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EX-23 - FLINT TELECOM GROUP INC.ex23_1.htm
EX-5 - FLINT TELECOM GROUP INC.ex5_1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form S-1/A
Amendment No. 5

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
FLINT TELECOM GROUP, INC.
(Exact name of registrant as specified in its charter)
 
         
Nevada
 
3669
 
36-3574355
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(IRS Employer
Identification No.)
         
 

7500 College Blvd., Suite 500
Overland Park, Kansas 66210
(913) 815-1570
(Address, including zip code, and telephone number,
 including area code, of registrant’s principal executive offices)
 
 
InCorp Services, Inc.
ll2360 Corporate Circle, Suite 400
Henderson, NV 89074-7722
(702) 866-2500
 (Name, address, including zip code, and telephone number,
including area code, of agent for service)

With copies to:
 
Lucosky Brookman LLP
33 Wood Avenue South, 6th Floor
Iselin, New Jersey 08830
(732) 395-4400


Approximate date of commencement of proposed sale to the public:  From time to time after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.  þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.  o

 
 
 
 

 
 




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. (Check one):

Large accelerated filer o
Accelerated filer o
   
Non-accelerated filer o
Smaller reporting company þ
 

 
 
 
 

 
 


CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered
 
Amount to be Registered (1)
   
Proposed Maximum Offering Price per Share (2)
   
Proposed Maximum Aggregate Offering Price
   
Amount of Registration Fee (3)
 
                         
Common stock, $0.01 par value per share
    50,000,000     $ 0.0025     $ 125,000     $ 14.50  
                                 
Total
    50,000,000     $ 0.0025     $ 125,000     $ 14.50  

(1)  
Pursuant to Rule 416 under the Securities Act of 1933, as amended, this Registration Statement shall also cover any additional shares of common stock which become issuable by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of additional consideration which results in an increase in the number of the outstanding shares of common stock of the registrant.

(2)  
In accordance with Rule 457(c), the aggregate offering price of the common stock is estimated solely for the calculating of the registration fees due for this filing. For the initial filing of this Registration Statement, this estimate was based on the closing price of our stock reported by Over-the-Counter Bulletin Board (the “OTCBB”) on May 25, 2011, which was $0.0025.
 
(3)    Such fee has already been paid by the Company.
 
 
 
 

 
 


The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 
 
 
 

 
 


The information in this prospectus is not complete and may be changed.  We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

May 27, 2011

FLINT TELECOM GROUP, INC.

50,000,000 Shares of Common Stock
 
This prospectus relates to the resale of up to 50,000,000 shares of our common stock, par value $0.01 per share, by Kodiak Capital Group, LLC (“Kodiak”), the selling shareholder identified in this prospectus.  The shares of common stock offered under this prospectus by Kodiak are issuable to Kodiak pursuant to the Investment Agreement (“IA”) entered into by and between Kodiak and the Flint Telecom Group, Inc., dated November 26, 2010, as amended and restated on January 19, 2011. The Company will not receive any proceeds from the sale of these shares by Kodiak.  This registration statement covers only a portion of the shares of common stock that may be issuable pursuant to the IA. The Company may file subsequent registration statements covering the resale of additional shares of common stock issuable pursuant to the IA with Kodiak.  The Company will bear all costs associated with this registration statement.

Kodiak may sell the shares of common stock described in this prospectus in a number of different ways and at varying prices. The Company provides further information about how Kodiak may sell its shares of common stock in the section entitled “Plan of Distribution.” Kodiak is an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in connection with the resale of the Company’s common stock under the IA.  
 
The Company’s shares of common stock are quoted on the OTCBB under the symbol “FLTT.OB.” On May 25, 2011, the closing sale price of the Company’s common stock was $0.0025 per share.

This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss.   See “Risk Factors” beginning on page 8.

Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is ___________, 2011
 

 
 
 
 

 
 


TABLE OF CONTENTS

   
Page
 
Prospectus Summary
    1  
Risk Factors
    7  
Special Note Regarding Forward Looking Statement
    15  
Use of Proceeds
    15  
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
    16  
Securities
    17  
Capitalization
    17  
Selected Financial Data
    17  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    18  
Business
    26  
Management
    33  
Executive Compensation
    35  
Certain Relationships and Related Party Transactions
    37  
Principal Shareholders
    38  
Selling Shareholder
    41  
Description of Capital Stock
    42  
Plan of Distribution
    44  
Legal Matters
    46  
Experts
    46  
Where You Can Find More Information
    46  
Index to Financial Statements
    47  


You should rely only on the information contained or incorporated by reference into this prospectus. We have not, and the selling shareholder has not, authorized anyone to provide you with additional or different information. These securities are not being offered in any jurisdiction where the offer is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front of the document and that any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference, regardless of the time of delivery of this prospectus or of any sale of our common stock. Unless the context otherwise requires, references to “we,” “our,” “us,” or the “Company” in this prospectus mean Flint Telecom Group, Inc., a Nevada corporation.  If you have any questions regarding the information in this prospectus please contact Vincent Browne, our Chief Executive Officer, at Flint Telecom Group, Inc., 7500 College Blvd., Suite 500, Overland Park, Kansas, 66210 or by telephone at (913) 815-1570.

 
 

 
 
 
 

 
 


PROSPECTUS SUMMARY
 
This summary highlights information described more fully elsewhere in this prospectus.  You should read the entire prospectus carefully, including the risk factors, the financial statements and the notes to the financial statements included herein. Investing in our securities involves risks. Therefore, please carefully consider the information provided under the heading “Risk Factors” included herein.

The Company

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 (1,423,005 after 1:20 split effective January 14, 2011) 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.  Information on our website is not part of this prospectus.

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 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.

(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.

 
 
 
1

 
 


(5)  
Ingedigit International Inc. (“III”) – 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”) – a U.S. based advanced financial transaction processing and technology company, working with banking clients and other program sponsors globally. Using P2P 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 ongoing emphasis on streamlining our operations and reaching sustainable profitability, during the fiscal year ended June 30, 2010 we shut down and disposed of four of our other wholly owned subsidiaries 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”.  

We have not yet achieved profitability and have sustained losses.  Our financial statements have been prepared on a going concern basis.  We have recorded a net loss for each year since our current business started through our fiscal year ended June 30, 2010. As of December 31, 2010, we had an accumulated deficit of $54,944,759.   Also, as of December 31, 2010, we had limited liquidity and capital resources.  Consequently, our operations carry a high degree of risk, as further described in the Risk Factors on page 11.

Flint’s Products and Services
 
Through our existing operating companies, we operate in 4 key business areas:

Telecom Software, Services & Equipment: Wireless IP and telecom expense management applications to large multinational enterprises and telecom operators worldwide. Modem, cable and other telecom equipment supplies to leading cable and rural telecom operators in the United States. This area of the business focuses on the development, acquisition or licensing of Voice over Internet Protocol (VoIP) technologies in both land-line and wireless environments to address the growing global market. This technology is aimed at end customers, other operators and program operators and focuses on specific applications that address convergent wireless IP and cellular products and services. Technology developed, acquired or licensed by this segment of the organization also supplies the rest of the business with innovative retail products, for distribution through our large network of distributors, and cost-saving expense management services provided directly to operators.

Prepaid Telecom Services: Provision and distribution of prepaid calling cards and cellular products in the United States. These calling products 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. Flint operates a wireless phone service as an MVNO (Mobile Virtual Network Operator) in the United States that provides prepaid voice, texting and data services nationwide under the ‘Flint Mobile’ brand.

Subscriber Based Telecom Services: The provision of VoIP and cellular services aimed primarily at the Small and Medium Enterprises in the United States and internationally. Flint delivers the value added services that manage the entire value-chain

 
 
 
2

 
 

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

Financial Processing Services:
The provision of stored value card and remittance services to a growing number of U.S. domestic and international partners globally. Using Flint 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, Flint is in the unique position of having complete control of all aspects of the financial 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 web management. Included with the debit card services are additional services, allowing the partners 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 cardholder 24/7/365.

Equity Financing Facility with Kodiak Capital Group, LLC
 
On November 26, 2010, we entered into an investment agreement (“IA”) with Kodiak, pursuant to which Kodiak committed to purchase, from time to time, over a period of two years, shares of our common stock for cash considerations of up to $15,000,000, subject to certain conditions and limitations discussed below.  In connection with the IA, we also entered into a registration rights agreement with Kodiak, dated November 26, 2010. On January 19, 2011 we subsequently amended and restated the IA.  The Amended and Restated Investment Agreement was attached as Exhibit 10.20 to our registration statement filed on January 19, 2011.
 
The shares of common stock that may be issued to Kodiak under the IA will be issued pursuant to an exemption from registration under the Securities Act. Pursuant to the registration rights agreement, we have filed a registration statement, of which this prospectus is a part, covering the possible resale by Kodiak of a portion of the shares that we may issue to Kodiak under the IA. Through this prospectus, the selling shareholder may offer to the public for resale shares of our common stock that we may issue to Kodiak pursuant to the IA.
 
This registration statement covers only a portion of the shares of our common stock issuable pursuant to the IA with Kodiak. We may file subsequent registration statements covering the resale of additional shares of our common stock issuable pursuant to the IA with Kodiak.
 
For a period of 24 months from the effectiveness of a registration statement filed pursuant to the registration rights agreement, we may, from time to time, at our discretion, and subject to certain conditions that we must satisfy, draw down funds under the IA by selling shares of our common stock to Kodiak, up to an aggregate of $15,000,000, subject to various limitations that may reduce the total amount available to us. The purchase price of these shares will be 95% of the lowest closing best bid price “LCBBP” of the common stock during the pricing period (the “Pricing Period”), which is the five consecutive trading days after we give Kodiak a notice of an advance of funds (a “Put”) under the IA.

Our ability to require Kodiak to purchase our common stock is subject to various conditions and limitations. The maximum amount of each Put is equal to, at Kodiak’s discretion, $500,000 or 500% of the average daily trading volume for the five trading days immediately preceding the delivery of the Put Notice multiplied by the average of the five (5) daily closing bid prices immediately preceding the Put date.  In addition, we shall not be entitled to submit a Put until after the previous Closing has been completed.
 
Before Kodiak is obligated to buy any shares of our common stock pursuant to a Put, the following conditions, none of which are in Kodiak’s control, must be met:

·  
a Registration Statement shall have been declared effective and shall remain effective and available for the resale of all the 50,000,000 shares of common stock at all times with respect to the subject Put;

·  
at all times during the period beginning on the related Put date and ending on and including the related Closing Date, the Common Stock shall have been listed on the Principal Market and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period and we shall not have been notified of any pending or threatened proceeding or other action to suspend the trading of our common stock;

·  
we have complied with our obligations and are otherwise not in breach of or in default under, this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been cured prior to delivery of the Put;

·  
no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the common stock; and

 
 
 
3

 
 

  
 
·  
the issuance of the common stock will not violate any shareholder approval requirements of the Principal Market.

·  
The Common Stock shall be authorized for quotation on the Principal Market and trading in the Common Stock shall not have been suspended by the Principal Market or the SEC, at any time beginning on the date hereof and through and including the respective Closing Date (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to our delivery of the Put).

·  
Our representations and warranties shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time and we shall have performed, satisfied and complied with the covenants, agreements and conditions required to be performed, satisfied or complied with by us on or before such Closing Date.

·  
We shall have executed and delivered to Kodiak the certificates representing, or have executed electronic book-entry transfer of, the common stock (in such denominations as Kodiak shall request) being purchased by Kodiak at such Closing.

·  
The Board of Directors of the Company shall have adopted resolutions consistent with Section 4(B)(II) above (the “Resolutions”) and such Resolutions shall not have been amended or rescinded prior to such Closing Date.

·  
No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

·  
The Registration Statement shall be effective on each Closing Date and no stop order suspending the effectiveness of the Registration statement shall be in effect or to our knowledge shall be pending or threatened. Furthermore, on each Closing Date (I) neither we nor Kodiak shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC’s concerns have been addressed and Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (II) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.  

·  
At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to the prospectus.

·  
If applicable, our shareholders shall have approved the issuance of any common stock in excess of the Maximum Common Stock Issuance or we shall have obtained appropriate approval pursuant to the requirements of the State of Nevada and our Articles of Incorporation and By-laws.

·  
We shall have certified to Kodiak the number of Shares of Common Stock outstanding when a Put is given to Kodiak.  

There is no guarantee that we will be able to meet the foregoing conditions or any other conditions under the IA or that we will be able to draw down any portion of the amounts available under the IA.
 
The Registration Statement covers 50,000,000 shares of common stock under the IA.  The entire common share requirement for the entire $15,000,000 under the IA would be approximately 6,302,521,008, based on an assumed LCBBP of $0.0024, representing 95% of the closing price of our common stock on May 25, 2011.  However, we have decided to limit ourselves to 50,000,000 shares available, or $119,000, based on the closing price of our common stock as of May 25, 2011.  If our share price rises, we will be able to draw down in excess of $119,000 and if it falls we will be able to draw less than $119,000. If we decide to issue more than 50,000,000 shares, we will need to file one or more additional registration statements with the SEC covering those additional shares.
  
Kodiak agreed that during the term of the IA, neither Kodiak nor any of its affiliates, nor any entity managed or controlled by it, will, or cause or assist any person to, enter into or execute any short sale of any shares of our common stock as defined in Regulation SHO promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  
 
The IA obligates us 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.
 
We are obligated to pay a due diligence fee of $20,000 to Kodiak, to be drawn from the first Put Amount. In the event that we do not deliver a Put Notice to Kodiak within six months from the date of the IA, then we shall issue an additional 500,000 shares of restricted common stock. We also issued 1,500,000 shares of restricted common stock (not included in this prospectus) to Kodiak

 
 
 
4

 
 

as part of our obligations under the IA, 500,000 of which were assigned to a third party by Kodiak.  We have also previously issued to Kodiak 520,000 shares of restricted common stock under a separate consulting agreement.
 
We may terminate the IA upon written notice to Kodiak, provided that (a) there are no Advances outstanding, and (b) we have paid all amounts owed to Kodiak pursuant to the IA. The obligation of Kodiak to make an Advance to us pursuant to the IA shall be suspended if (a) the trading of our common stock is suspended by the SEC, the OTCBB or the NASB for a period of two consecutive days, or (b) the common stock ceases to be registered under the SEC 1934 Act or listed on the OTCBB, and shall remain suspended until the situation is rectified.   Either we or Kodiak may terminate the IA should the other (i) institute proceedings to be adjudicated a voluntary bankrupt, or consent to the filing of a petition of bankruptcy against it; (ii) be adjudicated by a court of competent jurisdiction as being bankrupt or insolvent; (iii) seek reorganization under any bankruptcy act, or consent to the filing of a petition seeking such reorganization, or (iv) have a decree entered against it by a court of competent jurisdiction appointing a receiver, liquidator, trustee or assignee in bankruptcy or in insolvency covering all or substantially all of such party’s property or providing for the liquidation of such party’s property or business affairs.

The issuance of our shares of common stock under the IA will have no effect on the rights or privileges of existing holders of common stock except that the economic and voting interests of each stockholder will be diluted as a result of the issuance of our shares.  Although the number of shares of common stock that stockholders presently own will not decrease, these shares will represent a smaller percentage of our total shares that will be outstanding after any issuances of shares of common stock to Kodiak.  If we draw down amounts under the IA when our share price is decreasing, we will need to issue more shares to raise the same amount than if our stock price was higher.  Such issuances will have a dilutive effect and may further decrease our stock price. An example of the effect of issuing shares when our stock price is comparatively low is set forth below.
Under the IA, the purchase price of the shares to be sold to Kodiak will be at a discount of 5% from the LCBBP during the five trading days following our election to sell shares to Kodiak depending on the market price at the time. The table below illustrates an issuance of shares of common stock to Kodiak under the IA for a hypothetical draw down amount of $50,000 at an assumed LCBBP of $0.0025, which is the closing price of our common stock on May 25, 2011.
 
Draw Down
Amount
 
LCBBP
 
% Discount
 
Price to be Paid by Kodiak
 
Number of
Shares
to be Issued
 
$
50,000
   
$
0.0025
     
5
%
 
$
0.00238
     
21,008,403
 
 
By comparison, if the LCBBP of our common stock was higher than $0.0025, the number of shares that we would be required to issue in order to have the same draw down amount of $50,000 would be smaller, as shown by the following table:
 
Draw Down
Amount
 
LCBBP
 
% Discount
 
Price to be Paid by Kodiak
 
Number of Shares to be Issued
 
$
50,000
   
$
0.005
     
5
%
 
$
0.00475
     
10,526,316
 
 
Accordingly, the effect of the first example outlined above from the second example outlined above, would be dilution of an additional 10,482,087 shares issued due to the lower stock price. In effect, a lower price per share of our common stock means a higher number of shares to be issued to Kodiak, which equates to greater dilution of existing stockholders. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by Kodiak, and because our existing stockholders may disagree with a decision to sell shares to Kodiak at a time when our stock price is low, and may in response decide to sell additional numbers of shares, further decreasing our stock price.
 
The following table shows the effect on the number of shares required for a Put for the value of the full $15,000,000 IA, in the event the common stock price is below the current share price, at the current closing price, and higher than the current share price in the IA.
 
   
As At 05/25/2011
 
Lower
 
Lower
 
Higher
 
Higher
 
Higher
LCBBP during the Purchase
Period (as defined above)
 
$
0.0025
 
0.0015
$
0.002
$
0.005
$
0.01
$
0.05
Purchase Price (defined above
as 95% of the LCBBP)
 
$
0.00238
 
0.00143
$
0.0019
$
0.0048
$
0.0095
$
0.0475
Number Subject to the IA
if 100% of the IA is Executed.
   
6,302,521,008
 
10,489,510,490
 
7,894,736,842
 
3,157,894,737
 
1,578,947,368
 
315,789,474
 
The Company entered into the IA with the intention to grow our business, which in turn should increase our value. In addition, as reflected above, if our share price declines significantly and we still desire to draw down on the IA, in addition to having to file one or more additional registration statements, we may need to amend our articles of incorporation to increase our authorized shares of common stock, which is currently 900,000,000 shares, or effect a reverse split, either of which would require shareholder approval.


 
 
 
 
5

 
 
 

The Offering
 
   
Common stock offered:
 
Up to 50,000,000 shares of common stock, $0.01 par value, to be offered for resale by Kodiak.
 
Common stock outstanding prior to this offering:
 
179,793,173
Common stock to be outstanding
after this offering:
229,793,173 shares, assuming all shares offered for resale are sold.
   
Use of proceeds:
 
We will not receive any proceeds from the sale of the shares of common stock offered by Kodiak.  See “Use of Proceeds.”
 
Risk factors:
 
An investment in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus.
 
OTC Bulletin Board symbol:
 
“FLTT.OB”
 
 
 
 
6

 
 

RISK FACTORS
 
Investing in our shares of common stock is very risky.  Before making an investment decision, you should carefully consider all of the risks described in this prospectus.  If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially and adversely affected, the price of our shares could decline significantly, and you might lose all or a part of your investment.  The risk factors described below are not the only ones that may affect us.  Our forward-looking statements in this prospectus are also subject to the following risks and uncertainties.  In deciding whether to purchase our shares, you should carefully consider the following factors, among others, as well as information contained in this prospectus.
 
Risks Relating to Our Company

WE NEED ADDITIONAL CAPITAL TO CONTINUE OPERATIONS AND FUND OTHER LIQUIDITY NEEDS; IF WE DO NOT RAISE ADDITIONAL CAPITAL, WE WILL NEED TO CURTAIL OR CEASE OPERATIONS.

Since our inception, we have financed our operations primarily through the sale of our common stock and convertible notes and loans.  On June 30, 2010, we had $19,419 in cash; on March 31, 2011 we had $45,568 in cash.  To execute on our business plan successfully, we will need to raise additional money in the future.  We cannot assure you that our business will generate sufficient cash flow from operations in the future, or that our currently anticipated growth in revenues and cash flow will be realized on schedule or that future borrowings will be available to us in an amount sufficient to enable the repayment of any indebtedness or to fund our other liquidity needs.  Additional financing may not be available on favorable terms, or at all.  The exact amount of funds raised, if any, will determine whether we will be able to repay our indebtedness and how quickly we can grow our business.  No assurance can be given that we will be able to raise capital when needed or at all, or that such capital, if available, will be on terms acceptable to us.  If we are not able to raise additional capital, we will likely need to curtail or cease operations.  Although we have entered into the IA with Kodiak, there can be no assurance that we will be successful in raising any capital pursuant to the IS. Other than the IA, we currently rely on issuing convertible debt to provide working capital to the Company that are made available from time to time.  If adequate funds are not available when required, we will need to curtail or cease operations.

OUR BUSINESS HAS HISTORICALLY INCURRED LOSSES AND THESE LOSSES ARE EXPECTED TO CONTINUE IN THE FUTURE.

We recorded a net loss for each year since our current business began through our fiscal year ended June 30, 2010. As of June 30, 2010, we had an accumulated deficit of $50,088,548. As of March 31, 2011 we had an accumulated deficit of $57,535,819.

We have not achieved profitability and we expect to continue to incur operating losses in the future. These losses may be higher than our current losses from operations. Many of our operating expenses are fixed in the short term. We have incurred (and may incur in the future) losses from the impairment of goodwill or other intangible assets, or from the impairment of the value of companies that we acquired. We must therefore generate revenues sufficient to offset these expenses in order for us to become profitable. If we do achieve profitability, we may not be able to sustain it.

Because we expect to continue to incur significant sales and marketing, systems development and administrative expenses, we will need to generate significant revenue to become profitable and sustain profitability on a quarterly or annual basis. We may not achieve or sustain our revenue or profit goals and our losses may continue or grow in the future. As a result, we may not be able to increase revenue or achieve profitability on a quarterly or annual basis.

OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS HAVE RAISED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

For the year ended June 30, 2010, our independent auditor issued a report relating to our audited financial statements which contains a qualification with respect to our ability to continue as a going concern because, among other things, our ability to continue as a going concern is dependent upon our ability to generate profits from operations in the future or to obtain the necessary financing to meet our obligations and repay our liabilities when they come due. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.  As reflected in our most recent audited financial statements, we have incurred a net loss for the year ended June 30, 2010 of $28,865,778, a working capital deficiency of $10,630,231, a stockholder deficiency of $15,906,274 and cash used in operations of $2,204,283.  Flint had a net loss of $6,463,091for the nine months ended March 31, 2011, negative cash flow from operating activities of $830,997for the nine months ended March 31, 2011, a stockholder’s deficit of $19,475,637 and a working capital deficit of $15,859,159 as of March 31, 2011. This raises substantial doubt about our ability to continue as a going concern.
 

 
 
 
7

 
 


RISKS OF BORROWING; LOAN DEFAULTS.

We have incurred indebtedness and may incur additional indebtedness in the future, and a portion of our cash flow will have to be dedicated to the payment of principal and interest on such indebtedness. Such loan agreements provide for default under certain circumstances. As of the date of the filing of this report, we have a total of approximately $3.7 million of loan principal that is past due from a total principal balance of approximately $6.7 million, representing 14 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.  A default under a loan agreement could result in the loan becoming immediately due and payable and, if unpaid, a judgment in favor of such lender which would be senior to the rights of owners of common stock of the Company. A judgment creditor would have the right to foreclose on any of our assets that may result in a material adverse effect on our business, operating results or financial condition. Upon default, we are required to pay interest in cash to the note holder, payable on demand, on the outstanding principal balance of the note from the date of the default until the default is cured at the rate range of 0% - 18%. Upon default, the note holders may, at any time at their option, declare the entire unpaid principal balance of the note, together with all interest accrued hereon, immediately due and payable.

OUR SUCCESS DEPENDS ON THIRD PARTIES IN OUR DISTRIBUTION CHANNELS.

We currently sell our services through partners only and not directly to customers, and are focusing efforts on diversifying and increasing our distribution channels. Our future revenue growth will depend, in large part, on sales of our products and services through these resellers, partners and other distribution relationships. We may not be successful in developing additional distribution relationships. Entities that distribute our products may compete with us. In addition, distributors and resellers may not dedicate sufficient resources or give sufficient priority to selling our products. Our failure to develop new distribution channels, the loss of a distribution relationship or a decline in the efforts of a material reseller or distributor could have a material adverse effect on our business, financial condition or operating results.

DECREASING TELECOMMUNICATIONS RATES AND INCREASING REGULATORY CHARGES MAY DIMINISH OR ELIMINATE OUR COMPETITIVE PRICING ADVANTAGE.

Decreasing telecommunications rates may diminish or eliminate the competitive pricing advantage of our services. Increased regulation and the imposition of additional regulatory funding obligations at the federal, state and local level could require us to either increase the retail price for our services, thus making us less competitive or absorb such costs, thus decreasing our profit margins. International and domestic telecommunications rates have decreased significantly over the last few years in most of the markets in which we operate, and we anticipate these rates will continue to decline in all of the markets in which we do business or expect to do business. Users who select our services to take advantage of the current pricing differential between traditional telecommunications rates and our rates may switch to traditional telecommunications carriers if such pricing differentials diminish or disappear, and we will be unable to use such pricing differentials to attract new customers in the future. In addition, our ability to market our services to other service providers depends upon the existence of spreads between the rates offered by us and the rates offered by traditional telecommunications carriers, as well as a spread between the retail and wholesale rates charged by the carriers from which we obtain wholesale services. Continued rate decreases would require us to lower our rates to remain competitive and will reduce or possibly eliminate any gross profit from our services. Furthermore, if telecommunications rates continue to decline, we may lose subscribers for our services.

WE RELY ON THIRD PARTY NETWORK SERVICE PROVIDERS TO ORIGINATE AND TERMINATE SUBSTANTIALLY ALL OF OUR PUBLIC SWITCHED TELEPHONE NETWORK CALLS.

We leverage the infrastructure of third party network service providers to provide telephone numbers, public switched telephone network call termination and origination services and local number portability for our customers rather than deploying our own network throughout the United States. This decision has resulted in lower operating costs for our business in the short term but has reduced our operating flexibility and ability to make timely service changes. If any of these network service providers cease operations or otherwise terminate the services that we depend on, the delay in switching our technology to another network service provider, if available, and qualifying this new service could have a material adverse effect on our business, financial condition or operating results.

There can be no assurance that our current service providers will be able or willing to supply cost-effective services to us in the future or that we will be successful in signing up alternative or additional providers. Our ability to provide service to our subscribers would be impacted during this timeframe, and this could have an adverse effect on our business, financial condition or results of operations. The loss of access to, or requirement to change, the telephone numbers we provide to our customers also could have a material adverse effect on our business, financial condition or operating results.

 
 
 
8

 
 


INTENSE COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY IN WHICH WE COMPETE COULD PREVENT US FROM INCREASING OR SUSTAINING OUR REVENUE AND INCREASING OR MAINTAINING PROFITABILITY.

The telecommunications industry is highly competitive. We face intense competition from traditional telephone companies, wireless companies, cable companies, competitive local exchange carriers, alternative voice communication providers and independent VoIP providers.

Most traditional wireline and wireless telephone service providers and cable companies are substantially larger and better capitalized than we are and have the advantage of a large, existing customer base. Because most of our target customers are already purchasing communications services from one or more of these providers, our success is dependent upon our ability to attract target customers away from their existing providers. Until recently, our target market has been composed largely of early adopters, or people who tend to seek out new technologies and services. Attracting customers away from their existing providers will become more difficult as the early adopter market becomes saturated and mainstream customers make up more of our target market. In addition, these competitors could focus their substantial financial resources to develop competing technology that may be more attractive to potential customers than what we offer. Our competitors’ financial resources may allow them to offer services at prices below cost or even free in order to maintain and gain market share or otherwise improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain partners and customers or could cause us to lower our prices in order to compete and reduce our market share and revenues.

We also are subject to the risk that new technologies may be developed that are able to deliver competing voice services at lower prices, better or more conveniently. Future competition from new technologies could have a material adverse effect on our growth and operating results.

Given the significant price competition in the markets for our products, we are at a significant disadvantage compared to our competitors, many of whom have substantially greater resources, and therefore may be better able to withstand an extended period of downward pricing pressure. The adverse impact of a shortfall in our revenues may be magnified by our inability to adjust spending to compensate for such shortfall. Announcements by our competitors or us of new products and technologies could cause customers to defer purchases of our existing products, which also could have a material adverse effect on our business, financial condition or operating results.

Most of our current and potential competitors have longer operating histories, significantly greater resources and name recognition, and a larger base of customers than we have. As a result, these competitors may have greater credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products than we can to ours. Our competitors may also offer bundled service arrangements offering a more complete product despite the technical merits or advantages of our products. Competition could decrease our prices, reduce our sales, lower our gross profits or decrease our market share.

IF WE SUBSTANTIALLY UNDERESTIMATE OR OVERESTIMATE THE DEMANDS FOR OUR SERVICES, OUR COST OF PROVIDING THESE SERVICES COULD INCREASE.

We expect to continue to enter into resale agreements for a portion of our services. In connection with these agreements, we must estimate future demand for our services. If we overestimate this demand, we may be forced to pay for services we do not need, and if we underestimate this demand, we may need to lease additional capacity on a short-term basis at unfavorable prices, assuming additional capacity is available. If additional capacity is not available, we will not be able to meet this demand.

WE MAY HAVE DIFFICULTY IDENTIFYING THE SOURCE OF THE PROBLEM WHEN THERE IS A PROBLEM IN A NETWORK.

Our services must successfully integrate with products from other vendors. As a result, when problems occur in a network, it may be difficult to identify the source of the problem. The occurrence of hardware and software errors, whether caused by our services or another vendor’s products, may result in the delay or loss of market acceptance of our products and any necessary revisions may force us to incur significant expenses. The occurrence of some of these types of problems may seriously harm our business, financial condition or operating results.

WE ARE SUBJECT TO SIGNIFICANT REGULATION THAT COULD CHANGE IN AN ADVERSE MANNER.

Communications services are subject to significant regulation at the federal, state, local and international levels. These regulations affect our business and our existing and potential competitors. Delays in receiving required regulatory approvals (including approvals relating to acquisitions or financing activities), completing interconnection agreements with incumbent local exchange carriers, or the enactment of new and adverse regulations or regulatory requirements may have a material adverse effect on our business. In addition, future legislative, judicial and regulatory agency actions could have a material adverse effect on our business.

 
 
 
9

 
 


Federal legislation provides for a significant deregulation of the U.S. telecommunications industry, including the local exchange, long distance and cable television industries. This legislation remains subject to judicial review and additional Federal Communications Commission, or FCC, rulemaking. As a result, we cannot predict the legislation’s effect on our future operations. Many regulatory actions are under way or are being contemplated by federal and state authorities regarding important issues. These actions could have a material adverse effect on our business. The failure of our products and services to comply, or delays in compliance, with various existing and evolving standards could delay or interrupt volume production of our VoIP telephony products, subject us to fines or other imposed penalties, or harm the perception and adoption rates of our service, any of which would have a material adverse effect on our business, financial condition or operating results.

OUR NETWORK CAPACITY AND CUSTOMER SERVICE SYSTEM MAY NOT BE ADEQUATE AND MAY NOT EXPAND QUICKLY ENOUGH TO SUPPORT OUR ANTICIPATED CUSTOMER GROWTH.

Our financial and operational success depends on ensuring that we have adequate network capacity, sufficient infrastructure equipment and a sufficient customer support system to accommodate anticipated new customers and the related increase in usage of our network. Our failure to expand and upgrade our networks type to meet the demands and preferences of our customers and obtaining additional spectrum, if required, to meet the increased usage could have a material adverse effect on our business.

WE COULD BE LIABLE FOR BREACHES OF SECURITY ON OUR WEB SITE, FRAUDULENT ACTIVITIES OF OUR USERS, OR THE FAILURE OF THIRD-PARTY VENDORS TO DELIVER CREDIT CARD TRANSACTION PROCESSING SERVICES.

A fundamental requirement for operating an Internet-based, worldwide voice communications service and electronically billing customers is the secure transmission of confidential information and media over public networks. Our developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches may fail to mitigate such fraud or breaches may adversely affect our operating results. The law relating to the liability of providers of online payment services is currently unsettled and states may enact their own rules with which we may not comply.

We rely on third party providers to process and guarantee payments made by Flint subscribers up to certain limits, and we may be unable to prevent our customers from fraudulently receiving goods and services. Our liability risk will increase if a larger fraction of our Flint transactions involve fraudulent or disputed credit card transactions. Any costs we incur as a result of fraudulent or disputed transactions could harm our business. In addition, the functionality of our current billing system relies on certain third-party vendors delivering services. If these vendors are unable or unwilling to provide services, we will not be able to charge for our Flint services in a timely or scalable fashion, which could significantly decrease our revenue and have a material adverse effect on our business, financial condition and operating results.

WE HAVE EXPERIENCED LOSSES DUE TO SUBSCRIBER FRAUD AND THEFT OF SERVICE.

Subscribers have obtained access to the Flint service without paying for monthly service and international toll calls by unlawfully using our authorization codes or by submitting fraudulent credit card information. To date, such losses from unauthorized credit card transactions and theft of service have not been significant. We have implemented anti-fraud procedures in order to control losses relating to these practices, but these procedures may not be adequate to effectively limit all of our exposure in the future from fraud. If our procedures are not effective, consumer fraud and theft of service could significantly decrease our revenue and have a material adverse effect on our business, financial condition and operating results.

THIRD PARTIES MAY ALLEGE THAT WE INFRINGED ON THEIR PROPERTY RIGHTS, WHICH WOULD DISRUPT OUR BUSINESS.

There has been substantial litigation in the telecommunications industry regarding intellectual property rights and, from time to time, third parties may claim infringement by us of their intellectual property rights. Our broad range of technology, including IP telephony systems, digital circuits, software, and semiconductors, increases the likelihood that third parties may claim infringement by us of their intellectual property rights. If we were found to be infringing on the intellectual property rights of any third party, we could be subject to liabilities for such infringement, which could be material. We could also be required to refrain from using, manufacturing or selling certain products or using certain processes, either of which could have a material adverse effect on our business and operating results. We may receive notices of claims of infringement, misappropriation or misuse of other parties’ proprietary rights at some point in the future, although we have not received any such notices to date. There can be no assurance that we will prevail in these discussions and actions or that other actions alleging infringement by us of third party patents will not be asserted or prosecuted against us.

Certain technology necessary for us to provide our services may, in fact, be patented by other parties either now or in the future. If such technology were held under patent by another person, we would have to negotiate a license for the use of that certain technology. We may not be able to negotiate such a license at a price that is acceptable. The existence of such a patent, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using such technology and offering products and services incorporating such technology.

 
 
 
10

 
 

We rely upon certain technology, including hardware and software, licensed from third parties. There can be no assurance that the technology licensed by us will continue to provide competitive features and functionality or that licenses for technology currently utilized by us or other technology which we may seek to license in the future, will be available to us on commercially reasonable terms or at all. The loss of, or inability to maintain, existing licenses could result in shipment delays or reductions until equivalent technology or suitable alternative products could be developed, identified, licensed and integrated, and could harm our business. These licenses are on standard commercial terms made generally available by the companies providing the licenses. The cost and terms of these licenses individually are not material to our business.

WE MAY NOT BE ABLE TO MANAGE OUR INVENTORY LEVELS EFFECTIVELY, WHICH MAY LEAD TO INVENTORY OBSOLESCENCE THAT WOULD FORCE US TO INCUR INVENTORY WRITE-DOWNS.

Our products have lead times of up to several months and are built to forecasts that are necessarily imprecise. Because of our practice of building our products to necessarily imprecise forecasts, it is likely that, from time to time, we will have either excess or insufficient product inventory. In addition, because we rely on third party vendors for the supply of components and contract manufacturers to assemble our products, our inventory levels are subject to the conditions regarding the timing of purchase orders and delivery dates that are not within our control. Excess inventory levels would subject us to the risk of inventory obsolescence, while insufficient levels of inventory may negatively affect relations with customers. For instance, our customers rely upon our ability to meet committed delivery dates, and any disruption in the supply of our products could result in legal action from our customers, loss of customers or harm to our ability to attract new customers. Any of these factors could have a material adverse effect on our business, financial condition or operating results.

WE DEPEND ON CONTRACT MANUFACTURERS TO MANUFACTURE SUBSTANTIALLY ALL OF OUR PRODUCTS, AND ANY DELAY OR INTERRUPTION IN MANUFACTURING BY THESE CONTRACT MANUFACTURERS WOULD RESULT IN DELAYED OR REDUCED SHIPMENTS TO OUR CUSTOMERS AND MAY HARM OUR BUSINESS.

We do not have long-term purchase agreements with our contract manufacturers and we depend on a concentrated group of contract manufacturers for a substantial portion of manufacturing our products. There can be no assurance that our contract manufacturers will be able or willing to reliably manufacture our products, in volumes, on a cost-effective basis or in a timely manner. If we cannot compete effectively for the business of these contract manufacturers, or if any of the contract manufacturers experience financial or other difficulties in their businesses, our revenue and our business could be adversely affected. In particular, if one of our contract manufacturers becomes subject to bankruptcy proceedings, we may not be able to obtain any of our products held by the contract manufacturer.

We also rely on third party component suppliers to provide semiconductor circuit packages for our products. In some instances, these components are provided by a single supplier. Our reliance on these suppliers involves a number of risks, including reduced control over delivery schedules, quality assurance and costs. We currently do not have long-term supply contracts with any of these component vendors. As a result, most of these third party vendors are not obligated to provide products or perform services to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. The inability of these third party vendors to deliver components of acceptable quality and in a timely manner, particularly the sole source vendors, could adversely affect our operating results or cause them to fluctuate more than anticipated. Additionally, some of our products may require specialized or high-performance component parts that may not be available in quantities or in time frames that meet our requirements.

WE DEPEND ON THIRD-PARTY VENDORS FOR INFORMATION SYSTEMS. IF THESE VENDORS DISCONTINUE SUPPORT FOR THE SYSTEMS WE USE OR FAIL TO MAINTAIN QUALITY IN FUTURE SOFTWARE RELEASES, WE COULD SUSTAIN A NEGATIVE IMPACT ON THE QUALITY OF OUR SERVICES TO CUSTOMERS, THE DEVELOPMENT OF NEW SERVICES AND FEATURES AND THE QUALITY OF INFORMATION NEEDED TO MANAGE OUR BUSINESS.

We have entered into agreements with vendors that provide for the development and operation of back office systems, such as ordering, provisioning and billing systems. We also rely on vendors to provide the systems for monitoring the performance and condition of our network. The failure of those vendors to perform their services in a timely and effective manner at acceptable costs could materially harm our growth and our ability to monitor costs, bill customers, customer order provisions, maintain the network and achieve operating efficiencies. Such a failure could also negatively impact our ability to retain existing customers or to attract new customers.

SYSTEM DISRUPTIONS COULD CAUSE DELAYS OR INTERRUPTIONS OF OUR SERVICE, WHICH COULD CAUSE US TO LOSE CUSTOMERS OR INCUR ADDITIONAL EXPENSES.

Our success depends on our ability to provide reliable service. Although we have designed our network service to minimize the possibility of service disruptions or other outages, our service may be disrupted by problems on our system, such as malfunctions in our software or other facilities, overloading of our network and problems with the systems of competitors with which we interconnect, such as physical damage to telephone lines and power surges and outages. Any significant disruption in our network

 
 
 
11

 
 

could cause us to lose customers and incur additional expenses.

WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS.

We place substantial reliance upon the efforts and abilities of our executive officers, Vincent Browne and Bernard A. Fried.  The loss of the services of our executive officers could have a material adverse effect on our business, operations, revenues or prospects.  We do not maintain key man life insurance on the lives of these individuals.
 
CURRENCY EXCHANGE FLUCTUATIONS MAY AFFECT THE RESULTS OF OUR OPERATIONS.

We transact our business in U.S. dollars and European currencies.  Our results of operations thus will be affected by fluctuations in currency exchange rates.  Although we may in the future enter into foreign currency exchange forward contracts from time to time to reduce our risk related to currency exchange fluctuation, our results of operations might still be impacted by foreign currency exchange rates.  Because we do not anticipate that we will hedge against all of our foreign currency exposure, our business will continue to be susceptible to foreign currency fluctuations.

PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT TO ATTRACT AND RETAIN OFFICERS AND DIRECTORS.

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies.  As a public entity, we expect these rules and regulations to increase compliance costs and to make certain activities more time consuming and costly.  These new rules and regulations have made it more difficult and expensive for us to obtain director and officer liability insurance and we have been required to accept reduced policy limits and coverage and incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for us to attract and retain qualified persons to serve as directors or as executive officers.
 
Risks Related to the IA and our common stock

WE ARE REGISTERING AN AGGREGATE OF 50,000,000 SHARES OF COMMON STOCK TO BE ISSUED UNDER THE IA. THE SALE OF SUCH SHARES COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
 
We are registering an aggregate of 50,000,000 shares of common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the IA. It is likely that the sale of these shares into the public market by Kodiak will depress the market price of our common stock.  As of May 25, 2011, there were 179,793,173 shares of our common stock issued and outstanding.

ASSUMING WE ARE ABLE TO UTILIZE THE MAXIMUM AMOUNT AVAILABLE UNDER THE IA, EXISTING SHAREHOLDERS COULD EXPERIENCE SUBSTANTIAL DILUTION UPON THE ISSUANCE OF COMMON STOCK.
 
Our IA contemplates the potential future issuance and sale of up to $15,000,000 of our common stock to Kodiak subject to certain conditions and limitations.  Although the number of shares of common stock that stockholders presently own will not decrease, these shares will represent a smaller percentage of our total shares that will be outstanding after any issuances of shares of common stock to Kodiak.  If we draw down amounts under the IA when our share price is decreasing, we will need to issue more shares to raise the same amount than if our stock price was higher.  Such issuances will have a dilutive effect and may further decrease our stock price. An example of the effect of issuing shares when our stock price is comparatively low is set forth below. A lower price per share of our common stock means a higher number of shares to be issued to Kodiak, which equates to greater dilution of existing stockholders. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by Kodiak, and because our existing stockholders may disagree with a decision to sell shares to Kodiak at a time when our stock price is low, and may in response decide to sell additional numbers of shares, further decreasing our stock price.  

WE MAY NOT HAVE ACCESS TO THE FULL AMOUNT UNDER THE IA.

The IA provides that the dollar value that we will be permitted to raise from Kodiak (subject to the conditions and limitations described elsewhere in this prospectus) for each draw down will be $500,000 or 500% of the average daily trading volume for the five trading days immediately preceding the delivery of the Put Notice multiplied by the average of the five (5) daily closing bid prices immediately preceding the Put date.  During the year ended June 30, 2010, the average market price of our common stock was $2.97 and the average trading volume per day was 5,399. During the nine months ended March 31, 2011 the average market price of our common stock was $0.0534 and our average trading volume per day was 866,719.  There is no assurance that the market price and/or trading volume of our common stock will be maintained or will increase substantially in the near future.  Assuming we will maintain the market price of our common stock at $0.0025 after the 5% discount we will need to issue  6,302,521,008 shares of common stock to Kodiak in order to have access to the full amount under the IA, which would require an increase in our authorized common stock that would require shareholder approval.
 
 
 
12

 
 

 
KODIAK WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE FOR OUR COMMON STOCK.

The common stock to be issued to Kodiak pursuant to the IA will be purchased at a discount of 5% of the LCBBP of the common stock during the five consecutive trading days immediately following the date of our notice to Kodiak of our election to sell shares pursuant to the IA. Kodiak has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Kodiak sells the shares, the price of our common stock could decrease. If our stock price decreases, Kodiak may have a further incentive to sell the shares of our common stock that it holds. These sales may put further downward pressure on our stock price.

OUR SHARES OF COMMON STOCK ARE VERY THINLY TRADED, AND THE PRICE MAY NOT REFLECT OUR VALUE; THERE CAN BE NO ASSURANCE THAT THERE WILL BE AN ACTIVE MARKET FOR OUR SHARES NOW OR IN THE FUTURE.

We have a trading symbol for our common stock (“FLTT”), which permits our shares to be quoted on the OTCBB, which is a quotation medium for subscribing members, not an issuer listing service.  However, our shares of common stock are very thinly traded, and the price, if traded, may not reflect our value.  There can be no assurance that there will be an active market for our shares of common stock either now or in the future.  The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors.  There can be no assurances that there will be any awareness generated.  Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business.  If a more active market should develop, the price may be highly volatile.  Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in our securities.  Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price.  Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.

THE MARKET FOR PENNY STOCKS HAS EXPERIENCED NUMEROUS FRAUDS AND ABUSES, WHICH COULD ADVERSELY AFFECT INVESTORS IN OUR STOCK.

We believe that the market for penny stocks has suffered from patterns of fraud and abuse.  Such patterns include:

·  
control of the market for the security by one or a few broker-dealers;

·  
manipulation of prices through prearranged matching of purchases and sales and false and misleading statements made by parties unrelated to the issuer;

·  
“boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

·  
excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

·  
wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

As a penny stock, we are susceptible to such manipulation, which would have a material adverse effect on our trading price.

THE MARKET PRICE FOR OUR COMMON STOCK IS PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY TRADED PUBLIC FLOAT, WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE PRICE.  THE PRICE AT WHICH YOU PURCHASE OUR COMMON STOCK MAY NOT BE INDICATIVE OF THE PRICE THAT WILL PREVAIL IN THE TRADING MARKET.

The market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future.  During the period from April 1, 2011 until May 25, 2011, the high and low bid prices of a share of our common stock were $0.0089 and $0.0024 respectively. The volatility in our share price is attributable to a number of factors.  First, as noted above, the shares of our common stock are sporadically and/or thinly traded.  As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction.  The price for our shares could, for example, decline precipitously in the event that a large number of shares of our common stock are sold on the market without commensurate demand, as compared to a more seasoned issuer which could better absorb those sales without adverse impact on its share price.

 
 
 
13

 
 


Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of meaningful revenues and profits to date, debt defaults and uncertainty of future market acceptance for our products and services.  As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.

YOU MAY BE UNABLE TO SELL YOUR COMMON STOCK AT OR ABOVE YOUR PURCHASE PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO YOU.

The following factors may add to the volatility in the price of our common stock: uncertainty regarding the amount and price of sales of our common stock to Kodiak under the IA; actual or anticipated variations in our quarterly or annual operating results; government regulations, announcements of significant acquisitions, strategic partnerships or joint ventures; our capital commitments; and additions or departures of our key personnel.  Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance.  We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain its current market price, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
  
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT SHAREHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE.

To date, we have had a limited trading volume in our common stock.  As long as this condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered.  In addition, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, under SEC Rule 144 or otherwise could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital at that time through the sale of our securities.  

We entered into the IA on November 26, 2010, with Kodiak. The perceived risk of dilution from sales of our common stock to or by Kodiak in connection with the IA may cause holders of our common stock to sell their shares, or it may encourage short selling by market participants, which could contribute to a decline in our stock price. The registration rights agreement entered into in connection with the IA requires that we use commercially reasonable efforts to ensure that the registration statement in connection with the IA remains effective for the term of such agreement.  As of the date hereof, we have not drawn down funds and have not issued shares of our common stock under our IA. Our ability to draw down funds and sell shares under the IA requires the continued effectiveness of and the ability to use the registration statement that we filed registering the resale of any shares issuable to Kodiak under the IA.

OUR DIRECTORS HAVE THE RIGHT TO AUTHORIZE THE ISSUANCE OF SHARES OF OUR PREFERRED STOCK AND ADDITIONAL SHARES OF OUR COMMON STOCK.

Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our shareholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series.  While we have no intention of issuing shares of preferred stock at the present time, we continue to seek to raise capital through the sale of our securities and may issue shares of preferred stock in connection with a particular investment.  Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock.

Should we issue additional shares of our common stock at a later time, each investor’s ownership interest in our stock would be proportionally reduced.  No investor has or will have any preemptive right to acquire additional shares of our common stock, or any of our other securities.

IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD, WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF SHAREHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.

Companies trading on the OTCBB, such as Flint, must be reporting issuers under Sections 13 or 15(d) of the Exchange Act, and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCBB.  If we fail to remain current on our reporting requirements, we could be removed from the OTCBB.  As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

 
 
 
14

 
 


OUR COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC, AND THE TRADING MARKET IN OUR COMMON STOCK IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE INVESTMENT VALUE OF OUR STOCK.

Our shares of common stock are “penny stocks” because they are not registered on a national securities exchange or listed on an automated quotation system sponsored by a registered national securities association, pursuant to Rule 3a51-1(a) under the Exchange Act.  For any transaction involving a penny stock, unless exempt, the rules require, among other things:

·  
That a broker or dealer approve a person’s account for transactions in penny stocks;

·  
That the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased; and

·  
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form, sets forth the basis on which the broker or dealer made the suitability determination.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.  This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus includes forward-looking statements.  All statements, other than statements of historical fact, contained in this prospectus constitute forward-looking statements.  In some cases, you can identify forward-looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “project,” “potential,” or the negative of these terms and similar expressions intended to identify forward-looking statements.
 
Forward-looking statements are based on assumptions and estimates and are subject to risks and uncertainties.  We have identified in this prospectus some of the factors that may cause actual results to differ materially from those expressed or assumed in any of our forward-looking statements.  There may be other factors not so identified.  You should not place undue reliance on our forward-looking statements.  As you read this prospectus, you should understand that these statements are not guarantees of performance or results.  Further, any forward-looking statement speaks only as of the date on which it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated events or circumstances.  New factors emerge from time to time that may cause our business not to develop as we expect and it is not possible for us to predict all of them.  Factors that may cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, those described under the heading “Risk Factors” beginning on page 11.


USE OF PROCEEDS
 
We will not receive any proceeds from the sale of common stock offered by Kodiak pursuant to this prospectus. However, we will receive proceeds from the sale of our common stock to Kodiak pursuant to the IA. The proceeds from our rights to sell shares pursuant to the IA will be used for working capital and general corporate expenses.

 
 
 
15

 
 


We propose to expend these proceeds as follows:
 
   
Proceeds if 100%, or 50,000,000 shares, are sold
At an assumed price of $0.00238
   
Proceeds if 75% of 50,000,000 shares sold at an assumed price of $0.00238
 
Gross proceeds
 
$
119,000
   
$
89,250
 
Offering expenses:
               
  Legal fees
   
40,000
     
40,000
 
  Accounting and auditing fees
   
10,000
     
10,000
 
  State securities fees
   
2,000
     
2,000
 
  Transfer agent fees
   
1,000
     
1,000
 
  Broker’s fees
   
11,900
     
5,950
 
                 
  Miscellaneous expenses
   
5,000
     
5,000
 
Total offering expenses
   
69,900
     
63,950
 
Net proceeds
 
$
49,100
   
$
25,300,
 

We expect to use the net proceeds, if any, from sales of our common stock to Kodiak under the IA for working capital purposes.  The amounts and timing of the expenditures will depend on numerous factors, such as the competitive environment. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from the sale of shares to Kodiak. Accordingly, we will retain broad discretion over the use of proceeds.
 

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
Our common stock has been traded on the OTCBB since October 10, 2008, under the symbol “FLTT.” Prior to that, from March 4, 2008 to October 2008, our common stock was traded on the OTCBB under the symbol “SMOA.”

The following table sets forth, for the periods indicated, the high and low bid prices for our common stock on the OTC Bulletin Board during the two preceding fiscal years. The quotations do not reflect adjustments for retail mark-ups, mark-downs, or commissions and may not necessarily reflect actual transactions.

Common Stock (Prices prior to January 14, 2011 have been adjusted to reflect 1:20 share split effective January 14, 2011)
Quarter Ended:
 
High
   
Low
 
June 30, 2008
 
$
17.00
   
$
9.00
 
September 30, 2008
 
$
17.00
   
$
8.00
 
December 31, 2008
 
$
13.00
   
$
3.00
 
March 30, 2009
 
$
9.00
   
$
2.40
 
June 30, 2009
 
$
11.00
   
$
2.40
 
September 30, 2009
 
$
11.00
   
$
2.40
 
December 31, 2009
 
$
6.00
   
$
1.40
 
March 31, 2010
 
$
3.30
   
$
0.46
 
June 30, 2010
 
$
0.80
   
$
0.058
 
September 30, 2010
 
$
0.27
   
$
0.20
 
December 31, 2010
 
$
0.176
   
$
0.024
 
March 31, 2011   $ 0.036      $  0.003  

On May 25, 2011, the high and low bid prices of our common stock on the OTCBB were $0.003 and $0.0025 per share, respectively. The market price for our stock is highly volatile and fluctuates in response to a wide variety of factors.

Holders

As of May 25, 2011, we had approximately 100 holders of record of our common stock. This does not reflect beneficial ownership by individuals or entities that hold their stock in nominee or “street” name through various brokerage firms.

 
 
 
16

 
 

Dividend Policy
 
We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Our Series E Preferred Shares have a fourteen percent (14%) dividend payment, payable monthly the first payment of which was due on February 28, 2010.  These dividend payments have not been made to date, and therefore a penalty rate of one half of one percent (0.5%) per month on the total amount outstanding applies 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 March 31, 2011 we owed approximately $737,431 in unpaid dividends and penalties. Additionally, the holders of our Series F Preferred shall be entitled to receive a fourteen percent (14%) per annum dividend payment calculated based on the liquidation value, payable annually the first payment of which will be June 17, 2011.

We currently intend to retain future earnings, if any, to finance our operations, and to expand our business. Any future determination to pay cash dividends on our common stock will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements and other factors that our Board of Directors considers appropriate.
 
CAPITALIZATION
 
The following table sets forth our capitalization as of June 30, 2010 and March 31, 2011:

·  
on an actual basis; and

·  
as adjusted to reflect the sale of 50,000,000 shares of common stock offered by this prospectus, at an assumed initial price of $0.00238 per share, after deducting estimated offering expenses payable by us.

This information should be read in conjunction with our Management’s Discussion and Analysis and Results of Operation and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

We had a net loss of ($28,865,778) for the year ended June 30, 2010 included in the accumulated deficit in the table below:

   
June 30, 2010
   
   
Actual
 
Adjusted
   
Capitalization:
           
Preferred Stock, $.001 par value; 5,000,000 shares authorized; 366,788 shares issued and outstanding
 
 
367
 
 
367
   
Common Stock, $0.01 par value; 900,000,000 shares authorized; 6,491,221 issued and outstanding and (1) issued and outstanding as adjusted.
 
 
64,912
   
564,912
 
(1)
Common stock issuable
   
2,368
   
2,368
   
Additional paid-in capital
 
 
34,114,627
 
 
33,733,627
 
(1)
Accumulated deficit
 
 
(50,088,548
)
 
(50,088,548
)
 
Total stockholders’ equity (deficit)
 
 
(15,906,274
 
(15,717,374
)
 
Total liabilities and stockholders’ (deficit)
 
$
1,675,122
 
  $
1,724,222
   

  (1) Reflects the sale of the 50,000,000 shares included in this prospectus, at a price of $0.00238 per share.

 
 
 
17

 
 

We had a net loss of ($6,463,091) for the nine months ended March 31, 2011 included in the accumulated deficit in the table below:
 
 
   
March 31, 2011
   
   
Actual
     
Adjusted
   
Capitalization
               
Preferred stock: $0.001 par value; 5,000,000 authorized, 606,780 issued and outstanding at March 31, 2011
 
307
     
307
   
Common stock: $0.01 par value; 900,000,000 authorized, 41,147,225 issued and outstanding at March 31, 2011, and (1) issued and outstanding as adjusted
 
759,755
     
1,259,755
 (1)
 
Common stock issuable
 
133,218
     
133,218
   
Additional paid-in capital
 
37,232,902
     
36,782,002
 (1)
 
Deferred offering costs paid in common stock
 
(66,000
)
   
(66,000
)
 
Accumulated deficit
 
(57,535,819
)
   
(57,535,819
)
 
Total stockholders' (deficit)
 
(19,475,637
)
   
(19,426,537
)
 
Total liabilities and stockholders’ (deficit)
$
9,250,549
   
$
9,299,649
   

  (1) Reflects the sale of the 50,000,000 shares included in this prospectus, at a price of $0.00238 per share.

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

FORWARD LOOKING STATEMENTS
 
Certain statements contained in this report may constitute forward-looking statements. Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be,” and other words of similar meaning, are forward-looking statements.  These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risks associated with the integration of businesses following an acquisition, concentration of revenue from one source, competitors with broader product lines and greater resources, emergence into new markets, the termination of any of the Company’s significant contracts or partnerships, the Company’s inability to maintain working capital requirements to fund future operations or the Company’s inability to attract and retain highly qualified management, technical and sales personnel, changes in laws regulating telecommunications providers, changes in laws affecting the telecommunications products and services we provide. We disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Results of Operations for the Three and Nine Months Ended March 31, 2011 and 2010

OVERVIEW
 
Management’s objective for the three and nine months ended March 31, 2011 was to improve overall operations to reduce the need for external financing in the difficult economic and financial markets.  We continued our focus on growing our prepaid card business.  We have been actively engaged in seeking additional external financing and other strategic partnerships and relationships to further enhance the scale, depth and profitability of the business.

In the three months ended March 31, 2011, we had a net loss of $2,151,846 ($0.05 per share basic and diluted), as compared to a net loss of $8,509,926 ($2.06 per share basic and diluted), in the three months ended March 31, 2010. We had a net loss of $6,463,091 ($0.25 per share basic and diluted) in the nine months ended March 31, 2011, as compared to a net loss of $21,616,123 ($5.49 per share basic and diluted)  in the nine months ended March 31, 2010.  The decrease in the losses year on year was a direct result of a one time impairment charge of goodwill and other intangibles in the amount of $12,215,200, along with some other exceptional operational costs relating to the closing of non-profitable businesses as of March 31, 2010, that were acquired as part of the CHVC transaction in 2009.  Management felt it prudent to revalue the businesses acquired in 2009 at this time based on this action.
 
REVENUES

Revenues for the three months ended March 31, 2011 increased to $3,779,682 as compared to $2,862,261 for the three months ended March 31, 2010.  Revenues for the nine months ended March 31, 2011 increased to $12,640,351 as compared to $11,537,215 for the nine months ended March 31, 2010. This increase is primarily due an 151% increase in revenues in our software and equipment segment on increased orders for cable equipment which is expected to continue throughout 2011 and a 2.7% growth in sales our third party calling products.

COST OF REVENUES AND GROSS MARGIN

While the overall gross margin increased by 3.8% during the three months ended March 31, 2011 versus the three months ended March 31,2010 primarily due to revenue mix of higher margin products in the quarter, the overall gross margin percentage has decreased by 2% in the nine months ended March 31, 2011 versus 2010 due to lower margins generated on the prepaid products sold as a result of increased competition in the segment which represent 89% of revenues for the nine month period.
 
 
18

 
OPERATING EXPENSES
 
Operating expenses in the three months ended March 31, 2011 decreased by 28% to $1,620,765 as compared to $2,234,906 in the three month period ended March 31, 2010, and decreased by 42% to $3,664,910 during the nine month period ending March 31, 2011 as compared to $6,373,512 in the nine month period ended March 31, 2010. 

Operating expenses consist of general and administrative expenses, including payroll, accounting, legal, consulting, rent and other overhead costs. This category also includes stock compensation and option expense, the costs associated with being a publicly traded company, including the costs of SEC filings, a management fee payable to Flint, Ltd., investor relations and public relations.  These costs decreased in the three months ended March 31, 2011 primarily due to one time stock compensation costs of approximately $800,000 issued to departing management as part of the corporate restructuring during the three months ended March 31,2010.
 
The non-cash charges for compensation consist mainly of the grants of stock issued for services rendered.  The common stock issued was valued at its fair market value at the date of issuance and do not represent any cash payments.

INTEREST EXPENSE
 
Interest expense decreased to $812,127 for the three months ended March 31, 2011 as compared to $1,004,401 in the three months ended March 31, 2010, and increased to $3,467,920 as compared to $2,953,136 during the  nine months ended March 31, 2011 versus 2010.    Interest expense is related to accrued interest on the notes payable and convertible and promissory notes, as well as the amortization of the debt discounts related to those notes.   The amount of interest charges related to accounting for debt discounts that did not involve the payment of cash amounted to $1,903,314.
 
LIQUIDITY AND CAPITAL RESOURCES

Overall cash increased by $26,149 for the nine months ended March 31, 2011 due to management’s focus on maximizing the use of cash in the business to minimize the amounts of capital required to be raised from outside sources.
The sources and uses of cash are summarized as follows (unaudited):

   
Nine Months Ended
March 31,
 
   
2011
   
2010
 
Net cash used in operating activities
  $ (830,997 )   $ (2,052,956 )
Net cash provided by (used in) investing activities
    15,063       (133,732 )
Net cash provided by financing activities
    837,481       1,008,551  
Exchanage gain (loss) on debt
    4,602       (149,980 )
Net increase (decrease) in cash and cash equivalents
    26,149       (1,328,117 )
    $ (45,568   $ 8,885  

During the nine months ended March 31, 2011, cash used in operating activities was $830,997 resulting from a gross profit of $673,905 and operating expenses of $3,664,910. The loss included non cash charges for stock and option compensation of $808,196,  accretion of debt discount of $1,141,870 and amortization of beneficial conversion feature of $761,444 and depreciation and amortization charges of $710,177.
 
During the nine months ended March 31, 2010, cash used in operating activities was $2,052,956 resulting from a gross profit of $842,311 and operating expenses of $5,531,201. The loss included non cash charges for stock and option compensation of $2,483,095 and accretion of debt discount of $1,576,359.  

Other operating activities that increased cash during the nine months ended March 31, 2011 were a increase in accounts payable of $465,731, reduction in inventories of $140,427, an increase in the cash overdraft of $34,398 and accrued liabilities $440,448.  Operating activities that decreased cash included a increase in accounts receivable of $543,149 and an increase in prepaid expenses of $29,421 and a decrease in other payables of $6,134

 
19

 
Cash provided by financing activities for the nine months ended March 31, 2011 consisted of the sale of short term promissory notes, which provided $810,611 in cash, and from the sale of common stock  of $32,500. Cash used in financing activities for the nine month ended March 31, 2011 of the repayment on the line of credit of $5,630.

During the nine months ended March 31, 2010, cash provided by financing activities for the nine months ended March 31, 2010 consisted of the sale of short term promissory notes, which provided $1,225,550 in cash, and from our line of credit in the amount of $18,293.  Cash used in financing activities for the nine month ended March 31, 2010 consisted primarily of repayment of $225,279 to various promissory note holders.

$4,602 of cash was provided in foreign currency transactions related to exchange losses on convertible notes payable during the nine months ended March 31, 2011 and $149,980 of cash was used in foreign currency transactions for the nine months ended March 31, 2010.  

 
As of March 31, 2011, we had cash and cash equivalents of $45,568, an increase of $26,149 from the balance at June 30, 2010, which was $19,419.  Our working capital deficit increased as of March 31, 2011 to $15,859,195 as compared to a working capital deficit of $10,630,231 at June 30, 2010.  We have not yet generated sufficient revenues to cover the costs of continued product and service development and support, sales and marketing efforts and general and administrative expenses.
 
We are still largely dependent on financing in order to generate cash to maintain its operations. We are currently investigating the capital markets for additional financings. However, there is no assurance that any additional capital will be raised.  We closely monitor our cash balances and our operating costs in order to maintain an adequate level of cash.

On November 26, 2010 we signed an Equity Line of Credit Agreement with Kodiak Capital, as amended and restated on January 21, 2011. This agreement allows us to place up to $15 million worth of our common stock to Kodiak over two years, subject certain conditions, which will become available to us when a registration statement on Form S-1 is deemed effective by the SEC. This 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 available amount
 
                         
15-Jan-11
    788,223       3,941,113       0.0216       85,207  
31-Jan-11
    242,459       1,212,293       0.0153       18,597  
14-Feb-11
    1,367,179       6,835,894       0.0111       75,878  
28-Feb-11
    312,022       1,560,111       0.0075       11,763  
15-Mar-11
    1,282,434       6,412,171       0.0129       82,845  
31-Mar-11
    1,806,468       9,032,342       0.0067       60,336  

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 March 31, 2011, 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 most likely have to increase our number of total authorized shares, requiring a shareholder vote, before we would have the ability to raise the full $15 million under the Kodiak financing agreement.
 
As of the date of the filing of this report, we have a total of approximately $3.7 million of loan principal that is past due from a total principal balance of approximately $6.7 million, representing 14 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. 
 
Results of Operation for the Year Ended June 30, 2010 and 2009
 
Overview
 
Management’s objectives for the fiscal year ended June 30, 2010 was to consolidate operations, to increase gross margins from existing revenue streams and ensure that we had sufficient capital to execute the business plan in an extremely difficult economic

 
 
 
20

 
 

and financial environment. In our third quarter ending March 31, 2010 we undertook a fundamental review of our operations and decided to cease non-profit making businesses and reduced our corporate overhead costs by approximately 66%. These closures resulted in lower gross revenues but higher gross margins and lower operating costs. We recorded one-time expenses of $12,215,200 and an equity contribution of $5,285,327 in relation to this restructuring. Throughout the financial year, we also restructured our debt resulting in a reduction of $8,854,345 in overall debt levels. We incurred a one-time charge of $5,007,702 as part of this restructuring.

On January 29, 2009, we acquired six U.S. operating subsidiaries of China Voice Holding Corp. (“CHVC”), namely: CVC Int’l Inc., Cable and Voice Corporation, StarCom Alliance Inc, Dial-Tone Communication Inc, Phone House of Florida, Inc., and Phone House, Inc. (of California) (the “Acquisition Companies”), in exchange for 21,000,000 shares of our restricted common stock and $500,000 in cash at Closing and $1,000,000 in deferred payments. Additionally, we issued a Promissory Note to CHVC dated January 29, 2009, in an amount of $7,000,000.  As part of the closing of the transaction and in addition to the issuance of the common stock and cash paid as noted above, we also acquired 15,000,000 shares of restricted common stock of CHVC in exchange for deferred payments totaling $1,500,000. Subsequently, in March and April of 2009, a number of terms and conditions within the Merger Agreement, Stock Purchase Agreement and Promissory Note were amended.

The business purpose for acquiring these companies was to expand the distribution channels and addressable market for us. At the time of the transaction, we had telecoms network and infrastructure delivering VoIP telephony services that were growing organically and looking for additional revenue channels. These acquisitions brought established channels for prepaid calling products that opened up both new product areas for the existing network in our targeted migrant customer base that we could introduce new products to. Cable and Voice Corporation offered a strategic channel to rural and large cable companies, a key market for our VoIP services.

During 2009, we successfully developed our own brand prepaid calling products via Flint Prepaid Inc (formally Wize Communications) and had limited success in penetrating the existing markets that the acquisitions brought. The funding markets continued to be extremely challenging throughout 2009 and the planned investment levels were not achieved. In the first quarter of 2010 we did a full review of all business operations in light of continued funding challenges to minimize cash used in operations.  As a result of that review we decided to close those businesses that did not deliver positive cash flow either directly or when the associated corporate activities relating to those businesses were considered. We also reduced our corporate staffing and functions commensurate with these actions. Therefore, during the third quarter ended March 31, 2010 we shut down four of these subsidiary companies: 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 and other one-time costs in the amount of $12,215,200.

During the fourth quarter ended June 30 2010, as part of our corporate and Balance Sheet restructuring efforts we agreed to return our 15,000,000 common shares held of CHVC and we sold these four companies to CHVC or its designated assignee pursuant to a settlement agreement, as amended, with CHVC effective June 30, 2010 in which CHVC agreed to reduce amounts due under the original agreement and also return 15,800,000 of FLTT shares held by them. (See Note 9 Related Party Transactions). Consequently, we recognized an equity contribution in the amount of $5,285,327 and a one-time charge of $2,250,000 relating to the return of the CHVC shares held by the Company at the time of the sale.

During the year ended June 30, 2009, we acquired Semotus Solutions, Inc. (“Semotus”) through a reverse merger and disposed of the Semotus software business on January 28, 2009.  Semotus issued 28,460,094 shares of restricted common stock to Flint Telecom, Inc. pursuant to a definitive Contribution Agreement dated April 23, 2008 (the “Contribution Agreement”).  Through the acquisition of Semotus, we acquired $492,796 in fair value of assets, $584,680 in liabilities. We acquired Semotus to give us access to a new market by combing their HipLink technology with our VoIP network that would allow Semotus to offer a hosted version of their market leading solution to existing government and enterprise customers.

Separate from the Contribution Agreement, as a hiring and retention incentive and in lieu of issuing stock options under the Company’s stock option plan, we issued 8,410,000 shares of restricted common stock, vesting over a period of four years, to executive officers and key employees, and 3,508,000 shares of restricted common stock to Mr. LaPine. These shares of restricted common stock were valued at $2,631,000.   We recorded $2,631,000 in expense in the year ended June 30, 2009, related to the shares of restricted common stock granted to these executive officers, directors and key employees.

On January 29, 2009, we sold all of the assets and liabilities of the ‘Semotus Business’ or ‘Solutions Division’ to Mr. Anthony LaPine for 3,508,000 shares of our restricted common stock valued at $1,333,040 owned by Mr. LaPine following Mr. LaPine exercising his right to purchase the Semotus Business/Solutions Division from Flint, in accordance with Section 8.2(f) of the Contribution Agreement by and among Semotus Solutions, Inc. (now named Flint Telecom Group, Inc., and referred to as “Flint”) and Flint Telecom, Inc. dated April 23, 2008, which states that Mr. LaPine shall have the right to purchase (at any time within the three-year period commencing on the date of Closing) or, in the event the Board shall determine to dispose of the Semotus Business unit prior to the end of such three-year period, a right of first refusal with respect thereto, in exchange for (1) the shares issued in accordance with this Section 8.2(f) or (2) the fair market value of the Semotus Business at the time Mr. LaPine exercises his right to purchase payable by delivery of the shares issued in accordance with this Section 8.2(f) or cash, whichever is less. When considering the transaction the Board considered that this was the best value achievable for the Company following Mr. Lapine's request.

 
 
 
21

 
 
 

This transaction was further clarified and consummated by the Agreement and Plan of Corporate Separation and Reorganization by and among Flint and Semotus, Inc. executed as of January 29, 2009, pursuant to which we transferred all of the assets and properties, subject to all the liabilities, debts, obligations and contracts, of the Solutions Division to Semotus, Inc. in exchange for Mr. LaPine’s 3,508,000 shares of our restricted common stock. The “Semotus Business”, as set forth in Section 7.18 of the Contribution Agreement, is defined as the operations of Semotus as conducted immediately prior to the acquisition transaction of Flint Telecom, Inc. that closed on October 1, 2008, and does not reflect the business operations of Flint Telecom, Inc. acquired in connection with that transaction.
 
As a result of this discontinuation, we recorded a net loss of $1,311,835 in discontinued operations, for the year ended June 30, 2009.  This net loss consists of the following: a gain on return of stock of $1,439,767, an impairment of Semotus goodwill of ($2,538,148), and a net write-off of Semotus’ profits and losses of ($213,454).

In June of 2010, we entered into a $10 million reserve equity financing agreement with AGS Capital Group, LLC (AGS) that allows us to sell registered common shares in return for cash over a two year period. Our ability to require AGS to purchase our common stock is subject to various conditions and limitations, including but not limited to, the filing and declaration of effectiveness by the SEC of a registration statement covering the possible resale of the shares issued to AGS. (See Note 23 for more details).  In the meantime, given the continued financial market difficulties, we have had very limited access to capital and have been drawing funds on an as needed basis from various institutions and individuals in order to operate. These financings are predominantly in the form of convertible loans that convert into our common stock at varying discounts to the market price at the time of conversion. Given the low per share trading price of our stock during 2010, these conversions have introduced additional shares into the market place and resulted in an increase in our total issued and outstanding shares in recent times.

It is management’s aim to continue to build a sustainable, profitable business over the long term which we believe will ultimately reflect in our share price and reduce the dilution levels from ongoing funding needs. Throughout the fiscal year we have been actively engaged in seeking other potential acquisition targets to further enhance the scale, depth and profitability of the business, and we continue to work towards improving our overall operations to reduce our need for external financing.

In the fiscal year ended June 30, 2010, we had a net loss of $28,865,778 ($0.35 per share basic and diluted), as compared to a net loss of $14,562,263 ($0.31 per share basic and diluted) in the fiscal year ended June 30, 2009. The increase in our net loss was a result of the corporate and debt restructuring totaling $19,900,660. Our overall cash decreased by $1,317,583 in the twelve months ended June 30, 2010, compared to a decrease in cash of $150,019 in the fiscal year ended June 30, 2009.
 
Sources of Revenue
 
Our subsidiaries produce the following telecom revenues:
 
Digital Phone Solutions, Inc. provides a suite of Enhanced Services solutions for IP Telephony Service Providers facilitated by the Flint network. Cable and Voice Corporation delivers quality broadband, VoIP/ digital phone and wireless products to the cable industry and service provider customers throughout the world. Phonehouse USA Inc. provides prepaid calling cards that enable users in the United States to call internationally at significant savings. Flint Prepaid sells prepaid calling products to retail end-users through master distributors and retailers.

Operating Expenses

Sales and marketing expenses consist of costs incurred to develop and implement marketing and sales programs for our product lines. These include costs required to staff the marketing department and develop a sales and marketing strategy, participation in trade shows, media development and advertising, and web site development and maintenance.  These costs also include the expenses of hiring sales personnel and maintaining a customer support activities.

General and administrative expenses include senior management, accounting, legal, business development consulting, rent, administrative personnel, and other overhead related costs. This category also includes stock compensation and option expense, the costs associated with being a publicly traded company, including the costs of SEC filings, a management fee payable to Flint Telecom, Ltd., investor relations and public relations.  These costs have increased during the year ended June 30, 2009 versus 2008 due to the costs associated with becoming a publicly traded company and the stock compensation and option expense from the stock and options issued to directors, officers and employees.  These costs also increased due to the acquisition of the six subsidiaries of China Voice Holding, Corp. (CHVC) that closed in January 2009.

Revenues

Revenues for the year ended June 30, 2010 decreased 0.8% to $34,060,505 as compared $34,337,063 for the year ended June 30, 2009.  This decrease is primarily due to the closure and disposal of unprofitable operations during the year. Without these disposals, revenues would have increased year on year.

 
 
 
22

 
 


Cost of Revenues and Gross Margin

The overall gross margin improved in the year ended June 30, 2010 versus 2009, from a gross loss of $658,629 in 2009 to a gross profit of $1,563,486 at June 30, 2010 on the same revenue base, an improvement of 237%. This change is primarily due to managements focus on improving margins generated from existing revenues and substituting higher margin products.


Operating Expenses

Operating expenses decreased 18% to $8,270,047 in the year ended June 30, 2010 versus $10,126,607 for the last fiscal year.  This decrease is mainly due to managements focus on cost control throughout the year and also includes some one-time restructuring costs resulting from the organizational restructuring in the quarter ending March 31, 2010. Operating expenses consists entirely of general and administrative.

Interest Expense and Foreign Exchange

The $3,457,600 for the year ended June 30, 2010 in interest expense is related to accrued interest on the convertible and promissory notes, as well as the amortization of the debt discounts related to those notes.  The Company recorded a gain of $158,469 from currency transactions in the Euro and UK Pound and U.S. dollar.

Impairment of Goodwill and Intangible Assets

During the year ended June 30, 2010, we ceased operations and disposed of four operating companies. As a result of this discontinuation, we recorded one-time impairment of goodwill and intangible assets of $12,215,200, impairment of fixed assets of $1,305,735, a loss on disposal of certain fixed assets of $332,023 and accelerated stock vesting costs of $1,040,000 net of tax for the year ended June 30, 2010.
 
Debt Settlement Costs

As a result of the debt restructuring activities throughout the year ending June 30, 2010, debt settlement costs of $2,757,702 relating to the conversion of certain loans to Preferred Stock.

 
 
 
23

 
 


Liquidity and Capital Resources

Overall cash decreased by $1,317,583 for the year ended June 30, 2010 due to ongoing challenges in raising new capital in very difficult financial markets. We were able to cover some of the cash loss through proceeds from convertible and promissory note issuances. The sources and uses of cash are summarized as follows:

   
Year Ended
June 30,
 
   
2010
   
2009
 
Net cash used in operating activities
 
$
(2,204,283
)
 
$
(4,689,451
)
Net cash used in investing activities
   
(126,994
)
   
(1,724,477
)
Net cash provided by financing activities
   
1,172,163
     
6,335,128
 
Net cash used in foreign currency activities
   
(158,469
)
   
(71,109
)
     
--------------
     
--------------
 
Net increase (decrease) in cash and cash equivalents
 
$
(1,317,583
)
 
$
(150,019
)

During the year ended June 30, 2010, cash used in operating activities was $2,204,283 resulting from a gross profit of $1,563,486, operating expenses of $8,270,048 and non-operating expenses of $22,159,216.  The loss included non-cash charges for stock and option compensation of $3,100,916.  Other non-cash expenses were depreciation and amortization of $1,315,924 and bad debt expense of $510,572 and impairment of Goodwill and Intangible Assets of $12,215,200.

Other operating activities that increased cash were a decrease in receivables of $1,170,445, decrease in inventories of $524,728, increase of accrued liabilities of $457,306, and accrued interest of $750,372, and a decrease in prepaid expense of $8,724, which was offset by the decrease in accounts payable of $2,136,931 and cash overdraft  $174,834.

During the year ended June 30, 2009, cash used in operating activities was $4,689,451 resulting from a gross loss of $658,629 and operating expenses of $10,126,607. The loss included non-cash charges for stock and option compensation and impairment of goodwill of $4,363,951 and $2,538,148, respectively.  Other non-cash expenses were depreciation and amortization of $1,583,406 and bad debt expense of $188,707. Other operating activities that increased cash were an increase in accounts payable of $1,857,473, of accrued liabilities of $144,497, and accrued interest of $1,144,499, and a decrease in prepaid expense of $97,473, which was offset by the increase in accounts receivable of $271,184 and inventories of $597,262.

During the year ended June 30, 2010, cash used in investing activities consisted of $125,000 for an investment in a note receivable.  During the year ended June 30, 2009, cash used in investing activities consisted of $353,703 of purchases of telephony equipment, $125,000 for an increase of notes receivable, $1,200,000 cash consideration payment for the acquisition of the six CHVC subsidiaries, and $45,774 cash disposed of as part of the Semotus business disposition.

Cash provided by financing activities for the year ended June 30, 2010 consisted primarily of the sale of short term promissory notes, which provided $1,105,000 in cash, debt from related parties $370,550 which was offset by the repayment of related party debt in the amount of $50,279, the repayment of other debt in the amount of $175,000, and payments of $6,088 on certain lease obligations.

Cash provided by financing activities for the year ended June 30, 2009 consisted primarily of the sale of short term promissory notes, which provided $5,195,743 in cash, cash proceeds from a private offering of $440,000, and proceeds from a line of credit of $2,020,121, which was offset by the repayment of related party debt in the amount of $249,000, the repayment of other debt in the amount of $423,583, redemption of preferred stock in the amount of $550,000, and payments of $98,263 on certain lease obligations.

$158,469 of cash was used in foreign currency transactions related to exchange losses on convertible notes payable during the year ended June 30, 2010.  $71,109 of cash was used in foreign currency transactions related to exchange losses on convertible notes payable during the year ended June 30, 2010.

As of June 30, 2010, we had cash and cash equivalents of $19,419, a decrease of $1,317,583 from the balance at June 30, 2009, which was $ 1,337,002.  Our working capital deficit increased as of June 30, 2010 to ($10,630,231) as compared to a working capital deficit of ($10,221,599) at June 30, 2009.  We have not yet generated sufficient revenues to cover the costs of continued product and service development and support, sales and marketing efforts and general and administrative expenses.


 
 
 
24

 
 

As of June 30, 2010, the following table sets forth our long term known contractual obligations, aggregated by type of contractual obligation:

 
Contractual Obligations
       
Payments due by period
 
   
Total
   
Less than 1 year
   
1 – 3 years
   
3 – 5 years
   
More than 5 years
 
Debt Obligations
 
$
7,249,182
   
$
6,650,185
   
$
598,997
     
--
     
--
 
Capital Leases
   
781,309
     
375,371
     
405,938
     
--
     
--
 
Operating Leases
   
--
     
--
     
--
     
--
     
--
 
Purchase Obligations
   
--
     
--
     
--
     
--
     
--
 
Other Long Term Liabilities Reflected on our Balance Sheet under GAAP
   
--
     
--
     
--
     
--
     
--
 
Total
 
$
8,030,491
   
$
7,025,556
   
$
1,004,935
     
--
     
--
 
 
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

 
 
 
25

 
 

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 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.

Off Balance Sheet Arrangements
  
Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:
 
Any obligation under certain guarantee contracts;
 
Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
 
Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position; and
 
Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

As of June 30, 2010, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

BUSINESS
 
Company Background

Flint Telecom Group, Inc. is a Nevada Corporation.  We were originally incorporated 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 acquired substantially all of the assets and liabilities of Flint Telecom, Inc. in exchange for 28,460,094 (1,423,005 after 1:20 split effective January 14, 2011) 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.

Summary of Operations

We are headquartered in Overland Park, Kansas and have recently expanded our operations internationally. 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., 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

 
 
 
26

 
 

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 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.

(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”) – 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. (“P2P”) – a U.S. based advanced financial transaction processing and technology company, working with banking clients and other program sponsors globally. Using P2P 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.
 
BUSINESS SEGMENTS
 
Through our existing operating companies, we operate in 4 key business segments:

Telecom Software, Services & Equipment: Wireless IP and telecom expense management applications to large multinational enterprises and telecom operators worldwide. Modem, cable and other telecom equipment supplies to leading cable and rural telecom operators in the United States. This area of the business focuses on the development, acquisition or licensing of Voice over Internet Protocol (VoIP) technologies in both land-line and wireless environments to address the growing global market. This technology is aimed at end customers, other operators and program operators and focuses on specific applications that address convergent wireless IP and cellular products and services. Technology developed, acquired or licensed by this segment of the organization also supplies the rest of the business with innovative retail products, for distribution through our large network of distributors, and cost-saving expense management services provided directly to operators.

 
 
 
27

 
 

Prepaid Telecom Services: Provision and distribution of prepaid calling cards and cellular products in the United States. These calling products 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. Flint operates a wireless phone service as an MVNO (Mobile Virtual Network Operator) in the United States that provides prepaid voice, texting and data services nationwide under the ‘Flint Mobile’ brand. In addition, Flint provides prepaid debit cards and mobile remittance and payment services to end uses and partner organizations globally.

Subscriber Based Telecom Services: The provision of VoIP and cellular services aimed primarily at the Small and Medium Enterprises in the United States and internationally. Flint delivers 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. Flint enables its customers to establish reliable, feature rich and cost effective digital phone services very quickly with zero capital investment. 

Financial Processing Services:
The provision of stored value card and remittance services to a growing number of U.S. domestic and international partners globally. Using Flint 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, Flint is in the unique position of having complete control of all aspects of the financial 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 web management. Included with the debit card services are additional services, allowing the partners 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 cardholder 24/7/365.

Company Overview

Flint Telecom provides digital VoIP, wireless phone services (“MVNO”), prepaid calling products and financial processing services to both retail and wholesale customers in the United States and Internationally.

Managed by telecom and technology entrepreneurs with a proven track record in building international technology companies, the Company is growing both organically and through focused M&A activity.

Flint has established a strong foundation in the United States from which to continue its rapid growth internationally via the large distribution channels operated by the newly acquired companies.

With these enhanced distribution channels, experienced management team, and clear corporate strategy, Flint is positioned to exploit the new disruptive cycle in the telecommunications marketplace - the emergence of VoIP telephony and the growth of MVNO wireless services and the inevitable convergence of both.

Flint is at various levels and stages of discussions with a number of additional M&A opportunities and expects to complete further revenue and margin enhancing acquisitions in the near term.

Current Market Opportunity

Flint’s focus is on exploiting the next disruptive market cycle in the Global Telecoms Market.

The traditional voice market is mature, leading the way for a new technology-driven era of convergent telecom services. VoIP allows voice calls to travel as data packets unleashing a new market dynamic in delivering calls and allowing new entrants with value propositions to provide same services at lower prices. The market is now clearly in mass adoption mode with demonstrable consumer preference for trusted brands as is seen with the rapid adoption via cable companies – now over 25 million subscribers and adding over two million additional subscribers per month. 13.8% or 16.3 million consumers used VoIP lines as of March 2008. Hosted voice is expected to capture approximately 10% of the $3.2 billion North American business voice service market forecasted for 2011.  Gartner, Inc. and other market research firms expect more than 20% share by 2011. The global VoIP market is expected to grow from $4.5 billion in 2008 to $10 billion in 2011.

Flint operates in the global marketplace for both fixed and mobile voice telephony accounting for over $1 trillion dollars annually and is not limited to any single geography or business segment in its operations. The traditional voice market is mature, leading the way for a new technology-driven era of VoIP telecom services.

The opportunity for Flint has arisen and is driven by the fact that telecom costs are now at the floor of existing technology levels and VoIP allows voice to travel as data. This has unleashed a new market dynamic where companies that previously faced high barriers to entry can gain significant additional revenue and margin streams.

 
 
 
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Cable companies, broadband providers, ISP’s, and rural telephone companies, along with other niche groups, are best positioned to take advantage of the new multi-media delivery possibilities and can offer voice services directly to existing customers in addition to their core services on a “single bill” and thus bypass the incumbent telecom providers.

VoIP providers such as VONAGE, SKYPE and cable companies in the U.S. have led the charge in giving VoIP mass market appeal. At the same time, U.S. regulators have legislated to support wider usage of VoIP to drive down consumer costs. This has driven the incumbent operators to respond in order to protect their markets.

This changing market dynamic is both a threat and an opportunity for the small operators who must offer their own solutions or face possible extinction as their customers migrate to bundled services. However, they do not have the necessary resources or experience to build a VoIP offering of their own. This is the opportunity for Flint, who will act as an aggregator for the smaller operators and provide the required infrastructure, telecom skills and economies of scale to enable these small operators to compete.

Competition

The communications industry is highly competitive and significantly affected by regulatory changes, technology evolution, marketing strategies, and pricing decisions of the larger industry participants. In addition, many companies offering Internet, voice, and data communications services are consolidating. Service providers generally compete on the basis of price, customer service, product quality, brand recognition, and breadth of services offered. Additionally, carriers may compete on the basis of technology. Recently, the ability to provide VoIP services has been a key differentiator. As technology evolves and legacy systems become an encumbrance, we expect carriers to compete on the basis of technological agility, and their ability to rapidly deliver new services.
 
We are subject to significant competition that could impact our ability to gain market share, win business and increase the price pressure on our products.  We face strong competition from a wide variety of firms, including large, national and international telecommunications companies.  Many of our competitors have considerably greater financial, marketing and technological resources, which may make it difficult to win new contracts and compete successfully.  Certain competitors operate larger facilities and have longer operating histories and presence in key markets, greater name recognition, larger customer bases and significantly greater financial, sales and marketing,   manufacturing, distribution, technical and other resources. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements.  They may also be able to devote greater resources to the promotion and sale of their products.  Moreover, we may not have sufficient resources to undertake the continuing research and development necessary to remain competitive.

We have different competition in each of our subsidiary companies.  The primary competitors for Cable and Voice Corporation are Motorola, Arris, Telewire, Westel, Comtrends, VoIP Supply, Scott Cable, Adams Global, and SMC.  In addition, some of Cable and Voice Corporation’s suppliers have the ability to make direct sales to our customers.  DPS’s primary competitors are 8x8, Net2phone, Vox Communications, Singlepipe and Momentum. Flint Prepaid competes with all telecommunications carriers and suppliers that are in the prepaid calling card and wireless business.

Power2Process’ main competitors in the prepaid card processing business are Colombus Data Services (CDS), i2c, Galileo, eCommlink, FSV, NetSpend, Tsys and Metavante/Nomad. III competes with all money remittance companies, such as Xoom, MiCash, FlexCard, SurTV, CardMarte and MasterCard.

Sales and Revenue Model

We generally focus our marketing efforts on support of our direct and partner sales efforts. In particular, we focus on sales collateral, trade shows, and events for prospective customers. Our use of advertising is minimal.

Technology is either developed, acquired or licensed and marketed directly (i) to operators where Flint does not offer retail telecom services, (ii) to retail customers via dedicated prepaid and strategic partner channels, or (iii) as a foundation for innovative service offerings to small and medium enterprise customers in the United States.

The provision and distribution of international prepaid calling, cellular and financial products to migrant communities groups in the United States. The United States prepaid market is worth $1.9 billion per year, of which 70% is international calling (Source TIA, 2010).

Growth Strategy

Our strategy is to accelerate our current growth both organically, through the development of new products to be driven through our existing distribution channels, and through a focused acquisition strategy of acquiring new products and technology from companies who have been unable to build sufficient distribution for their own technology.  Subscribers are then consolidated onto

 
 
 
29

 
 

a single network platform and duplicate operating costs are thereby eliminated.

Regulation
 
The telecommunications industry is subject to significant regulation at the national, state, local and international levels.  These regulations affect our business. Generally, in the United States, some of our products and services are subject to varying degrees of federal, state, and local regulation, including regulation by the Federal Communications Commission (FCC) and various state public utility commissions. We may also be subject to similar regulation by foreign governments and their telecommunications/regulatory agencies. While these regulatory agencies grant us the authority to operate our business, they typically exercise minimal control over our services and pricing. However, they do require the filing a various reports, compliance with public safety and consumer protection standards, and the payment of certain regulatory fees and assessments.
  
We cannot assure that the applicable U.S. and foreign regulatory agencies will grant us the required authority to operate, will allow us to maintain existing authority so we can continue to operate, or will refrain from taking action against us if we are found to have provided services without obtaining the necessary authority. Similarly, if our pricing, and/or terms or conditions of service, are not properly filed or updated with the applicable agencies, or if we are otherwise not fully compliant with the rules of the various regulatory agencies, regulators or other third parties could challenge our actions and we could be subject to forfeiture of our authority to provide service, or to penalties, fines, fees, or other costs. We have been delinquent in certain filing and reporting obligations in the past including, but not limited to, filings with the FCC and Universal Service Fund (USF) reports and payments.  As of March 22, 2011, we believe we are current with our filing and reporting obligations.

To date, the FCC has declined to classify VoIP providers as telecommunications carriers for regulatory purposes. However, the FCC has ruled that certain traffic carried in part utilizing the Internet protocol format was nonetheless regulated telecommunications for which certain regulatory obligations applied. The FCC has considered whether to impose surcharges or other common carrier regulations upon certain providers of Internet telephony, primarily those which, unlike us, provide Internet telephony services directly to end users. The FCC ruled that interconnected VoIP service providers must make contributions to the Universal Service Fund. Additionally, the FCC has a pending proceeding to further examine the question of whether certain forms of VoIP services are information services or telecommunications services. The two are treated differently in several respects, with certain information services being regulated to a lesser degree. The FCC has noted that certain forms of phone-to-phone VoIP services bear many of the same characteristics as more traditional voice telecommunications services and lack the characteristics
that would render them information services. The FCC has indicated that the issues as to applicability of access charges and other matters will be considered in that context. Adverse rulings or rulemakings could subject us to licensing requirements and additional fees and subsidies.

While we believe VoIP services may be subject to additional federal, state, local, or international regulation in the future, it is uncertain when or how the effects of such regulation could affect us. If additional regulation does occur, it is possible that such regulatory agencies may impose surcharges, taxes or regulatory fees on VoIP service providers. The imposition of any such surcharges, taxes, or regulatory fees could increase our costs and thus reduce or eliminate any competitive advantage that we might enjoy today.
 
If the FCC were to determine that certain Internet-related services including Internet telephony services are subject to FCC regulations as telecommunications services, the FCC could subject providers of such services to traditional common carrier regulation, including payment of access charges to local telephone companies. A decision to impose such charges could also have retroactive effect. It is also possible that the FCC may adopt a regulatory framework other than traditional common carrier regulation that would apply to Internet telephony providers. Any such determinations could materially adversely affect our business, financial condition, operating results and future prospects to the extent that any such determinations negatively affect the cost of doing business over the Internet or otherwise slow the growth of the Internet.
 
We are monitoring the actions of the federal and various state regulatory agencies, and doing our best to see that we are in compliance with the applicable regulations, including any new regulations that may be passed. However, there can be no assurance that we are fully aware of all applicable requirements or that we will always be fully compliant. Should we fail at any time to be compliant with applicable federal or state regulations, or to file required reports to federal or state regulatory agencies, we could be subject to fines or other penalties.
 
Intellectual Property
 
 Our success and ability to compete effectively are dependent in part upon our proprietary technology.  We rely on a combination of copyright, trademark and trade secret laws, as well as nondisclosure agreements and other contractual restrictions, to establish and protect our proprietary rights.   Employees are required to execute confidentiality and non-use agreements that transfer any rights they may have in copyrightable works or patentable technologies to us. In addition, prior to entering into discussions with potential business partners or customers regarding our business and technologies, we generally require that such parties enter into nondisclosure agreements with us. If these discussions result in a license or other business relationship, we also generally require that the agreement setting forth the parties’ respective rights and obligations include provisions for the protection of our intellectual property rights. The steps taken by us may not, however, be adequate to prevent the misappropriation of our

 
 
 
30

 
 

proprietary rights or technology.

To date, we do not have any federally registered trademarks. However, we are currently in the process of applying for federal registration of some of our marks.

We do not currently have any patents or patent applications in process.  Any future patent applications with respect to our technology may not be granted, and, if granted, patents may be challenged or invalidated.  In addition, issued patents may not provide us with any competitive advantages and may be challenged by third parties.  Our practice is to affix copyright notices on our product literature in order to assert copyright protection for these works.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to duplicate aspects of our products or to obtain and use information that we regard as proprietary.  Our steps to protect our proprietary technology may not be adequate to prevent misappropriation of such technology, and may not preclude competitors from independently developing products with functionality or features similar to our products.  If we fail to protect our proprietary technology, our business, financial condition and results of operations could be harmed significantly.

The telecommunications markets have been characterized by substantial litigation regarding patent and other intellectual property rights. Litigation, which could result in substantial cost to and diversion of our efforts, may be necessary to enforce trademarks issued to us or to determine the enforceability, scope and validity of the proprietary rights of others. Adverse determinations in any litigation or interference proceeding could subject us to costs related to changing names and a loss of established brand recognition.
 
Legal Proceedings
 
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. 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 pay the remaining balance. As of December 31, 2010, the financial statements contain a payable amount of $440,672 in relation to this action. 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 Flint 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 suit alleges one cause of action for breach of agreement.  The complaint alleges 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.

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,

 
 
 
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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.
Property

We are headquartered in Overland Park, Kansas and lease offices and space in a number of locations. Below is a list of our leased offices and space as of March 31, 2011.

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.
 
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.
 
Employees

As of May 25, 2011, we had 16 full time employees, none of whom are represented by a labor union.

Confidentiality Agreements

All our employees have signed confidentiality agreements, and it is our standard practice to require newly hired employees and, when appropriate, independent consultants, to execute confidentiality agreements. These agreements provide that the employee or consultant may not use or disclose confidential information except in the performance of his or her duties for the company, or in other limited circumstances. The steps taken by us may not, however, be adequate to prevent the misappropriation of our proprietary rights or technology.

 
 
 
32

 
 
 
MANAGEMENT
 
The following table sets forth the names and positions of our directors and executive officers and other key personnel as of May 25, 2011:
 
         
         
Name
 
Age
 
Position
Vincent Browne
   
43
 
Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board
Bernard A. Fried
   
64
 
President, Chief Operations Officer and Director
           
There is no family relationship between any director or executive officer. There are no known arrangements or understandings between any director or executive officer and any other person pursuant to which any of the above-named executive officers or directors was selected as an officer or director. Each Director holds office until the next annual meeting of the shareholders or until his successor is elected and duly qualified. Executive officers are appointed by and serve at the pleasure of the Board of Directors. The following sets forth biographical information concerning our directors, and executive officers for the past three years:
 
Vincent Browne, age 43.  Mr. Browne founded Flint Telecom, Ltd, Flint Telecom, Inc.’s parent company, in December of 2004. Flint Telecom, Inc. was incorporated in July of 2005. Mr. Browne has been CEO of Flint Telecom, Ltd., Flint Telecom, Inc. and Flint Telecom Group, Inc. since each of their respective inceptions.  Mr. Browne became Chairman, CFO and Corporate Secretary in February of 2010.  Mr. Browne has over 15 years experience in the ICT sector. Prior to joining Flint, Mr. Browne founded Prime Carrier Limited (PCL) in 2000 and was its CEO. PCL provides advanced Least Cost Routing software and systems to Tier 1 operators across the globe. During his time as founding CEO at PCL, he raised over €12m in various funding rounds and successfully negotiated several multi-million dollar contracts with international customers. Prior to that, Mr. Browne worked with Siemens and Esat BT. Mr. Browne holds a BComm degree from University College Dublin. Mr. Browne also speaks on Entrepreneurial development at Trinity College, Dublin. Mr. Browne’s varied and proven entrepreneurial experience in the telecom industry over the past 20 years and as Founder of Flint Telecom Group, led us to the conclusion that he should serve as one of Flint’s officers and directors.

Bernard A. Fried, age 64. Mr. Fried became our President, Chief Operating Officer and a member of the board of directors in February of 2010.  He currently also serves as managing member of FCI Companies, LLC, a successor company to Fried Consulting, Inc.  Previously, he served as Vice President and Managing Director of Condado Group, Inc., a customer relationship management and call center consulting firm.  Prior to joining Condado Group, Mr. Fried was President of Fried Consulting, Inc, a call center and telecommunications consulting firm.  During his career, he has held numerous executive positions in the call center, telecommunications, and biometric industries.   Mr. Fried currently also serves on the Board of Directors of the United States Internet Industry Association, and is a former board member of Ascent (which merged into Comptel), one of the primary associations for the wholesale telecommunications industry.  Mr. Fried also currently teaches management and leadership courses in the School of Professional and Graduate Studies at Baker University in Kansas.  Mr. Fried filed a Chapter 7 petition under the federal bankruptcy laws on April 30, 2008, which was discharged on July 22, 2008. Mr. Fried received his MBA, with distinction, from Pace University in New York. Mr. Fried’s experience at various companies in the telecom industry and as a board member of another company in the telecom space led us to the conclusion that he should serve as one of Flint’s officers and directors.

Board of Directors
 
Currently, we only have two board members, Vincent Browne and Bernard A. Fried, who are also our CEO and President, respectively.  We hope to add independent members to expand our board of directors in 2011, depending upon our ability to reach and maintain financial stability.
 
Committees of the Board of Directors
 
We do not currently have an audit committee, compensation committee, nominating committee, or any other committee of the board of directors. The responsibilities of these committees are fulfilled by our current board of directors and all of our directors participate in such responsibilities. In addition, we do not currently have an “audit committee financial expert” as such term is defined in the Securities Act, as our financial constraints have made it extremely difficult to attract and retain qualified outside board members. We hope to add qualified independent members of our board of directors in 2011, depending upon our ability to reach and maintain financial stability.  Our full board has taken on the responsibilities of these committees.
 
Compensation Committee Interlocks and Insider Participation
 
We do not have a compensation committee or any other committee of the board of directors performing similar functions during the year ended June 30, 2010. Vincent Browne, our Chief Executive Officer, and Bernard A. Fried, our President, make all decisions relating to compensation.

 
 
 
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Code of Ethics

We have adopted a code of ethics that applies to all of our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer. We have also adopted a code of ethics that applies specifically to our principal executive officer and senior financial officers.  Copies of our two codes of ethics are available on our website at www.flinttel.com, the content of which website is not incorporated by reference into, or considered a part of, this document.

Stockholders can access our corporate governance information, including our Code of Ethics for Principal Executive Officers and Senior Financial Officers at our website, www.flinttelecomgroup.com, the content of which website is not incorporated by, referenced into, or considered a part of, this document.

 
 
 
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EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis

The following table summarizes the total compensation paid to, earned or received by our CEO, CFO and the three other executive officers who received annual remuneration in excess of $100,000 during the last two fiscal years ending June 30, 2010 and 2009.

SUMMARY COMPENSATION TABLE

 
Name and Principal Position
 
 
Year
 
 
Salary ($)
   
Bonus ($)
   
Stock Awards ($)
   
Option Awards ($)
   
Non-Equity Incentive Plan Compensation ($)
   
Nonqualified Deferred Compensation Earnings ($)
   
All Other Compensation ($)
   
 
Total ($)
 
Vincent Browne, Chief Exec. Officer
2010
   
60,000
(1)
   
--
     
--
     
--
     
--
     
--
     
--
     
60,000
 
 
2009
   
146,588
(1)  
   
--
     
1,875,000
(2)
   
--
     
--
     
--
     
--
     
2,021,588
 
Bill Burbank, President
2010
   
62,715
(3)
   
--
     
--
                             
320,000
(5)
   
382,715
 
 
2009
   
77,262
(3)
   
--
     
760,000
(4)
   
--
     
--
     
--
     
--
     
837,262
 
Stephen Keaveney, Chief Financial Officer
2010
   
60,000
(6)
   
--
     
--
                                     
60,000
 
 
2009
   
60,000
(6)
   
--
     
875,000
(7)
   
--
     
--
     
--
     
--
     
935,000
 
                                                                   
Bernard A. Fried, President
2010
   
25,000
(8)
   
--
     
360,000
(9)
   
--
     
--
     
--
     
--
     
385,000
 

(1)
Actual annual salary as of October 6, 2008, per Mr. Browne’s employment agreement, is $180,000. To date Mr. Browne has not been paid all of his salary, and such unpaid amounts are accounted for as accrued but unpaid to date.

(2)  
Represents the aggregate fair value of the stock award relating to 2,500,000* shares of restricted common stock granted on October 6, 2008 and vesting over a period of four years.

(3)  
Actual annual salary, per Mr. Burbank’s employment agreement, was $186,000.  Mr. Burbank’s start date with the Company was January 29, 2009.  On February 4, 2010, Mr. Burbank resigned from his respective executive officer positions and from the board of directors of the Company. See Item 13, “Separation Agreement with Bill Burbank” for more details.

(4)  
Represents the aggregate fair value of the stock award relating to 2,000,000* shares of restricted common stock granted on January 29, 2009, vesting over a period of four years.

(5)  
Represents the aggregate fair value of the stock award with respect to the fiscal year 2010 relating to 4,000,000* shares of restricted common stock granted on February 4, 2010 as part of Mr. Burbank’s separation.

(6)  
Actual annual salary, per Mr. Keaveney’s employment agreement that went effective as of March 1, 2009, is $180,000 per year. On February 4, 2010, Mr. Keaveney resigned from his respective executive officer positions and from the board of directors of the Company.

(7)  
Represents the aggregate fair value of the stock award relating to 3,500,000* shares of restricted common stock granted on March 1, 2009 and vesting over a period of four years.

 
 
 
35

 
 


(8)  
Represents the actual amount paid to Mr. Fried during the fiscal year ended June 30, 2010. under Mr. Fried’s employment agreement that went effective February 23, 2010, his annual salary is $186,000. To date Mr. Fried has not been paid all of his salary, and such unpaid amounts are accounted for as accrued but unpaid..

(9)  
Represents the aggregate fair value of the stock award relating to 6,000,000* shares of restricted common stock granted on February 23, 2010 and vesting over a period of four years.

* Share amounts quoted at time of issue and prior to the 1:20 stock split that went effective January 14, 2011.


Deferred Compensation Benefits: We do not have a deferred compensation program at this time.
 
Retirement Benefits: We do not have a 401(k) plan or other retirement program at this time.
 
Executive Perquisites and Generally Available Benefits: We have no executive perquisite program at this time.
 
Outstanding Equity Awards at 2010 Fiscal Year-End:

   
Option Awards
 
Stock Awards
 
Name
 
Number of Securities Underlying Unexercised Options
(#)
Exercisable
 
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
 
Option Exercise Price
($)
Option Expiration Date
 
Number of Shares or Units of Stock That Have Not Vested
(#)(*)
 
Market Value of Shares or Units of Stock That Have Not Vested
($)
 
Number of Shares or Units of Stock That Have  Vested
(#)(*)
Market Value of Shares or Units of Stock That Have  Vested
($)
 
                                 
Vincent Browne
   
--
 
--
   
--
 
--
--
   
1,562,500
(1)
6,250
(4)
     937,500
3,750(4)
                                       
Bill Burbank
   
--
 
--
   
--
 
--
--
   
--
 
--
 
6,000,000(2)
24,000(4)
                                       
Bernard A. Fried
   
--
 
--
   
--
 
--
--
   
6,000,000
(3)
24,000
(4)
--
--

(*) Shares numbers quoted prior to the 1:20 share split that went effective January 14, 2011.

(1)  
These shares vest annually over a period of four years starting October 6, 2008, provided the executive is employed with the Company at the time of vesting, such that ј vest at the first annual anniversary and quarterly each year thereafter so that all shares are vested as of October 6, 2012.

(2)  
On February 4, 2010, Mr. Burbank resigned from his respective executive officer positions and from the board of directors of the Company.  As part of Mr. Burbank’s separation, we accelerated 1,500,000  shares of his unvested restricted stock and granted and issued 4,000,000 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.

(3)  
These shares vest annually over a period of four years starting February 23, 2010, provided the executive is employed with the Company at the time of vesting, such that they vest at the first annual anniversary and quarterly each year thereafter so that all shares are vested as of February 23, 2014.

(4)  
The Market Value is based on $0.004 per share, which was the closing price of the common stock on June 30, 2010.

 
 
 
36

 
 


Employment Agreements; Termination of Employment and Change of Control Arrangements
 
Vincent Browne

Mr. Browne has a four year employment agreement that went effective on October 6, 2008. Mr. Browne receives 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 Mr. Browne was issued 2,500,000 shares of restricted common stock vesting over a period of four years, such that ј of the shares shall vest at his first annual anniversary date, and quarterly thereafter so that 100% of the shares shall be fully vested at his four year anniversary with the Company. 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 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 $720,000 (using a Severance Event date of October 6, 2009 and the maximum potential base salary of $240,000) and $0 (using a Severance Event date of October 6, 2012), depending on the actual date the Severance Event actually occurs.

Bernard A. Fried

Effective February 23, 2010, Bernard A. Fried was elected as President and Chief Operating Officer of the Company, and was appointed as a member of the Board of Directors. Flint entered into an employment agreement with Mr. Fried, effectuating the following:  (i) Mr. Fried’s title is President and COO of Flint; (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 6,000,000 shares of restricted common stock vesting over a period of four years, such that ¼ of the shares shall vest at the first annual anniversary of the Effective Date, and quarterly thereafter so that 100% of the shares shall be fully vested at his four year anniversary with Flint.

Stock Plans

We currently have one authorized stock option plan, the 2005 Stock Option Plan, which will terminate in July of 2015, and one restricted stock plan, the 2009 Restricted  Stock Plan.  Descriptions of the Stock Plans can be found in Footnote 17 of our SEC Form 10K for the fiscal year ended 2010 filed on October 21, 2010.

Summary Information Concerning Stock Plans

The following table sets forth certain information relating to our stock plans as of June 30, 2010:

Equity Compensation Plan Information

The following table sets forth certain information relating to our 2009 Restricted Stock Plan: 
 
 
 
 
Plan Category
 
 
 
 
Plan Name
 
Number of securities granted but unvested
   
 
Number of securities granted and vested
   
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in columns (a) and (b))
 
Equity Compensation plans approved by security holders
The 2009
Restricted Stock Plan
   
10,062,500
     
18,635,000
     
6,302,500
 

DIRECTOR COMPENSATION
 
Except for discretionary grants of stock or stock options, our directors are usually not compensated for their services as directors. Directors who are employees are eligible to participate in our equity incentive plan. The following table summarizes data concerning the compensation of our directors for the fiscal year ended June 30, 2010.

 
 
 
37

 
 

 
Name
 
Fees Earned or Paid in Cash
($)
 
Stock Awards
($)
 
Option
Awards
($)
 
Non-Equity Incentive Plan Compensation ($)
 
Nonqualified Deferred Compensation Earnings
($)
 
All Other Compensation
($)
Total
($)
Robert Lanz
   
--
 
16,000
   
--
(1)
--
   
--
 
--
16,000 
                                 
 
Michael Butler (2)
   
--
 
140,625
   
--
 (2)
--
   
--
 
--
140,625
 
(1)  
Represents the dollar amount recognized for financial statement reporting purposes with respect to 200,000 shares of restricted common stock granted to Mr. Lanz on February 4, 2010.  On February 4, 2010, Mr. Lanz resigned from his position on the board of directors of the Company.

(2)  
Represents the dollar amount recognized for financial statement reporting purposes, relating to 375,000 shares of restricted common stock which vested during the fiscal year ended June 30, 2010.  On May 14, 2010, Mr. Butler resigned from his position on the board of directors of the Company.

Indebtedness of Directors, Officers and Others

Our directors, senior officers, and their associates were not indebted to us or to any of our subsidiaries at any time since the beginning of our last completed fiscal year.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
All related party transactions are reviewed and approved by our board of directors.  All of the related party transactions described below were reviewed and approved through unanimous written consent in lieu of holding a board meeting.

Mr. Butler resigned as a director May 14, 2010.

Flint, Ltd.
Flint Telecom Ltd, which is controlled by Mr. Browne, Flint’s CEO, has an amount due to it of $213,160 and $156,042 at March 31, 2011 and June 30, 2010, respectively.   This includes charges for management fees earned by Flint Telecom, Ltd., which during the nine months ended March 31, 2011 and 2010 were $150,000 and $450,000, respectively.  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 $0.275 per Common Share.

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

 
 
 
38

 
 


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

d.  
Based on the minimum conversion price, Mr. Butler would receive 10,981,818 ( 549,091 post 1:20 stock split effected January 14,2011) 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.

As of March 31, 2011, $702,315 in dividends and $35,116 in penalties have accrued.
 
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 June 30, 2010, the conversion price is $0.00055 per share, resulting in the maximum potential total of 178,181,818 (8,909,091 post 1:20 stock split effected January 14,2011) shares to be issued upon full conversion of both SEL notes.  However, in accordance with the terms of the agreements related to these notes, each note holder cannot beneficially own greater than 4.99% of our total issued and outstanding common stock at any given point in time without shareholder approval.  SEL is a related party due to the fact that SEL is controlled by Mr. Butler, who was one of our board members in March of 2010. For the year ended June 30, 2010 we recognized $98,000 in interest expense for beneficial conversion features on these notes.

Employment Agreements
Effective October 6, 2008, we entered into a four year employment agreement with our CEO, Mr. Browne. Mr. Browne receives a salary in the amount of $180,000 per year, which shall immediately increase to $240,000 when the Company achieves sustainable profitability for one quarter, and 2,500,000 shares of restricted common stock, vesting over a period of four years, such that ј of the shares shall vest at the first annual anniversary of the Effective Date, and quarterly thereafter so that 100% of the shares shall be fully vested at his four year anniversary. 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.

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 6,000,000 shares of restricted common stock vesting over a period of four years, such that ј of the shares shall vest at the first annual anniversary of the Effective Date, and quarterly thereafter so that 100% of the shares shall be fully vested at his four year anniversary with Flint. The Company may 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.

 
 
 
39

 
 

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 1,500,000 shares of his unvested restricted stock and the grant and issuance of 4,000,000 additional shares of immediately vested restricted common stock, for a total of 5,500,000 shares of restricted common stock.  Additionally, 500,000 vested on January 29, 2010. The 2,000,000 previously issued shares that vested were valued at $0.38 per share (date of original grant).  The closing price of our common stock on February 5, 2010 was $0.08 per share, and therefore the additional 4,000,000 shares were valued at $320,000, for a total fair market value of these shares was $842,500.

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 annual 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.

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 15,800,000 (790,000 after the 1:20 share split effective January 14, 2011) shares of our common stock to Flint (thereby allowing CHVC to keep 5,200,000 (260,000 after the 1:20 share split effective January 14, 2011) 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 registration statement, we have not made these payments and are therefore in default.

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


 
 
 
40

 
 


PRINCIPAL SHAREHOLDERS
 
The following table sets forth certain information regarding the beneficial ownership of our common stock as of May 25, 2011, by (i) each person who is known by us to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares of common stock, (ii) each of our directors and executive officers, and (iii) all directors and officers as a group.

For the purposes of the information provided below, shares that may be issued upon the exercise or conversion of options, warrants and other rights to acquire shares of our common stock that are exercisable or convertible within 60 days following May 25, 2011, are deemed to be outstanding and beneficially owned by the holder for the purpose of computing the number of shares and percentage ownership of that holder, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

Title of Class
Name And Address
of Beneficial Owners* (1)
 
Number of Shares(**)
   
Percent of Class(4)
 
               
Common
Vincent Browne (2)
   
1,742,506
     
0.97
%
                   
Common
Bernard A. Fried (3)
   
332,576
     
0.19
%
                   
 
All Officers and Directors as a Group
(2 Persons)
   
2,067,270
     
 1.16
%

* Unless otherwise indicated, all addresses are c/o Flint Telecom Group, Inc., 7500 College Blvd., Suite 500, Overland Park, KS 66210

 (**) Shares numbers and prices quoted after 1:20 stock split that went effective January 14, 2011.

(1)  
This table is based upon information supplied by the named executive officers, directors and 5% stockholders, including filings with the Securities and Exchange Commission (the “SEC”) and information supplied from Computershare, our transfer agent.  Unless otherwise indicated in these notes and subject to the community property laws where applicable, each of the listed stockholders has sole and investment power with respect to the shares shown as beneficially owned by such stockholder.  The number of shares and percentage of beneficial ownership includes shares of common stock issuable pursuant to convertible promissory notes, convertible preferred stock and warrants held by the person or group in question, which may be exercised or converted on November 23, 2010 or within 60 days thereafter.

(2)  
Includes 629,850 shares held directly,62,500 shares that have vested out of the 125,000 shares that vest quarterly at each annual anniversary over a period of four years from October 1, 2008, and 1,050,157 shares held indirectly through Mr. Browne’s ownership in Flint Telecom, Ltd. The 129,850 shares held directly have been pledged as security.

(3)
Includes 25,000 shares held directly and 7,576 shares held indirectly through Mr. Fried’s ownership in FCI Companies, LLC.  Also includes 75,000 shares that have vested as of February 23, 2011.  Does not include the remaining 225,000 unvested shares granted on February 23, 2010.

(4)
Based on 179,793,173 shares of common stock outstanding as of May 25, 2011.

SELLING SHAREHOLDER
 
This prospectus relates to the possible resale by the selling stockholder, Kodiak Capital Group, LLC, of shares of common stock that we may issue pursuant to the Investment Agreement, or IA, that we entered into with Kodiak on November 26, 2010, and as amended and restated on January 19, 2011. We are filing the registration statement of which this prospectus is a part pursuant to the provisions of the registration rights agreement we entered into with Kodiak on November 26, 2010.
 
The selling stockholder may from time to time offer and sell pursuant to this prospectus any or all of the shares that it acquires under the IA.
 
The following table presents information regarding Kodiak and the shares that it may offer and sell from time to time under this prospectus. This table is prepared based on information supplied to us by the selling stockholder. As used in this prospectus, the term “selling stockholder” includes Kodiak and any donees, pledgees, transferees or other successors in interest selling shares received after the date of this prospectus from a selling stockholder as a gift, pledge or other non-sale related transfer. The number of shares in the column “Number of Shares Being Offered” represents all of the shares that the selling stockholder may offer under this prospectus. The selling stockholder may sell some, all or none of its shares. We do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the selling stockholder regarding the sale of any of the shares.

 
 
 
41

 
 

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Securities Exchange Act of 1934, as amended. Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to the shares, subject to community property laws where applicable. The percentage of shares beneficially owned prior to the offering is based both on 179,793,173 shares of our common stock actually outstanding as of May 25, 2011 and on the assumption that all shares of common stock issuable under the IA we entered into with Kodiak are outstanding as of that date. 
                       
 
Name of Beneficial Owner
 
Shares Beneficially Owned
Prior to the Offering
Number of
Shares Offered
 
Shares Beneficially Owned
After the Offering
 
 
Number
 
Percent
 
Number
   
Percent
 
 Kodiak Capital Group (1)
   
1,520,000
(2)
0.85%
50,000,000
   
51,520,000
     
28.66%
 
 
(1) The address of Kodiak is:  One Columbus Place, 25th Floor, New York, NY 10019.

(2) Consists of 1,520,000 shares of common stock already issued, and 50,000,000 shares of common stock issuable under the IA we entered into with Kodiak on November 26, 2010. For the purposes hereof, we assumed the issuance of the 50,000,000 shares of common stock issuable pursuant to the IA, but no additional shares of common stock potentially issuable pursuant to the IA. We will file subsequent registration statements covering the resale of any additional shares of common stock beginning approximately 60 days after we have substantially completed the sale to Kodiak under the IA of the shares subject to this registration statement. Ryan Hodson has voting and investment control of the securities held by Kodiak. 

DESCRIPTION OF CAPITAL STOCK
 
Our authorized capital stock consists of 900,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock, $0.001 par value. As of May 25, 2011, there were 179,793,173 shares of our common stock outstanding that were held of record by approximately 100 stockholders, and warrants to purchase shares of common stock were outstanding, and we have reserved approximately 120,000,000 shares of common stock for issuance under existing convertible promissory notes and warrants, and reserved 425,000 shares of unvested common stock where vesting is contingent upon continued employment with or services to the Company.  We have also reserved 50,000,000 shares of common stock for issuance pursuant to the IA.

The following description is only a summary. You should also refer to our amended and restated certificate of incorporation and bylaws, both of which have been filed with the SEC as exhibits to our registration statement of which this prospectus forms a part.  
 
Common Stock

Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors, and each holder does not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election.
 
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.
 
Holders of common stock do not have preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered by us in this offering, when issued and paid for, will be fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate in the future.
 
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 March 31, 2011 we owed $737,431 in unpaid dividends and penalties on our Series E.  During the three and nine months ended March 31, 2011 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 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 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. We have recorded a debt discount of $1,000,000 on the Series H Convertible Preferred Stock of which we accreted $566,438 during the nine months ended March 31, 2011.

Under ASC 470-20, we have recorded a beneficial conversion feature of $1,000,000 as a discount on the Series H Convertible Preferred Stock of which we accreted $566,438 during the nine months ended March 31, 2011.  Under ASC-10-S99, we have presented the total net value of the Series H Convertible Preferred Stock as temporary equity.
 
If the 300,000 currently issued Series H Convertible Preferred Shares were converted as of March 31, 2011, a total of 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.
 
  
 
 
 
42

 
 

Preferred Stock

The board of directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue up to an aggregate of 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of the Company.
 
As of May 25, 2011, we had a total of 608,780 shares of preferred stock issued and outstanding, which includes:
 
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.
 
See the Temporary Equity section above regarding the Series E preferred stock outstanding and the Series H preferred stock outstanding. 
 
There are no shares of Series A, B, C or D preferred stock outstanding. 
 
The rest of our preferred stock is undesignated. The board of directors, without stockholder approval, may issue the remaining shares of preferred stock with voting and conversion rights that could materially and adversely affect the voting power of the holders of common stock, and could also decrease the amount of earnings and assets available for distribution to the holders of common stock.

Registration Rights

The shares covered by this registration statement and prospectus, which will be sold in connection with the Investment Agreement, or IA, with Kodiak Capital Group, LLC, have registration rights. In connection with establishing the IA with Kodiak, we entered into a registration rights agreement with Kodiak. Pursuant to the registration rights agreement, we filed a registration statement, of which this prospectus forms a part, with the SEC. We have agreed to use our commercially reasonable efforts to cause this registration statement to be declared effective by the SEC. The effectiveness of this registration statement is a condition precedent to our ability to sell the shares of common stock subject to this registration statement to Kodiak under the IA. This registration statement covers only a portion of the shares of our common stock issuable pursuant to the IA. We will file subsequent registration statements covering the resale of additional shares of our common stock issuable pursuant to the IA beginning approximately 60 days after we have substantially completed the sale to Kodiak under the IA of the shares subject to

 
 
 
43

 
 

this registration statement. These subsequent registration statements are subject to our ability to prepare and file them, and may be subject to review and comment by the Staff of the SEC, as well as consent by our independent registered accounting firm. Therefore, the timing of effectiveness of these subsequent registration statements cannot be assured. The effectiveness of these subsequent registration statements is a condition precedent to our ability to sell the shares of common stock subject to these subsequent registration statements to Kodiak under the IA.
 
Transfer Agent and Registrar
 
We have engaged the services of Computershare as our transfer agent and registrar.
 
PLAN OF DISTRIBUTION
 
We are registering 50,000,000 shares of common stock under this prospectus on behalf of Kodiak. Except as described below, to our knowledge, Kodiak has not entered into any agreement, arrangement or understanding with any particular broker or market maker with respect to the shares of common stock offered hereby, nor, except as described below, do we know the identity of any brokers or market makers that may participate in the sale of the shares.
 
Kodiak may decide not to sell any shares. Kodiak may from time to time offer some or all of the shares of common stock through brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from Kodiak and/or the purchasers of the shares of common stock for whom they may act as agent. In effecting sales, broker-dealers that are engaged by Kodiak may arrange for other broker-dealers to participate. Kodiak is an “underwriter” within the meaning of the Securities Act. Any brokers, dealers or agents who participate in the distribution of the shares of common stock may also be deemed to be “underwriters,” and any profits on the sale of the shares of common stock by them and any discounts, commissions or concessions received by any such brokers, dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act. Kodiak has advised us that it may effect resales of our common stock through any one or more registered broker-dealers. Because Kodiak is deemed to be an underwriter, Kodiak will be subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
  
Kodiak will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made, on the over-the-counter market, otherwise or in a combination of such methods of sale, at then prevailing market prices, at prices related to prevailing market prices or at negotiated prices. The shares of common stock may be sold according to one or more of the following methods:

·
a block trade in which the broker or dealer so engaged will attempt to sell the shares of common stock as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 
 
 
44

 
 


·
purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus;

·
an over-the-counter distribution in accordance with the FINRA rules;

·
ordinary brokerage transactions and transactions in which the broker solicits purchasers;

·
privately negotiated transactions;

·
a combination of such methods of sale; and

·
any other method permitted pursuant to applicable law.
    
Any shares covered by this prospectus which qualify for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus. In addition, Kodiak may transfer the shares by other means not described in this prospectus.
 
Any broker-dealer participating in such transactions as agent may receive commissions from Kodiak (and, if they act as agent for the purchaser of such shares, from such purchaser). Broker-dealers may agree with Kodiak to sell a specified number of shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so acting as agent for AGS, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to Kodiak. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) on the Nasdaq Capital Market, on the over-the-counter market, in privately-negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with such re-sales may pay to or receive from the purchasers of such shares commissions computed as described above. To the extent required under the Securities Act, an amendment to this prospectus, or a supplemental prospectus will be filed, disclosing:
 
·
the name of any such broker-dealers;

·
the number of shares involved;

·
the price at which such shares are to be sold;

·
 the commission paid or discounts or concessions allowed to such broker-dealers, where applicable;

·
that such broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and

·
other facts material to the transaction.

Underwriters and purchasers that are deemed underwriters under the Securities Act may engage in transactions that stabilize, maintain or otherwise affect the price of the securities, including the entry of stabilizing bids or syndicate covering transactions or the imposition of penalty bids. Kodiak and any other persons participating in the sale or distribution of the shares will be subject to the applicable provisions of the Exchange Act and the rules and regulations thereunder including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of, purchases by Kodiak or other persons or entities. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to special exceptions or exemptions. Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making and certain other activities with respect to those securities. In addition, the anti-manipulation rules under the Exchange Act may apply to sales of the securities in the market. All of these limitations may affect the marketability of the shares and the ability of any person to engage in market-making activities with respect to the securities.
 
We have agreed to pay the expenses of registering the shares of common stock under the Securities Act, including registration and filing fees, printing expenses, administrative expenses and certain legal and accounting fees. Kodiak will bear all discounts, commissions or other amounts payable to underwriters, dealers or agents, as well as transfer taxes and certain other expenses associated with the sale of securities.

 
 
 
45

 
 

Under the terms of the Kodiak common stock purchase agreement and the registration rights agreement, we have agreed to indemnify Kodiak and certain other persons against certain liabilities in connection with the offering of the shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute toward amounts required to be paid in respect of such liabilities.
 
At any time a particular offer of the shares of common stock is made, a revised prospectus or prospectus supplement, if required, will be distributed. Such prospectus supplement or post-effective amendment will be filed with the SEC, to reflect the disclosure of required additional information with respect to the distribution of the shares of common stock. We may suspend the sale of shares by Kodiak pursuant to this prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplemented or amended to include additional material information.
 
LEGAL MATTERS
 
The validity of the issuance of the common stock offered hereby will be passed upon for us by Lucosky Brookman LLP.
 
EXPERTS
 
The financial statements for the two most recent fiscal years ended June 30, 2010 and June 30, 2009, have been audited by LL Bradford & Company, LLC, independent registered public accounting firm, to the extent and for the periods set forth in their report, which contains an explanatory paragraph regarding our ability to continue as a going concern, appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act that registers the shares of our common stock to be sold in this offering. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and our capital stock. The rules and regulations of the SEC allow us to omit from this prospectus certain information included in the registration statement. For further information about us and our common stock, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. With respect to the statements contained in this prospectus regarding the contents of any agreement or any other document, in each instance, the statement is qualified in all respects by the complete text of the agreement or document, a copy of which has been filed as an exhibit to the registration statement.

We file reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934. You may read and copy this information from the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

Our web site is http://www.flinttelecomgroup.com. The information on our website is neither a part of nor incorporated by reference into this report. We make available on our web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act through a link to our reports filed on the commission’s web site from our web site. Information contained on our web site is not a part of this report.
 
You should rely only on the information provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information.  We are not making an offer to sell, nor soliciting an offer to buy, these securities in any jurisdiction where that would not be permitted or legal.  Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or our affairs have not changed since the date hereof.
 








 

 
 
 
46

 
 

FLINT TELECOM GROUP, INC.
INDEX to FINANCIAL STATEMENTS
   
Page(s)
Financial Statements of Flint Telecom Group, Inc.    
For the three and nine months ended March 31, 2011:    
Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited)
   
F-1
 
Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2011 (unaudited)
   
F-3
 
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2011 (unaudited)
   
F-5
 
Condensed Consolidated Statement of Stockholders’ Deficit for the nine months ended March 31, 2011 (unaudited)
   
F-9
 
Notes to the Condensed Consolidated Financial Statements
   
F-11
 
         
For the years ended June 30, 2010 and 2009:
       
Report of Independent Registered Public Accounting Firm
   
F-35
 
Consolidated Financial Statements:
       
Consolidated Balance Sheets, June 30, 2010 and 2009
   
 F-36
 
Consolidated Statements of Operations for the Years Ended June 30, 2010 and 2009
   
 F-38
 
Consolidated Statements of Stockholders’ Equity (Deficit) and other Comprehensive Loss for the Years Ended June 30, 2010 and 2009
   
 F-39
 
Consolidated Statements of Cash Flow for the Years Ended June 30, 2010 and 2009
   
 F-41
 
Notes to Consolidated Financial Statements
   
F-45
 
         
Financial Statements of  Gotham Ingedigit Financial Processing Corp dba Power2Process
       
Audited Financial Statements for the Years ended December 31, 2009 and 2008
       
Report of Independent Certified Public Accounting Firm
    F-78  
Balance Sheets as of December 31, 2009 and 2008
    F-79  
Statements of Operations for the Years ended December 31, 2009 and 2008
    F-80  
Statements of Stockholders’ Equity for the Years ended December 31, 2009 and 2008
    F-81  
Statements of Cash Flows for the Years ended December 31, 2009 and 2008
    F-82  
Notes to Financial Statements for the Years ended December 31, 2009 and 2008
    F-83  
Financial Statements for the nine months ended September 30, 2010 and 2009 (Unaudited)
       
Balance Sheets as of September 30, 2010
    F-74  
Statements of Operations for the nine months ended September 30, 2010 and 2009
    F-75  
Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
    F-76  
Notes to Financial Statements for the nine months ended September 30, 2010 and 2009
    F-77  
         
Financial Statements of  Ingedigit International, Inc.
       
Audited Financial Statements for the years ended December 31, 2009 and 2008
       
Report of Independent Certified Public Accounting Firm
    F-82  
Balance Sheets as of December 31, 2009 and 2008
    F-83  
Statements of Operations for the Years ended December 31, 2009 and 2008
    F-84  
Statements of Stockholders’ Equity for the Years ended December 31, 2009 and 2008
    F-85  
Statements of Cash Flows for the Years ended December 31, 2009 and 2008
    F-86  
Notes to Financial Statements for the Years ended December 31, 2009 and 2008
    F-87  
Financial Statements for the nine months ended September 30, 2010 and 2009 (Unaudited)
       
Balance Sheets as of September 30, 2010
    F-95  
Statements of Operations for the nine months ended September 30, 2010 and 2009
    F-96  
Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
    F-97  
Notes to Financial Statements for the nine months ended September 30, 2010 and 2009
    F-98  
         
Pro Forma Financial Information
       
Introduction
    F-110  
Condensed Pro Forma Balance Sheet as of September 30, 2010 (Unaudited)
    F-111  
Condensed Pro Forma Statement of Operations for the year ended June 30, 2010 (Unaudited)
    F-113  
Condensed Pro Forma Statement of Operations for the nine months ended September 30, 2010 (Unaudited)
    F-115  
Notes to the Condensed Pro Forma Financial Statements (Unaudited)
    F-116  



 

 
 
 
47

 
 



 
 
FLINT TELECOM GROUP, INC.
 
 
50,000,000 Shares
 
 
PROSPECTUS
 
 
      _______________, 2011
 

 
 
 
48

 
 


INFORMATION NOT REQUIRED IN PROSPECTUS
 
Indemnification of Directors and Officers
 
The Company’s Amended and Restated Bylaws provide for indemnification of directors and officers against certain liabilities. Officers and directors of the Company are indemnified generally for any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful.
 
The Company’s Amended and Restated Articles of Incorporation further provides the following indemnifications:
 
(a) a director of the Corporation shall not be personally liable to the Corporation or to its shareholders for damages for breach of fiduciary duty as a director of the Corporation or to its shareholders for damages otherwise existing for (i) any breach of the director’s duty of loyalty to the Corporation or to its shareholders; (ii) acts or omission not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) acts revolving around any unlawful distribution or contribution; or (iv) any transaction from which the director directly or indirectly derived any improper personal benefit. If Nevada Law is hereafter amended to eliminate or limit further liability of a director, then, in addition to the elimination and limitation of liability provided by the foregoing, the liability of each director shall be eliminated or limited to the fullest extent permitted under the provisions of Nevada Law as so amended. Any repeal or modification of the indemnification provided in the Articles shall not adversely affect any right or protection of a director of the Corporation under the Articles, as in effect immediately prior to such repeal or modification, with respect to any liability that would have accrued, but for this limitation of liability, prior to such repeal or modification.
 
(b) the Corporation shall indemnify, to the fullest extent permitted by applicable law in effect from time to time, any person, and the estate and personal representative of any such person, against all liability and expense (including, but not limited to attorney’s fees) incurred by reason of the fact that he is or was a director or officer of the Corporation, he is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of, or in any similar managerial or fiduciary position of, another domestic or foreign corporation or other individual or entity of an employee benefit plan. The Corporation shall also indemnify any person who is serving or has served the Corporation as a director, officer, employee, fiduciary, or agent and that person’s estate and personal representative to the extent and in the manner provided in any bylaw, resolution of the shareholders or directors, contract, or otherwise, so long as such provision is legally permissible.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
 
Other Expenses of Issuance and Distribution.
 
The estimated expenses payable by us in connection with the registration of the shares is as follows:

SEC Registration
 
$
14.50
 
Accounting Fees and Expenses
 
$
10,000* 
 
Legal Fees and Expenses
 
$
40,000* 
 
Broker Fees   $  11,900  
Printing Costs
 
$
-0- 
 
Miscellaneous Expenses
 
$
7,000* 
 
Transfer agent fees
 
$
1,000* 
 
Total
 
$
69,914.50* 
 

* Estimate

 
 
 
49

 
 

Recent Sales of Unregistered Securities

The following share numbers and per share prices are quoted pre 1:20 stock split that went effective January 14, 2011.

On July 22, 2008, the Company issued 741,818 shares of common stock to Flint Telecom, Ltd. upon conversion of a $200,000 promissory note.  We issued these shares upon the exemption of the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering of securities.

On October 1, 2008, the Company issued 250,000 warrants to purchase shares of our common stock at $0.40 per share to one holder as part of the consideration for a $250,000 investment. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On October 1, 2008, the Company issued 1,752,500 warrants to purchase shares of the Company’s common stock at $0.50 per share to three holders as part of the consideration for a $1,752,500 investment.  These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.
 
On October 2, 2008, the Company issued 8,410,000 shares of the Company’s common stock were to a total of eight directors, officers and employees as part of their continued and/or new employment.  These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On October 2, 2008, the Company issued 3,508,000 shares of the Company’s common stock to Anthony LaPine as part of his continued employment. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.
 
On November 10, 2008, the Company issued 250,000 warrants to purchase shares of the Company’s common stock at $0.40 per share to one holder as part of the consideration for a $250,000 cash investment. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On December 2, 2008, the Company issued 629,064 shares of the Company’s common stock to five note holders upon conversion of $172,993 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On December 11, 2008, the Company issued 1,257,201 shares of the Company’s common stock were to 11 note holders upon conversion of $345,730 worth of promissory notes.  These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On December 24, 2008, the Company issued 999,091 shares of common stock to eight note holders upon conversion of $274,750 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On January 8, 2009, the Company issued 797,786 shares of the Company’s common stock were to three note holders upon conversion of $214,062 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On January 21, 2009, the Company issued 200,000 shares of the Company’s common stock to four former employees as part of their employment separation packages. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 2, 2009, the Company issued 21,000,000 shares of the Company’s common stock to China Voice Holding Corp. as consideration for the purchase of certain of its U.S. subsidiary companies, valued at $7,980,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 
 
 
50

 
 

On February 2, 2009, the Company issued 2,000,000 shares of the Company’s common stock to Bill Burbank as part of his employment compensation. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 9, 2009, the Company issued 1,454,545 shares of the Company’s common stock to one accredited investor in exchange for $400,000.  These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 9, 2009, the Company issued 100,000 shares of the Company’s common stock to one consultant for services rendered worth $37,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 9, 2009, the Company issued 1,000,000 shares of the Company’s common stock to two executive officers as part of their employment compensation.  These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 11, 2009, the Company issued 3,756,538 shares of the Company’s common stock to nine note holders upon conversion of $1,025,636 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 1, 2009, the Company issued 100,000 shares of the Company’s common stock to one accredited investor in exchange for $20,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 1, 2009, the Company issued 100,000 shares of the Company’s common stock to two former employees as part of their employment separation packages. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 18, 2009, the Company issued 4,430,000 shares of the Company’s common stock to 14 employees as part of their employment compensation. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 18, 2009, the Company issued 806,701 shares of the Company’s common stock to one note holder upon conversion of $221,843 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 24, 2009, the Company issued 125,000 shares of common stock to a new employee as part of their employment compensation. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On April 6, 2009, the Company issued 300,000 shares of the Company’s common stock and a $300,000 promissory note was issued to one accredited investor in exchange for $300,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On April 6, 2009, the Company issued 150,000 shares of the Company’s common stock to two consultants for $22,000 worth of services rendered. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On April 6, 2009, the Company issued 380,000 shares of the Company’s common stock were issued to three employees as part of their employment compensation.  These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 
 
 
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On April 7, 2009, the Company issued 72,727 shares of the Company’s common stock to a note holder upon conversion of a $20,000 promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On April 20, 2009, 179,697 shares of common stock were issued to a note holder upon conversion of a $49,417 promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On April 24, 2009, the Company issued 1,800,000 shares of Series C Convertible Preferred Stock to China Voice Holding Corp. (CHVC), valued at $1,800,000, as part of an amendment to the structure of the consideration paid for the acquisition of six of CHVC’s U.S. subsidiary companies. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 8, 2009, the Company issued 429,468 shares of the Company’s common stock to three note holders upon conversion of $117,250 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 9, 2009, the Company issued 360,000 shares of the Company’s common stock to two investors as part of their compensation for $445,920 invested. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 9, 2009, 50,000 shares of common stock were issued to a consultant for services rendered worth $17,500. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 9, 2009, the Company issued 3,260,000 shares of the Company’s common stock to an investor as part of an amendment to the structure of his existing investment worth $1,386,066. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 19, 2009, the Company issued 382,738 shares of the Company’s common stock to a note holder upon conversion of a $105,253 promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 23, 2009, the Company issued 1,500,000 shares of the Company’s common stock to HotItem, LLC in exchange for an asset acquisition worth €823,407. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 24, 2009, the Company issued 29,296 shares of the Company’s common stock to a note holder upon conversion of a $8,057 promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 29, 2009, the Company issued 243,856 shares of the Company’s common stock to two note holders  upon conversion of $66,070 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 30, 2009, the Company issued 2,181,818 warrants to purchase shares of the Company’s common stock at $0.35 per share to three holders as part of the consideration for a $510,000 investment. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 30, 2009, the Company issued 2,181,818 warrants to purchase shares of the Company’s common stock at $0.35 per share to three holders as part of the consideration for a debt restructure worth $600,000. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 
 
 
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On June 30, 2009, the Company issued 152,727 warrants to purchase shares of the Company’s common stock at $0.275 per share to one holder as part of an investment broker fee worth $50,000. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On July 1, 2009, the Company issued 2,392,467 shares of the Company’s common stock to three note holders upon conversion of $540,156 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On July 2, 2009, the Company issued 1,670,716 shares of the Company’s common stock to three note holders upon conversion of $426,941 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 On August 13, 2009, the Company issued 501,515 shares of the Company’s common stock to two consultants for services rendered worth a total of $185,561. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On August 18, 2009, the Company issued 200,000 warrants to purchase shares of the Company’s common stock at $0.50 per share to one holder as part of the consideration for an investment of $100,000. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On September 25, 2009, the Company issued 92,411 shares of the Company’s common stock to one note holder upon conversion of a $25,413 promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On September 25, 2009, the Company issued 334,000 shares of the Company’s common stock to 2 note holders upon conversion of $91,850 worth of promissory notes. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On October 6, 2009, the Company issued 1,250,000 shares of the Company’s common stock to a total of five officers, directors and employees as part of their employment compensation. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On October 15, 2009, the Company issued 250,000 warrants to purchase shares of the Company’s common stock at $0.30 per share to one holder as part of the consideration for a $250,000 investment. These shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On October 22, 2009, the Company issued 350,000 shares of the Company’s common stock to a consultant for services rendered worth $42,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On November 13, 2009, the Company issued 150,000 shares of the Company’s common stock worth $15,000 to DataSales as part of a settlement for fees owed under an equipment lease. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On December 10, 2009, the Company issued (i) 1,036,363 warrants to purchase shares of the Company’s common stock at $0.01 per share to three holders and (ii) 4,145,454 warrants were repriced from $0.35 per share to $0.01 per share due to an event of default being triggered. One holder cashlessly exercised 2,454,545 of these warrants into 1,963,636 shares of the Company’s common stock on March 19, 2010. These shares and shares underlying the warrants were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 
 
 
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On January 14, 2010, the Company issued 2,000,000 shares of the Company’s common stock to two consultants for services rendered worth $190,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 5, 2010, the Company issued 302,000 shares of the Company’s Series E Convertible Preferred Shares to one holder, valued at $3,020,000 and convertible into a maximum potential total of 10,981,818 shares of common stock. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 23, 2010, the Company issued 1,000,000 shares of the Company’s common stock to a note holder upon conversion of $6,183 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On February 23, 2010, the Company issued 6,000,000 shares of the Company’s common stock to a former executive officer as part of his employment separation package. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 16, 2010, the Company issued 250,000 shares of the Company’s common stock to two executive officers as part of their employment compensation. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 19, 2010, the Company issued 1,963,636 shares of the Company’s common stock to a warrant holder upon the cashless exercise of 2,454,545 warrants. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On March 29, 2010, the Company issued 571,429 shares of the Company’s common stock to a note holder upon conversion of $10,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On April 12, 2010, the Company issued 1,000,000 shares of the Company’s common stock to a consultant as part of a settlement agreement worth $40,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On May 4, 2010, the Company issued 1,680,672 shares of the Company’s common stock to a note holder upon conversion of $10,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On May 6, 2010, the Company issued 10,200,000 shares of the Company’s common stock were issued to four consultants for services rendered worth $200,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On May 6, 2010, the Company issued 1,666,667 shares of the Company’s common stock to a note holder upon conversion of $10,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On May 13, 2010, the Company issued 500,000 shares of the Company’s common stock to a consultant for services rendered worth $25,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On May 21, 2010, the Company issued 2,575,758 shares of the Company’s common stock were issued to a note holder upon conversion of $8,500 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 
 
 
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On May 27, 2010, the Company issued (i) 10,000,000 shares of the Company’s common stock and (ii) 60,000 shares of the Company’s Series D Convertible Preferred Stock to a consultant for services rendered worth $99,200. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 8, 2010, the Company issued 2,000,000 shares of the Company’s common stock to a note holder upon conversion of $20,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 8, 2010, the Company issued 2,000,000 shares of the Company’s common stock to a note holder upon conversion of $80,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 8, 2010, the Company issued 600,000 shares of the Company’s common stock to a note holder upon conversion of $6,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 17, 2010, the Company issued 153,000 shares of the Company’s Series F Convertible Preferred Stock to one holder having a value of $1,530,000 and which are convertible into 30,600,000 shares of common stock. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 17, 2010, the Company issued 153,779.66 shares of the Company’s Series G Convertible Preferred Stock to one holder having a value of $130,718 and convertible into a total of 15,377,966 shares of common stock. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 18, 2010, the Company issued 11,288,700 shares of the Company’s common stock to a note holder upon conversion of $84,665 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 18, 2010, the Company issued 3,125,000 shares of the Company’s common stock to a note holder upon conversion of $10,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 22, 2010, the Company issued 1,666,667 shares of the Company’s common stock to a note holder upon conversion of $25,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 22, 2010, the Company issued 5,000,000 shares of the Company’s common stock to a note holder upon conversion of $25,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 22, 2010, the Company issued 2,000,000 shares of the Company’s common stock to a note holder upon conversion of $6,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On June 22, 2010, the Company issued 500,000 shares of the Company’s common stock to a consultant for services rendered worth $25,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

On July 2, 2010, the Company issued 4,736,842 shares of the Company’s common stock to a note holder upon conversion of $9,000 worth of a promissory note. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 
 
 
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