VOICESERVE INC - FORM 10-Q - November 18, 2009

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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - VOICESERVE INCf10q0909ex32i_voiceserve.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - VOICESERVE INCf10q0909ex31i_voiceserve.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - VOICESERVE INCf10q0909ex32ii_voiceserve.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - VOICESERVE INCf10q0909ex31ii_voiceserve.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
 
FORM 10-Q
______________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________ to ______________
 
Commission File No. 000-51882
______________
VOICESERVE, INC.
(Exact name of small business issuer as specified in its charter)
______________
 
Delaware
    
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
Cavendish House, 369 Burnt Oak Broadway,
Edgware, Middlesex
  
HA8, 5AW
(Address of principal executive offices)
  
(Zip Code)
 
44 208 136 6000
(Issuer’s telephone number)
 
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
Yes x          No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes o            No 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 filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
(Do not check if a smaller reporting company)
      
 
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 17, 2009: 32,402,935 shares of common stock.
 
 
  
 
TABLE OF CONTENTS
 
 
PART I - FINANCIAL INFORMATION
  
   
Item 1.      Financial Statements
F-
Item 2.      Management’s Discussion and Analysis or Plan of Operation
1
Item 3.      Quantitative and Qualitative Disclosures About Market Risk
3
Item 4T.    Controls and Procedures
3
   
PART II -OTHER INFORMATION
  
   
Item 1.      Legal Proceedings.
4
Item 1A.   Risk Factors.
4
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds.
4
Item 3.      Defaults Upon Senior Securities.
4
Item 4.      Submission of Matters to a Vote of Security Holders.
4
Item 5.      Other Information.
4
Item 6.      Exhibits
4
   
SIGNATURES
5
 
 
 
 
 

PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
 
Page
Financial Statements:
  
   
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and March 31, 2009
F-2
   
Consolidated Statements of Operations for the three and six months ended September 30, 2009 and  2008 (Unaudited)
F-3
   
Consolidated Statements of Changes in Stockholders’ Equity for the six months ended September 30, 2009 (Unaudited)
F-4
   
Consolidated Statements of Cash Flows for the six months ended September 30, 2009 and  2008 (Unaudited)
F-5
   
Notes to Consolidated Financial Statements
F-6
 
 
F-1
 
VOICESERVE, INC. AND SUBSIDIARIES
  
Consolidated Balance Sheets
  
             
             
   
September
        
    30,    
March 31,
  
     2009     2009  
Assets
  
(Unaudited)
          
                 
Current assets:
                
   Cash and cash equivalents
   $ 156,283     $ 175,072  
   Accounts receivable, net of allowance
                
      for doubtful accounts of $0 and $0, respectively
     81,452       31,243  
   Prepaid expenses
     57,183       19,837  
                 
      Total current assets
     294,918       226,152  
                 
Property and equipment, net of accumulated depreciation
                
   of $61,594 and $53,986, respectively
     12,815       13,084  
Intangible assets, net of  accumulated amortization of
                
   $392,917 and $277,917, respectively
     2,338,874       2,365,874  
                 
Total assets
   $ 2,646,607     $ 2,605,110  
                 
Liabilities and Stockholders' Equity
                
                 
Current liabilities:
                
   Accounts payable
   $ 307,309     $ 176,045  
   Accrued expenses payable
     45,480       48,347  
   Deferred software license fees
     212,166       121,993  
   Loans payable to related parties
     36,078       60,514  
   Due sellers of VoipSwitch Inc.
     150,000       150,000  
                 
      Total current liabilities
     751,033       556,899  
                 
Stockholders' equity :
                
   Preferred stock, $.001 par value; authorized
                
      10,000,000 shares, none issued and outstanding
     -       -  
   Common stock, $.001 par value; authorized
                
      100,000,000 shares, issued and outstanding
                
      32,402,935 and 29,402,935  shares, respectively
     32,403       29,403  
   Additional paid-in capital
     4,714,875       4,330,765  
   Deficit
     (2,830,631 )     (2,328,713 )
   Accumulated other comprehensive income (loss)
     (21,073 )     16,756  
                 
      Total stockholders' equity
     1,895,574       2,048,211  
                 
Total liabilities and stockholders' equity
   $ 2,646,607     $ 2,605,110  
                 
 
                
 
 
See notes to consolidated financial statements.
F-2
 
VOICESERVE, INC. AND SUBSIDIARIES
  
Consolidated Statements of Operations
  
(Unaudited)
  
                         
   
Three Months
    
Six Months
  
   
Ended September 30,
    
Ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Operating revenues:
                        
   Software license fees
   $ 725,709     $ 330,367     $ 1,363,700     $ 528,572  
   Revenues from communications air time
     23,662       157,256       46,449       428,369  
   Net sales of communications devices
     534               1,660          
                                 
   Total operating revenues
     749,905       487,623       1,411,809       956,941  
                                 
Cost of operating revenues:
                                
   Software license fees
     218,901       186,043       424,983       347,271  
   Communications air time
     36,834       269,032       78,706       533,332  
   Communications devices
     122       -       122       -  
                                 
   Total cost of operating revenues
     255,857       455,075       503,811       880,603  
                                 
Gross profit
     494,048       32,548       907,998       76,338  
                                 
Operating expenses:
                                
   Selling, general and administrative
                                
      expenses (including stock - based
                                
      compensation of $7,845, $0, $387,110,
                                
and $0, respectively)
     551,529       203,179       1,409,897       449,783  
                                 
      Total operating expenses
     551,529       203,179       1,409,897       449,783  
                                 
Income (loss) from operations
     (57,481 )     (170,631 )     (501,899 )     (373,445 )
                                 
Interest income
     -       5       1       141  
Interest expense
     3       (857 )     (20 )     (1,126 )
                                 
Income (loss) before income taxes
     (57,478 )     (171,483 )     (501,918 )     (374,430 )
                                 
Income taxes (benefit)
     -       -       -       -  
                                 
Net income (loss)
   $ (57,478 )   $ (171,483 )   $ (501,918 )   $ (374,430 )
                                 
Net income (loss) per share
                                
   - basic and diluted
   $ (0.00 )   $ (0.01 )   $ (0.02 )   $ (0.01 )
                                 
Weighted average number of shares
                                
   outstanding - basic and diluted
     32,402,935       28,946,413       31,578,760       28,918,424  
 
 
See notes to consolidated financial statements.
F-3
 
VOICESERVE, INC. AND SUBSIDIARIES
  
Consolidated Statements of Changes in Stockholders' Equity
  
Six Months Ended September 30, 2009
  
(Unaudited)
  
                                     
                           
Accumulated
        
   
Common Stock
    
Additional
          
Other
    
Total
  
   
$.001 par value
    
Paid-In
          
Comprehensive
    
Stockholders'
  
   
Shares
    
Amount
    
Capital
    
Deficit
    
Income (Loss)
    
Equity
  
                                     
Balances,
                                    
   March 31, 2009
     29,402,935     $ 29,403     $ 4,330,765     $ (2,328,713 )   $ 16,756     $ 2,048,211  
                                                 
Shares issued for
                                                
   services
     3,000,000       3,000       372,000       -       -       375,000  
                                                 
Stock options expense
     -       -       12,110       -       -       12,110  
                                                 
Foreign currency
                                                
   translation adjustment
     -       -       -       -       (37,829 )     (37,829 )
 
                                                
                                                 
Net income (loss)
     -       -       -       (501,918 )     -       (501,918 )
                                                 
Balances,
                                                
   September 30, 2009
     32,402,935     $ 32,403     $ 4,714,875     $ (2,830,631 )   $ (21,073 )   $ 1,895,574  
 
 
See notes to consolidated financial statements.
F-4
 
VOICESERVE, INC. AND SUBSIDIARIES
  
Consolidated Statements of Cash Flows
  
             
   
Six Months Ended September 30,
  
   
2009
    
2008
  
Cash flows from operating activities:
            
   Net income (loss)
   $ (501,918 )   $ (374,430 )
   Adjustments to reconcile net income (loss) to net
                
      cash provided by (used in) operating activities:
                
      Stock-based compensation
     387,110       -  
      Depreciation
     7,608       2,957  
      Amortization
     115,000       115,000  
   Changes in operating assets and liabilities:
                
      Accounts receivable, net
     (50,209 )     53,325  
      Prepaid expenses
     (37,346 )     156,257  
      Accounts payable
     131,264       25,282  
      Accrued expenses payable
     (2,867 )     (32,425 )
      Deferred software license fees
     90,173       (1,305 )
                 
   Net cash provided by (used in) operating activities
     138,815       (55,339 )
                 
Cash flows from investing activities:
                
   Acquisition of VoipSwitch Inc.
     (88,000 )     (99,000 )
   Purchases of property and equipment
     (7,339 )     -  
                 
   Net cash provided by (used in) investing activities
     (95,339 )     (99,000 )
                 
Cash flows from financing activities:
                
   Proceeds from sales of common stock
     -       99,845  
   Increase (decrease) in loans payable to related parties
     (24,436 )     (4,638 )
                 
   Net cash provided by (used in) financing activities
     (24,436 )     95,207  
                 
Effect of exchange rate changes on cash and cash equivalents
     (37,829 )     26,131  
                 
Increase (decrease) in cash and cash equivalents
     (18,789 )     (33,001 )
                 
Cash and cash equivalents, beginning of period
     175,072       50,046  
                 
Cash and cash equivalents, end of period
   $ 156,283     $ 17,045  
                 
Supplemental disclosures of cash flow information:
                
                 
   Interest paid
   $ 20     $ 1,126  
                 
   Income taxes paid
   $ -     $ -  
                 
 
 
See notes to consolidated financial statements.
F-5
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

VoiceServe, Inc. (“VoiceServe”) was incorporated in the State of Delaware on December 9, 2005 under the name 4306, Inc.  On February 20, 2007, VoiceServe acquired 100% of the issued and outstanding stock of VoiceServe Limited (“Limited”), a corporation incorporated in the United Kingdom on March 21, 2002, in exchange for 20,000,000 shares of VoiceServe common stock (representing 100% of the issued and outstanding shares of VoiceServe after the exchange).  From October 1, 2006 to February 20, 2007, Limited owned 100% of the issued and outstanding shares of VoiceServe.  Accordingly, this acquisition was treated as a combination of entities under common control and was accounted for in a manner similar to pooling of interests accounting.  The consolidated financial statements include the operations of VoiceServe from October 1, 2006 and the operations of Limited from its inception on March 21, 2002.

On January 15, 2008, VoiceServe acquired 100% of the issued and outstanding stock of VoipSwitch Inc. (“VoipSwitch”), a corporation incorporated in the Republic of Seychelles on May 9, 2005 (see Note 3).  VoipSwitch licenses software systems (online telephony management applications) to customers online.  Generally, the license of a system includes remote installation and initial configuration of the main system, training relating to the use of the system and modules, and 1 year technical support.

VoiceServe has had no operations; VoiceServe is a holding company for its wholly owned subsidiaries Limited (since February 20, 2007) and VoipSwitch (since January 15, 2008).

Limited is engaged in the telephone communications business from its London, United Kingdom office.  Limited offers customers through its software voice calls over the internet.  The software allows computer users to access the Company’s exchange via the internet and through the exchange connect with numerous sources of telephone communications at discounted rates.  Since January 15, 2008, Limited has also licensed VoipSwitch software systems.

The consolidated financial statements include the accounts of VoiceServe and its wholly owned subsidiaries Limited and VoipSwitch (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

NOTE 2 – INTERIM FINANCIAL STATEMENTS

The unaudited financial statements as of September 30, 2009 and for the six months ended September 30, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q.  In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of

 
F-6
 
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)

September 30, 2009 and the results of operations and cash flows for the six months ended September 30, 2009 and 2008.  The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited.  The results for the six month period ended September 30, 2009 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending March 31, 2010.  The balance sheet at March 31, 2009 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.  These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended March 31, 2009 as included in our report on Form 10-K.

NOTE 3 – ACQUISITION OF VOIPSWITCH INC.

On January 15, 2008, VoiceServe closed an Acquisition Agreement with VoipSwitch Inc. (“VoipSwitch”) whereby VoiceServe acquired all VoipSwitch issued and outstanding ordinary
shares as well as all of VoipSwitch’s assets, including customer orders and intangible assets, for
total consideration of $3,000,000 ($450,000 cash, $150,000 notes payable due on demand, $600,000 notes payable in total monthly installments of $50,000 per month for 12 months, and 3,750,000 shares of VoiceServe common stock valued at $0.48 per share or $1,800,000).

Payment of the monthly installments of the $600,000 notes payable is contingent upon and limited each month to the future monthly net income of VoipSwitch.  Accordingly, pursuant to SFAS No. 141, this $600,000 “contingent consideration” portion of the $3,000,000 total purchase price was not included in the initial recorded cost of the acquisition or the recorded notes payable.  If and when the contingency is resolved and payments of the $600,000 notes payable are made, such paid amounts are added to goodwill.



F-7


VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)

The estimated fair values of the identifiable net assets of VoipSwitch at January 15, 2008 (date of acquisition) consisted of:
 
   Cash and cash equivalents
   $ 6,682  
   Developed software (for licensing to customers)
     2,000,000  
   In-place contracts and customer list
     100,000  
   Trade name
     100,000  
   Accounts payable and accrued expenses
     (2,999 )
   Deferred software license fees
     (48,474 )
         
   Identifiable net assets
   $ 2,155,209  
         
 
Goodwill of $244,791 (excess of the $2,400,000 consideration, excluding the $600,000 contingent consideration, over the $2,155,209 identifiable net assets) was recorded at the acquisition date January 15, 2008.  In February and March 2008, $100,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill.  In the year ended March 31, 2009, an additional $99,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill.  In the three months ended June 30, 2009, an additional $88,000 of the “contingent consideration” notes payable was paid and added to goodwill.


 

F-8


 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)

 
NOTE 4 – INTANGIBLE ASSETS, NET

Intangible assets, net consisted of:
 
   
September 30,
    
March 31,
  
   
2009
    
2009
  
   Acquisition of VoipSwitch:
            
      Developed software (for licensing to Customers)
   $ 2,000,000       2,000,000  
      In-place contracts and customer list
     100,000       100,000  
      Trade name
     100,000       100,000  
      Goodwill
     531,791       443,791  
                 
     Total
     2,731,791       2,643,791  
                 
   Accumulated amortization
     (392,917 )     (277,917 )
                 
   Intangible assets, net
   $ 2,338,874       2,365,874  
 
The developed software, in-place contracts and customer list, and trade name are amortized using the straight-line method over their estimated economic lives (ten years for the developed software and trade name; five years for the in-place contracts and customer list).  Goodwill is not amortized.

For the six months ended September 30, 2009, amortization of intangible assets expense was $115,000.  $100,000 was included in cost of software license fees and $15,000 was included in selling, general and administrative expenses.

Expected future amortization expense for acquired intangible assets as of September 30, 2009 follows:
 


F-9


 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)



   Year ended March 31,
  
Amount
  
   2010
   $ 115,000  
   2011
     230,000  
   2012
     230,000  
   2013
     225,833  
   2014
     210,000  
   Thereafter
     796,250  
         
   Total
   $ 1,807,083  
         

 
NOTE 5 – DEFERRED SOFTWARE LICENSE FEES

The licenses of the VoipSwitch systems generally include certain postcontract customer support (“PCS”).  In accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2, “Software Revenue Recognition”, the Company allocates a portion of the license fees to PCS based on the vendor-specific objective evidence of fair value (generally $800 for 1 year technical support) of the PCS and recognizes the PCS revenues ratably over the period of the agreed PCS.

Deferred software license fees (attributable to PCS) for the six months ended September 30, 2009 and the year ended March 31, 2009 were accounted for as follows:

   
Six Months Ended
    
Year Ended
  
   
September 30,
    
March 31,
  
   
2009
    
2009
  
   Balance, beginning of period
   $ 121,993     $ 64,334  
   Additions
     187,873       168,800  
   Recognized as revenue
     (97,700 )     (111,141 )
                 
   Balance, end of period
   $ 212,166     $ 121,993  



 
F-10

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)



NOTE 6 – LOANS PAYABLE TO RELATED PARTIES

Loans payable to related parties consisted of:
 
   
September 30, 2009
    
March 31, 2009
  
   Due chief financial officer
   $ 80     $ 71  
   Due chairman of the board of directors
     15,525       18,289  
   Due chief operational officer
     20,473       42,154  
                 
   Total
   $ 36,078     $ 60,514  
 
The loans payable to related parties are all non-interest bearing, unsecured, and due on demand.
 
NOTE 7 – STOCKHOLDERS’ EQUITY

Common stock issuances

On May 21, 2009, VoiceServe issued a total of 3,000,000 shares of its common stock to the three sellers of VoipSwitch for services rendered.  The $375,000 estimated fair value of the shares is included in selling, general and administrative expenses in the three months ended June 30, 2009.

Stock options

Effective May 12, 2009, Voiceserve granted non-qualified stock options to 4 service providers exercisable into a total of up to 703,000 shares of common stock at an exercise price of $0.13 per share to December 23, 2013.  The options vest 2/3 on December 23, 2010 and 1/3 on December 23, 2011.  The $81,618 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.15 share price, (ii) 5 year term, (iii) 100% expected volatility, and (iv) 3% risk free interest rate) is being expensed ratably over the requisite service period from May 12, 2009 to December 23, 2011.




F-11

 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)




NOTE 8 – INCOME TAXES

No provisions for income taxes were recorded in the six months ended September 30, 2009 and 2008 since the Company incurred losses in those periods.

Based on management‘s present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of net operating loss carryforwards as of September 30, 2009 will be realized.  Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at September 30, 2009.  The Company will continue to review this valuation allowance and make adjustments as appropriate.
 
NOTE 9 – RELATED PARTY TRANSACTIONS

For the six months ended September 30, 2009 and 2008, consulting fees paid to officers, directors, and their affiliates totaled $339,484, and $180,946, respectively.  These fees are included in selling, general, and administrative expenses in the accompanying statements of operations.



F-12


VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)


NOTE 10 – COMMITMENTS AND CONTINGENCIES

Investment agreement

On August 20, 2007, VoiceServe entered into an Investment Agreement with Dutchess Private Equities Fund, Ltd. (the “Investor”).  Pursuant to this Agreement, the Investor shall commit to purchase up to $10,000,000 of our common stock over the course of thirty-six (36) months.  The amount that we shall be entitled to request from each purchase (“Puts”) shall be equal to, at our election, either (i) up to $250,000 or (ii) 200% of the average daily volume (U.S. market only) of the common stock for the ten (10) trading days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing bid prices immediately preceding the Put Date.  The Put Date shall be the date that the Investor receives a put notice of a drawn down by us.  The purchase price shall be set at ninety-three percent (93%) of the lowest closing Best Bid price of the Common Stock during the pricing period.  The pricing period shall be the five (5) consecutive trading days immediately after the put notice date.  There are put restrictions applied on days between the put date and the closing date with respect to that particular put.  During this time, we shall not be entitled to deliver another put notice.

In connection with the Agreement, we entered into a Registration Rights Agreement with the Investor (”Registration Agreement”).  Pursuant to the Registration Agreement, we were obligated to file a registration statement with the Securities and Exchange Commission (“SEC”) covering 2,335,550 shares of the common stock underlying the Investment Agreement within 15 days after the execution date.  In addition, we were obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days after the execution date, which occurred November 6, 2007.




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VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)

 
Service agreements

In connection with the acquisition of VoipSwitch, VoiceServe entered into service agreements with the three sellers.  The agreements have a three year term (to January 15, 2011) and provide for monthly compensation of $6,000 for each of the three individuals, or $18,000 per month total.

Rental agreements

Limited rents office space at monthly rentals of £560 (or $896 translated at the September 30, 2009 exchange rate).  For the six months ended September 30, 2009 and 2008, rent expense was $6,772 and $6,863, respectively.

NOTE 11 – SUBSEQUENT EVENTS

The company has evaluated subsequent events through the filing date of this form 10-Q and has determined that there were no subsequent events to recognize or disclose in these financial statements.

 
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Item 2.      Management’s Discussion and Analysis or Plan of Operation
 
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
 
Overview

We were founded on December 9, 2005 by Michael Raleigh. On February 20, 2007, pursuant to a share exchange agreement, Voiceserve Limited, a United Kingdom Corporation founded in 2002, became our wholly owned subsidiary. Following the merger, we adopted Voiceserve Limited’s business plan, and conduct business as a global internet communications company. We have changed our name to Voiceserve, Inc. to better reflect our new business plan.

Voiceserve Limited was founded in March 2002 by Michael Bibelman, Alexander Ellinson and Mike Ottie. The founders have over 15 years of experience in the telecommunications industry. They worked as independent resellers of calling cards creating markets in Europe and third world countries transmitting the calls via universal 0800 numbers. Their career began in 1991 when the founders of Econophone Inc. (“Econophone”) came to Europe looking for agents to market international “call-back” and calling cards. Econophone had developed a “call-back” and alternative direct service. By being independent agents our founders discovered a huge potential in the market for pre-paid calling cards that did not need to be physically put into the slot of a pay phone. The pre-paid card had an access number accompanied with a pin number. Our founders helped Econophone develop and enhance this feature. Moreover, our founders were one of the first groups in the industry to market such a product in Europe. Our founders introduced amongst the many famous European distributors to market such a product, the Audax Group (“Audax”) based in Holland with an annual turnover in excess of 850 million Euros. Through the Audax distribution channels, cards were marketed throughout the Benelux. Our founders were also instrumental in aiding Econophone LLC in its transformation from a privately held company to one listed on the New York Stock Exchange, known thereafter as Viatel. Once Viatel was listed on the New York Stock Exchange, our founders independently set up their own ISDN and VOIP platforms with the intention of developing and bringing the world of telecoms into its next stage-a complete solution in one.
 
On January 15, 2008, VoiceServe closed an Acquisition Agreement with VoipSwitch Inc. (“VoipSwitch”) whereby VoiceServe acquired all VoipSwitch issued and outstanding ordinary shares as well as all of VoipSwitch’s assets, including customer orders and intangible assets, for total consideration of $3,000,000, consisting of $450,000 cash, $150,000 notes payable due on demand, $600,000 notes payable in total monthly installments of $50,000 per month for 12 months, and 3,750,000 shares of VoiceServe common stock valued at $0.48 per share or $1,800,000.

Payment of the monthly installments of the $600,000 notes payable is contingent upon and limited each month to the future monthly net income of VoipSwitch.  Accordingly, pursuant to SFAS No. 141, this $600,000 “contingent consideration” portion of the $3,000,000 total purchase price was not included in the initial recorded cost of the acquisition or the recorded notes payable.  If and when the contingency is resolved and payments of the $600,000 notes payable are made, such paid amounts will be added to goodwill.
 
VoipSwitch develops and implements various types of software that facilitate the deployment of VOIP services globally, and to-date has successfully implemented over 800 VoipSwitch systems around the world.
 
VoipSwitch is a complete IP telephony offering a variety of services including device to phone technology, pc to phone/web to phone features, calling cards, SMS/ANI/PIN/DID/WEB callback, DIDs' mapping, call shops and more. Unlike competitive systems composed of many different parts, the Voipswitch platform is fully integrated in one application what makes it exceptionally easy to manage. All elements that are necessary for successful voip implementation are already built in.  All the features are integrated in one multiple server based application.

Voiceserve has established a minute trading platform “Voip Proxy” whereby wholesale minutes are offered to Voipswitch clients. Non Voipswitch clients can also be connected to the Wholesale Minute platform.
 
Plan of Operation
 
During the next twelve months, we expect to take the following steps in connection with the development of our business and the implementation of our plan of operations:
 
a) Maintain sales of approximately 20 Voipswitch solutions monthly with an average of 10% monthly increase,
b) Launch IPTV by the latter quarter of 2008,
c) Launch Mobile GSM-WIFI Phone the latter quarter of 2008,
 
 
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d) Launch Voipswitch “Office” during the cause of the third quarter,
e) Increase Voip Proxy volumes at a monthly rate of 15%,
f) Establish Haloswiat in Poland.
 
Voiceserve plans on establishing distribution networks in Brazil and the USA in the very near future. Voiceserve’s mission is to be the leader in introducing complete “Softswitch” solutions at very competitive prices to the growing global markets. Through close customer contact and excellent relationships, we will meet the needs of our customers wherever we can. Voiceserve will secure sufficient profits from free cash flow from operations, to sustain its stability and finance future growth. We will add value to our community by maintaining a friendly, familial work environment.
 
Results of Operations for the Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008
 
We had revenues of $749,905 for the three months ended September 30, 2009 and $487,623 for the three months ended September 30, 2008. Operating expenses for the three months ended September 30, 2009 increased to $551,530 from $203,179 for the three months ended September 30, 2008 representing an increase of $348,351.

Results of Operations for the Six Months Ended September 30, 2009 Compared to the Six Months Ended September 30, 2008

We had revenues of $1,411,809 for the six months ended September 30, 2009 and $956,941 for the six months ended September 30, 2008. Operating expenses for the six months ended September 30, 2009 increased to $1,409,897 from $449,783 for the six months ended September 30, 2008 representing an increase of $960,114

The increase in sales is attributed to various factors. The company has begun exhibiting globally at prominent and significant IT and Voip exhibitions. Presence at shows increases awareness to the company’s broad spectrum of its software products and modules. Prior to the exhibitions, in addition to advertising the company sends e-mails to its entire data base inviting its clientele. The current Voipswitch clients that attend are given a demo of the company’s new features and modules and are given the opportunity to upgrade their features.

In the last few months Voiceserve’s Voipswitch softswitch has expanded its modules. It has added three different types of mobile dialers. Windows, android and the apple dialers. This allows connectivity to the Voipswitch softphone not only from a PC but even from a mobile phone whilst in Wifi, 3G or edge environment. These new added modules contributed to an increase in sales. The modules are easily added to current Voipswitch softwares, and can also be downloaded onto competitor’s platforms. The mobile dialer purchaser once having added the feature onto the softswitch can thereby expand his operations dramatically.
The company advertises on Google via pay per click. A perspective Voip switch client, who enters in Google the word Voipswitch will see the companies details. Thereafter an enquiry will be sent to be followed up by the sales team. Due to increase demand the company has increased its budget paying google for this feature and has seen an increase in sales from this sales front as well.

The increased costs in sales are due to an increase in sales. The company has increased its advertising budget on google, a major component promoting the Voipswitch features globally.  Consultancy fees have risen due to the fact that the company has increased its customer support services. Technicians have also been commissioned to enhance the current modules, and venture into new VOIP arenas. Exhibiting nearly every second month has added additionally to the companies expenses. A rise in the SG and A is due to the rise in travel costs and hotels. An average of four to five personnel attends the exhibitions in order to accommodate the visitors. Preparation of the stands at exhibitions, which are custom made to attract the potential clientele are additional costs that contribute to the rise in the SG and A. Costs have also risen due to the sale of the dialers. For every Symbian dialer sold for example a fee is payable to Symbian.

Liquidity and Capital Resources
 
As of September 30, 2009 we had $156,283 in cash. A substantial amount of cash will be required in order to grow operations over the next twelve months. Based upon our current cash we may not be able to meet our current expenses and may need additional capital. We intend to seek advice from investment professionals on how to obtain additional capital and believe that by being a public entity we will be more attractive to sources of capital. In addition, we will need to raise additional capital to continue our operations past 12 months, and there is no assurance we will be successful in raising the needed capital. Currently we have no material commitments for capital expenditures. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern
 
 
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Investment agreement

On August 20, 2007, VoiceServe entered into an Investment Agreement with Dutchess Private Equities Fund, Ltd. (the “Investor”).  Pursuant to this Agreement, the Investor shall commit to purchase up to $10,000,000 of our common stock over the course of thirty-six (36) months.  The amount that we shall be entitled to request from each purchase (“Puts”) shall be equal to, at our election, either (i) up to $250,000 or (ii) 200% of the average daily volume (U.S. market only) of the common stock for the ten (10) trading days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing bid prices immediately preceding the Put Date.  The Put Date shall be the date that the Investor receives a put notice of a drawn down by us.  The purchase price shall be set at ninety-three percent (93%) of the lowest closing Best Bid price of the Common Stock during the pricing period.  The pricing period shall be the five (5) consecutive trading days immediately after the put notice date.  There are put restrictions applied on days between the put date and the closing date with respect to that particular put.  During this time, we shall not be entitled to deliver another put notice.

In connection with the Agreement, we entered into a Registration Rights Agreement with the Investor (”Registration Agreement”).  Pursuant to the Registration Agreement, we were obligated to file a registration statement with the Securities and Exchange Commission (“SEC”) covering 2,335,550 shares of the common stock underlying the Investment Agreement within 15 days after the execution date.  We filed a registrations statement with the SEC covering the Investor shares on October 4, 2007, which was then declared effective on November 6, 2007.

Critical Accounting Pronouncements

Our significant accounting policies are summarized in Note 2 of our financial statements included in our report on Form 10-KSB.

We have adopted the following accounting standards. While all of these significant accounting policies impact our financial condition, our views of these policies are critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would have materially effected our results of operations, financial position or liquidity for the periods presented in this report.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates.  The Company does not undertake any specific actions to limit those exposures.
 
Item 4 Controls and Procedures
 
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CAO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in internal controls
 
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended September 30, 2009  that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.
  
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.

Item 1A. Risk Factors.

Not applicable because we are a smaller reporting company.
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
 
None
 
Item 3.    Defaults Upon Senior Securities.
 
None

Item 4.   Submission of Matters to a Vote of Security Holders.
  
None.

Item 5.   Other Information.
 
None.

Item 6.   Exhibits.
 
 Exhibit Number
 Descriptions
   
31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
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SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 
 
VOICESERVE, INC.
  
       
Date: November 17, 2009
By:
/s/  Michael Bibelman
  
   
Michael Bibelman
  
   
Chief Executive Officer
  
 
 
Date: November 17, 2009
By:
/s/ Aron Sandler
  
   
Chief Financial Officer and Principal
  
   
Accounting Officer
  
       
 
 
 
 
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