is confident will result in a structured plan to allow us pay the remaining balance. As of December 31, 2010, the financial statements contain a payable amount of $440,672 in relation to this action. Our management is in active discussions with AT&T to agree a phased payment of this amount over two years and is confident that this outcome will result from those discussions.

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 $500,000 plus interest, attorney’s fees and costs.  We did not respond within the time period allowed. A motion for default judgment was filed on October 11, 2010 against us for the amount of $200,000 plus interest, attorney’s fees and costs.  As of December 31, 2010, we have accrued $200,000 in the accounts in relation to this action. Management has opened discussions with representatives of the plaintiff to discuss a phased payment of the amount due. It is too early for management to say if this will be achieved.
 
Bill Burbank, our previous President and COO, filed a lawsuit against us in the 15th Judicial Circuit in Palm Beach County, Florida on September 22, 2010. This complaint 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. Mr. Burbank sought and received a judgment for damages in the amount of $190,000 plus interest, attorney’s fees and costs. As of December 31, 2010, we have accrued $195,623 in the accounts in relation to this action to include interest and penalties. Management intends to enter into renewed discussions with Mr. Burbank to discharge this amount.
 
 
 
 
 
 
 
27

 
 
 
On October 25, 2010, China Voice Holding Corp. ("CHVC") filed a lawsuit against us in the 15th Judicial Circuit in Palm Beach County, Florida.  This suit alleges one cause of action for breach of contract.  The complaint alleges that we entered into a settlement agreement with CHVC to settle the amount owed to it, and that we failed to make the first monthly payment due under such settlement agreement.  CHVC sought and received a judgment for damages in the amount of $82,742 plus pre-judgment interest of 18% per annum starting September 1, 2010, plus $500,000 as an additional liquidated damage, post judgment interest, costs and attorney’s fees. As of December 31, 2010, we have accrued $2,182,676 in the financial statements in relation to this action to include interest and penalties. In the interim, a large proportion of this amount as been assigned to a third party by CHVC and management is in active discussions with that party to agree new payment terms.
 
On November 10, 2010, Abovenet Communications filed a complaint against us in US District Court for the Southern District of New York, alleging breach of contract and seeking $87,761 in damages, plus interest, attorney’s fees and costs. As of December 31, 2010, we have accrued $16,000 in the financial statements in relation to this action, which is the amount of services used from Abovenet prior to its action. It is too early in the process for management to accurately estimate the full contingency amount attached to this legal action. To date, no discussions have taken place with Abovenet in relation to settling this action.

On November 24, 2010, Tom Davis filed a Demand for Arbitration alleging a breach of the settlement agreement by and among Mr. Davis and Flint, and seeking damages in the amount of $2,230,000. As of December 31, 2010 the financial statements include $1,126,875 in loans and accrued interest and $1,530,000 in preferred shares in relation to Mr. Davis. Management remains confident that suitable terms can be reached with Mr. Davis to reschedule agreed payment arrangements to settle this action.
 
Because Thermocredit has a first priority secured interest against all of Flint’s assets, Flint expects that Thermocredit will prevent any future collections 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.
 
Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Below is a list of our leased offices and space as of December 31, 2010:
Location
Lease Expiration
Monthly Rent
       
Purpose
 
Approx. Sq. Ft.
 
17918  Pioneer Blvd. #209
Artesia, CA 90701
Month to Month
  $ 3,950        
Phone House, Inc. office space
    1,750  
                           
3507 East Frontage Rd., Ste 190
Tampa, FL 33607
December 31, 2012
  $ 1,730  (1      
Cable & Voice Corp. office space
    1,750  
                             
9050 Pines Blvd.
Pembroke Pines, FL 33024
February 1, 2015
  $ 7,550  (2      
Ingedigit International Inc. and Power2Process office space
    3,624  

(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.
(2)  
This lease has a total annual rent of $90,600 in year 2010, $93,318 in year 2011, $96,118 in year 2012, $99,001 in year 2013, and $101,971 in year 2014.

 
 
 
 
 
28

 
 
 

 
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.

15.           Stockholders' Equity
 
Temporary Equity:
We have two series of preferred stock that are classified as temporary equity, Series E and Series H.

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 549,091 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 $5.50 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, as of December 31, 2010 we owed $548,216 in unpaid dividends on our Series E.  During the three and six months ended December 31, 2010 we accounted for the Series E dividend payments by recording a $361,403 increase to the accumulated deficit and a corresponding increase in redeemable preferred shares.

Effective October 25, 2010 we designated 600,000 shares of Series H Convertible Preferred Stock, with a $0.001 per share par value, and one vote for each preferred share issued. The fair value of the common stock into which the Series H Convertible Preferred Stock can be converted is $10.00 per preferred share. Each preferred share has a conversion value (or “liquidation value”) of $10.00 of common stock for each preferred share owned. The 600,000 shares of Series H Convertible Preferred Stock therefore represents an aggregate value of $6 million in common stock when converted. The Series H Convertible Preferred Stock are not redeemable and the holders have no right to receive cash in lieu of converting into common stock under the conversion terms.
 
The Series H Convertible Preferred Stock 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, or $0.0118. The closing price for our common stock on October 25, 2010 was $0.118. 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 480-10-S99, we recorded a debt discount of $1,000,000 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 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.

Common Stock:
On January 13, 2011, we received approval from the Financial Industry Regulatory Authority clearing our 1 for 20 reverse stock split of our issued and outstanding common shares.  Our issued and outstanding common shares were decreased from 818,277,527 to 40,913,876 effective January 14, 2011.

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 December 31, 2010 we had 900,000,000 total shares of common stock authorized and 41,147,225 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 6,491,221 shares were issued and outstanding. There were no special voting or economic rights or privileges. 

Preferred Stock:
As of December 31, 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 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 1,530,000 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 $1.00 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 768,898 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.

 
 
 
 
 
29

 
 
 

See Note 10 regarding the Series E preferred stock outstanding and see Note 5 for the Series H preferred stock outstanding as of December 31, 2010.

As of December 31, 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 300,000 shares of common stock, accruing no dividends and having one vote per share of preferred stock.  100% of these shares of Series D preferred stock were converted in August 2010.

Warrants:
We have, as part of various debt and other agreements, issued warrants to purchase our common stock. The following summarizes the information relating to all warrants issued and outstanding as of December 31, 2010:

Date Issued
Number of Warrants
Per Share Warrant Exercise Price
 
Expiration Date
5/16/06
   
7,025
   
$
6.00
 
5/16/11
10/1/08
   
12,500
   
$
8.00
 
10/01/11
10/1/08
   
87,625
   
$
10.00
 
9/18/11
11/10/08
   
12,500
   
$
10.00
 
11/10/11
6/30/09
   
218,182
   
$
7.00
 
6/30/14
6/30/09
   
7,636
   
$
5.50
 
6/30/14
 8/18/09
   
10,000
   
$
10.00
 
12/31/12
10/15/09
   
12,500
   
$
6.00
 
10/15/14
12/10/09
   
27,273
   
$
0.20
 (1)
12/10/14
12/15/10
   
1,666,667
     
0.02
 
12/15/13
 
 All warrants are fully exercisable.
(1)
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 207,273 shares of Flint’s common stock has been reduced from $7.00 per share to $0.20 per share, and additional warrants to purchase up to 51,818 shares of Flint’s common stock were issued, also exercisable at $0.20 per share. Of which, 122,727 have been cashlessly exercised into 98,182 shares.


 
 
 
 
 
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 2009 Restricted Stock Plan:
The 2009 Restricted Stock Plan (the “2009 Plan”) was adopted by us and our board of directors in October 2009 and on December 2, 2009 the 2009 Plan was approved by our stockholders.  The purpose of the 2009 Restricted Stock Plan is to provide the Company’s employees, directors, officers and consultants, whose present and potential contributions are important to the success of the Company, an incentive, through ownership of the Company’s common stock, to encourage the Company’s employees, directors, officers and consultants to accept or continue in service with the Company, and to help the Company compete effectively with other enterprises for the services of qualified individuals. A total of 1,750,000 shares of our common stock has been initially reserved for issuance under the 2009 Plan, subject to adjustment only in the event of a stock split, stock or other extraordinary dividend, or other similar change in the common stock or capital structure of the Company.   As of December 31, 2010, 1,675,000 shares are issued and outstanding under the 2009 Plan, of which, all but 362,500 shares 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 Plan.  All awards shall be granted within ten years from the date of adoption of the Plan by the Board.

16.           Earnings (Loss) Per Share

We report Basic and Diluted Earnings per Share (EPS) as follows: 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 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 six months ended December 31, 2010, 25,589,496 potential shares were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive.  Since we incurred a net loss for the three and six months ended December 31, 2009, 646,541 potential shares were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive.

We reported a net loss attributable to common stockholders of $2,654,539 and $4,856,211 for the three and six months ended December 31, 2010, respectively.  We reported a net loss of $10,093,978 and $13,106,197, respectively, for the three and six months ended December 31, 2009.  

17.           Stock Based Compensation

Stock Options:
As part of the reverse merger with Semotus that closed on October 1, 2008, we assumed Semotus’ 1996 and 2005 Stock Option Plans, as described in Note 14.
 
We recognize expense related to the fair value of employee stock option awards on a straight line vesting basis over the vesting period of the award. Total stock expense recognized by us during the three months ended September 30, 2009 was $15,609.   

 
 
 
 
 
31

 
 
 



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.  The expected term of options granted represents the period of time that options granted are expected to be outstanding.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 
Three Months Ended
Black-Scholes -Based Option Valuation Assumptions
December 31, 2009
4.0 – 7.0 yrs
193.0% - 222.6%
198.13%
--
2.57%
Expected term (in years)
Expected volatility
Weighted average volatility
Expected dividend yield
Risk-free rate

No stock option transactions occurred during the three months ended December 31, 2010 or 2009, and no stock options remain issued or outstanding.
 
Restricted Common Stock:
During the three months ended December 31, 2010 we issued a total of 500,000 shares of restricted stock to management, as a hiring and retention incentive, and 3,750,000 shares of restricted stock to consultants for services rendered.  We recorded $35,000 in expense for the three months ended December 31, 2010 related to the management issuances.  We recorded $117,000 in expense for the three months ended December 31, 2010 related to the consultant issuances.

During the three months ended December 31, 2009, 1,250,000 shares of unvested restricted common stock issued to employees under our 2009 Restricted Stock Plan vested, and we recorded approximately $381,688 and $763,374 in expense for the three and six months ended December 31, 2009, respectively, related to the vesting of these shares.  We also issued a total of 501,515 shares of restricted stock to consultants as settlements for services rendered during the six months ended December 31, 2009.  We recorded $0 and $185,561 in expense for the three and six months ended December 31, 2009, respectively, related to these shares of restricted common stock granted to these consultants.

18.           Exchange Gains and Losses

As of December 31, 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 2011, 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. The reporting currency of Flint is the U.S. Dollar so that transactions and balances are translated into dollars. We recorded a $25,564 gain and a $4,962 loss on translation for the three months ended December 31, 2010 and 2009, respectively.

19.           $15 Million Reserve Equity Financing Agreement

On November 26, 2010, Flint Telecom Group, Inc. (“Flint” or the “Company”) entered into an Investment Agreement, as amended and restated on January 21, 2011 (the “IA Agreement”) with Kodiak Capital Group, LLC (“Kodiak”), pursuant to which Kodiak committed to purchase, from time to time over a period of two years, shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”) for cash consideration up to $15 million, subject to certain conditions and limitations.  In connection with the IA Agreement, the Company also entered into a registration rights agreement with Kodiak, dated November 26, 2010 (the “RRA Agreement”).  The Company is also required to pay Kodiak a total of $20,000 in cash, and issue to Kodiak 1,500,000 shares of restricted common stock, which were issued in December of 2010, and which resulted in a deferred offering cost paid in common stock of $66,000.

 
 
 
 
 
32

 
 
 


The IA Agreement will require Kodiak to sell shares in the market and in order to be successful requires the stock to be liquid and trading at levels that will generate enough value to allow the company to draw the full amount over the period. The agreement allows us to place shares with Kodiak based on a formula. The maximum amount of each Put is equal to, at Kodiak’s election, five hundred percent (500%) of the average daily volume (U.S. market only) of the Common Stock for the five (5) trading days prior to the applicable Put notice date, multiplied by the average of the five (5) daily closing bid prices immediately preceding the Put Date, or (B) five hundred thousand dollars ($500,000). This determines the maximum amount that we can draw per Put and is directly related to the trading activity of the stock.

If this formula was applied to the trading history of our stock over the previous calendar quarter and we elected to make two puts per month then we would have been able to place shares up the following Put amounts on Kodiak :
Date
 
5 Day Average Volume
   
500% of 5 Day Average
   
Average Closing Bid Price
   
Maximum Put Amount Available
 
Oct 15, 2010
    11,551,055       57,755,273     $ 0.0068     $ 393,891  
Oct 29, 2010
    36,956,706       184,783,530     $ 0.0054     $ 500,000  
Nov 12, 2010
    27,519,420       137,597,101     $ 0.0032     $ 437,559  
Nov 26, 2010
    33,929,362       169,646,810     $ 0.0024     $ 403,759  
Dec 15, 2010
    15,030,872       75,154,359     $ 0.0016     $ 123,253  
Dec 30, 2010
    43,849,763       219,248,816     $ 0.0015     $ 337,643  

The above table is based on historical performance and is intended purely to illustrate the amount of funds that we could have drawn from Kodiak had the Equity Finance Agreement been available during that period. Actual amounts sold to Kodiak are based on the lowest closing bid price of the shares in the 5 days following the Put that will determine the actual amount of shares issued to Kodiak with each Put. We are under no contractual obligation to exercise a Put and market conditions at the time will determine when management would take that option. Future performance cannot be guaranteed but on the basis that the share volumes continue in future periods in line with recent history we would have the ability to avail ourselves of the full $15 million available under the agreement. As of September 30, 2010, we do not have sufficient authorized shares available to raise the full $15 million under the Kodiak financing agreement. In order to facilitate the full draw we will have to either (i) increase our number of authorized shares or (ii) effectuate a reverse stock split that does not correspondingly decrease the total number of authorized shares. A special meeting of shareholders was held on August 10, 2010, and one of the items voted on and approved by the shareholders was a reverse split that did not correspondingly decrease the authorized shares.

The following summary of the IA Agreement and the RRA Agreement with Kodiak is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which is attached as an exhibit to our Form 8-K filed on November 30, 2010. Readers should review those agreements for a complete understanding of the terms and conditions associated with this financing. 

Investment Agreement
For a period of 24 months from the effectiveness of a registration statement filed pursuant to the RRA Agreement, the Company may, from time to time, at its discretion, and subject to certain conditions that it must satisfy, draw down funds under the IA Agreement by selling shares of its Common Stock to Kodiak up to an aggregate of $15 million, subject to various limitations that may reduce the total amount available to the Company. The purchase price of these shares will be at a 5% discount to the “LCBBP” of the Common Stock during the pricing period (the “Pricing Period,”) which is the five consecutive trading days after the Company gives Kodiak a put notice (a “Put”), under the IA Agreement.  The “LCBBP” means, as of any date, the lowest closing best bid price over a period of five trading days after the Put.  
  
The Company’s ability to require Kodiak to purchase its Common Stock is subject to various conditions and limitations. The maximum amount of each Put is equal to, at Kodiak’s election, five hundred percent (500%) of the average daily volume (U.S. market only) of the Common Stock for the five (5) trading days prior to the applicable Put notice date, multiplied by the average of the five (5) daily closing bid prices immediately preceding the Put Date, or (B) five hundred thousand dollars ($500,000). The Company shall not be entitled to submit a Put until after the previous Put closing has been completed.

 
 
 
 
 
33

 
 
 



The IA Agreement contains representations and warranties by the Company and Kodiak which are typical for transactions of this type.  Kodiak agreed that during the term of the IA Agreement, Kodiak will not enter into or execute any short sale of any shares of the Common Stock as defined in Regulation SHO promulgated under the Exchange Act.  The IA Agreement also contains a variety of covenants by us which are typical for transactions of this type.

The IA Agreement obligates the Company to indemnify Kodiak for certain losses resulting from a misrepresentation or breach of any representation or warranty made by us or breach of any obligation of ours. Kodiak also indemnifies the Company for similar matters.

Registration Rights Agreement
The shares of Common Stock that may be issued to Kodiak under the IA 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, the Company will file a registration statement, covering the possible resale by Kodiak of the shares that the Company may issue to Kodiak under the IA. The registration statement may cover only a portion of the total shares of the Common Stock issuable pursuant to the IA with Kodiak.  The Company may file subsequent registration statements covering the resale of additional shares of Common Stock issuable pursuant to the IA Agreement.  As described above, the effectiveness of the registration statement is a condition precedent to the Company’s ability to sell Common Stock to Kodiak under the IA Agreement. The Company intends to file the registration statement as soon as practicable after the date hereof.

20.           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 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”).  Following the acquisition of III and P2P in October 2010, the Company’s management elected to report these units under a new segment for the sale of financial processing services, debit card programs and mobile payment & remittance services (collectively referred to as “financial processing services”). These have been included for the current reporting period and for each period thereafter.

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”.

 
34

 
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 consolidated results.
 
   
Three Months Ended December 31,
   
Six Months Ended December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues:
                       
Software & equipment
  $ 592,893     $ 185,923     $ 901,384     $ 352,851  
Prepaid services
    3,831,016       3,948,445       7,959,285       8,322,103  
Telecom services
    --       --       --       --  
Financial processing services
    --       --       --       --  
    $ 4,423,909     $ 4,134,368     $ 8,860,669     $ 8,675,155  
                                 
Gross profit:
                               
Software & equipment
  $ 129,171     $ 82,986     $ 290,873     $ 77,861  
Prepaid services
    65,966       340,268       162,151       690,265  
Telecom services
    (12,000 )     --       (21,020 )     --  
Financial processing services
    --       --       --       --  
    $ 183,137     $ 423,254     $ 432,004     $ 768,126  
                                 
Operating income (loss):
                               
Software & equipment
  $ 45,457     $ 18,463     $ 146,815     $ (33,948 )
Prepaid services
  $ (84,616 )   $ 274,075     $ (90,168 )   $ 356,152  
Telecom services
  $ (12,000 )   $ --     $ (21,020 )   $ --  
Financial processing services
  $ (597,312 )   $ --     $ (597,312 )   $ --  
Discontinued operations
  $ --     $ (298,429 )   $ --     $ (499,954 )
Corporate activities
  $ (524,722 )   $ (1,443,047 )   $ (1,050,457 )   $ (3,192,730 )
    $ (1,173,193 )   $ (1,448,938 )   $ (1,612,142 )   $ (3,370,480 )
                                 
Income (loss) before income taxes:
                               
Software & equipment
  $ 45,457     $ 43,130     $ 146,815     $ (9,282 )
Prepaid services
  $ (84,616 )   $ 273,922     $ (90,168 )   $ 356,001  
Telecom services
  $ (12,000 )   $ --     $ (21,020 )   $ --  
Financial processing services
  $ (597,312 )   $ --     $ (597,312 )   $ --  
Discontinued operations
  $ --     $ (7,613,439 )   $ --     $ (7,814,898 )
Corporate activities
  $ (1,573,192 )   $ (2,757,591 )   $ (3,749,561 )   $ (5,638,018 )
    $ (2,221,663 )   $ (10,053,978 )   $ (4,311,246 )   $ (13,106,197 )
 
 
 
35

 
                                 
Depreciation and amortization:
                         
Software & equipment
  $ --     $ 566     $ --     $ 566  
Prepaid services
  $ (8,929 )   $ 107     $ --     $ 780  
Telecom services
  $ 17,857     $ --     $ 17,857     $ --  
Financial processing services
  $ 289,022     $ --     $ 289,022     $ --  
Discontinued operations
  $ --     $ 576,031     $ --     $ 1,220,059  
    $ 297,950     $ 576,704     $ 306,879     $ 1,221,405  
                                 
Interest expense:
                               
Software & equipment
  $ --     $ --     $ --     $ --  
Prepaid services
  $ --     $ --     $ --     $ --  
Telecom services
  $ --