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EX-32.1 - CERTIFICATION - VOICESERVE INCf10q0910a1ex32i_voiceserve.htm
EX-31.1 - CERTIFICATION - VOICESERVE INCf10q0910a1ex31i_voiceserve.htm
EX-32.2 - CERTIFICATION - VOICESERVE INCf10q0910a1ex32ii_voiceserve.htm
EX-31.2 - CERTIFICATION - VOICESERVE INCf10q0910a1ex31ii_voiceserve.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
 
Amendment No. 1 to 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, 2010
 
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.)
 
Grosvenor House, 1 High Street
Middlesex
England
 
HA8, 7TA
(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 12, 2010: 36,104,429 shares of common stock.

 
 

 
 
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
   
Item 1.      Financial Statements
F- 1
Item 2.      Management’s Discussion and Analysis or Plan of Operation
1
Item 3.      Quantitative and Qualitative Disclosures About Market Risk
7
Item 4T.    Controls and Procedures
7
   
PART II -OTHER INFORMATION
 
   
Item 1.      Legal Proceedings.
9
Item 1A.   Risk Factors.
9
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds.
9
Item 3.      Defaults Upon Senior Securities.
9
Item 4.      Removed and Reserved.
9
Item 5.      Other Information.
9
Item 6.      Exhibits
9
   
SIGNATURES
10
 
 
 

 
 
 EXPLANATORY NOTE
 
This Form 10-Q/A (“Amendment No. 1”) amends the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2010, filed with the Securities and Exchange Commission on November 15, 2010 (the “Quarterly Report”). The purpose of this Amendment No. 1 is to amend the following items in the Quarterly Report:
 
 
1.
Item 2. “Management’s Discussion and Analysis or Plan of Operation,” is amended for the removal of the “Results of Operations for the First Quarter of Fiscal Years 2010 and 2009 ended June 30, 2010 and 2009, respectively.”
     
 
2.
Item 4(T).  “Controls and Procedures,” is amended to disclose our officers’ conclusion that our disclosure controls are ineffective.
 
This Amendment No. 1 has no effect on the Registrant’s consolidated financial statements. Except as described above, this amendment does not amend, update or change any other items or disclosures contained in the Original Report or otherwise reflect events that occurred subsequent to the filing of the Original Report.
 
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Original Report, have been amended, 
 
 
 

 
 
PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements

Financial Statements:
 
Page
  Consolidated Balance Sheets as of September 30, 2010 (Unaudited) a nd March 31, 2010
F-2
  Consolidated Statements of Operations for the three months ended  September 30, 2010 and 2009 (Unaudited)
F-3
  Consolidated Statement of Changes in Stockholders’ Equity  for the three months ended September 30, 2010 (Unaudited)
F-4
  Consolidated Statements of Cash Flows for the three months ended September 30, 2010 and 2009 (Unaudited)
F-5
  Notes to Consolidated Financial Statements (Unaudited)
F-6
 
 
 
 
F-1

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 
   
September 30, 2010
   
March 31, 2010
 
   
(Unaudited )
       
Assets
           
             
Current assets:
           
Cash and cash equivalents
 
$
533,471
   
$
218,438
 
Accounts receivable, net of allowance for doubtful accounts of $30,000 and $0, respectively
   
98,885
     
32,839
 
Prepaid expenses and other current assets
   
17,143
     
16,901
 
                 
Total current assets
   
649,499
     
268,178
 
                 
Property and equipment, net of accumulated depreciation of $64,848 and $60,227, respectively
   
52,562
     
11,662
 
Intangible assets, net of accumulated amortization of $622,917 and $507,917, respectively
   
2,108,874
     
2,223,874
 
                 
Total assets
 
$
2,810,935
   
$
2,503,714
 
                 
Liabilities and Stockholders’ Equity
               
                 
Current liabilities:
               
Accounts payable
 
$
286,522
   
$
256,458
 
Accrued expenses payable
   
58,800
     
57,705
 
Deferred software license fees
   
276,499
     
245,666
 
Loans payable to related parties
   
35,471
     
34,212
 
Due sellers of VoipSwitch Inc.
   
150,000
     
150,000
 
Total current liabilities
   
807,292
     
744,041
 
Liability for common stock purchase warrants
   
302,634
     
 
                 
Total liabilities
   
1,109,926
     
744,041
 
                 
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 36,104,429
   (including 900,000 shares committed to be issued) and 32,402,935 shares, respectively
   
36,104
     
32,403
 
Additional paid-in capital
   
5,181,191
     
4,733,537
 
Deficit
   
(3,460,849
)
   
(2,994,155
)
Accumulated other comprehensive income (loss)
   
(55,437
)
   
(12,112
)
                 
Total stockholders’ equity
   
1,701,009
     
1,759,673
 
                 
Total liabilities and stockholders’ equity
 
$
2,810,935
   
$
2,503,714
 
 
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,
 
   
2010
   
2009
   
2010
   
2009
 
Operating revenues:
                       
Software license fees
 
$
953,114
   
$
725,709
   
$
1,957,211
   
$
1,363,700
 
Revenues from communications air time and devices
   
81,611
     
24,074
     
151,474
     
47,987
 
                                 
                                 
Total operating revenues
   
1,034,725
     
749,783
     
2,108,685
     
1,411,687
 
                                 
Cost of operating revenues:
                               
Software license fees
   
457,197
     
218,901
     
872,418
     
424,983
 
Communications airtime and devices
   
96,732
     
36,834
     
134,433
     
78,706
 
                                 
Total cost of operating revenues
   
553,929
     
255,735
     
1,006,851
     
503,689
 
                                 
Gross profit
   
480,796
     
494,048
     
1,101,834
     
907,998
 
                                 
Operating expenses:
                               
Selling, general and administrative expenses (including stock-based compensation
   of $287,398 $7,845, $308,462 and $387,110, respectively)
   
1,107,232
     
551,529
     
1,724,116
     
1,409,897
 
                                 
Total operating expenses
   
1,107,232
     
551,529
     
1,724,116
     
1,409,897
 
                                 
Income (loss) from operations
   
(626,436
)
   
(57,481
)
   
(622,282
)
   
(501,899
)
                                 
Income from revaluation of liability for common stock purchase warrants
   
33,120
     
     
154,974
     
 
Interest income
   
614
     
     
614
     
1
 
Interest expense
   
499
     
3
     
     
(20
)
                                 
Income (loss) before income taxes
   
(592,203
)
   
(57,478
)
   
(466,694
)
   
(501,918
)
                                 
Income taxes (benefit)
   
     
     
     
 
                                 
Net income (loss)
 
$
(592,203
)
 
$
(57,478
)
 
$
(466,694
)
 
$
(501,918
)
                                 
Net income (loss) per share - basic and diluted
 
$
(0.02
)
 
$
(0.00
)
 
$
(0.01
)
 
$
(0.02
)
                                 
Weighted average number of shares outstanding - basic and diluted
   
35,204,429
     
32,402,935
     
34,370,363
     
31,578,760
 
 
See notes to consolidated financial statements.
 
 
F-3

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
Six Months Ended September 30, 2010
(Unaudited)
 

                     
Accumulated
       
   
Common Stock,
   
Additional
         
Other
   
Total
 
   
$.001 par value
   
Paid-In
         
Comprehensive
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Income (Loss)
   
Equity
 
                                     
 
                                   
Balances, March 31, 2010
   
32,402,935
   
$
32,403
   
$
4,733,537
   
$
(2,994,155
)
 
$
(12,112
)
 
$
1,759,673
 
                                                 
Private placement of shares and warrants,
   less $89,499 costs and less $457,608
   attributable to warrants classified as liabilities
   
2,760,000
     
2,760
     
140,133
     
     
     
142,893
 
                                                 
Shares issued for services
   
941,494
     
941
     
157,109
     
     
     
158,050
 
                                                 
Stock options expense
   
     
     
150,412
     
     
     
150,412
 
                                                 
Foreign currency translation adjustment
   
     
     
     
     
(43,325
)
   
(43,325
)
                                                 
Net income (loss)
   
     
     
     
(466,694
)
   
     
(466,694
)
                                                 
Balances, September 30, 2010
   
36,104,429
   
$
36,104
   
$
5,181,191
   
$
(3,460,849
)
 
$
(55,437
)
 
$
1,701,009
 
 
See notes to consolidated financial statements.
 
 
F-4

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
             
   
Six Months Ended September 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net income (loss)
 
$
(466,694
)
 
$
(501,918
)
Adjustments to reconcile net income (loss) to net
               
cash provided by (used in) operating activities:
               
Stock-based compensation
   
308,462
     
387,110
 
Depreciation of property and equipment
   
4,621
     
7,608
 
Amortization of intangible assets
   
115,000
     
115,000
 
Income from revaluation of liability for common stock purchase warrants
   
(154,974
)
   
 
Changes in operating assets and liabilities:
               
Accounts receivable, net
   
(66,046
)
   
(50,209
)
Prepaid expenses and other current assets
   
(242
)
   
(37,346
)
Accounts payable
   
30,064
     
131,264
 
Accrued expenses payable
   
1,095
     
(2,867
)
Deferred software license fees
   
30,833
     
90,173
 
                 
Net cash provided by (used in) operating activities
   
(197,881
)
   
138,815
 
                 
Cash flows from investing activities:
               
Acquisition of VoipSwitch Inc.
   
     
(88,000
)
Purchases of property and equipment
   
(45,521
)
   
(7,339
)
                 
Net cash provided by (used in) investing activities
   
(45,521
)
   
(95,339
)
                 
Cash flows from financing activities:
               
Proceeds from private placement of shares and warrants, less $89,499 offering costs
   
600,501
     
 
Increase (decrease) in loans payable to related parties
   
1,259
     
(24,436
)
                 
Net cash provided by (used in) financing activities
   
601,760
     
(24,436
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(43,325
)
   
(37,829
)
                 
Increase (decrease) in cash and cash equivalents
   
315,033
     
(18,789
)
                 
Cash and cash equivalents, beginning of period
   
218,438
     
175,072
 
                 
Cash and cash equivalents, end of period
 
$
533,471
   
$
156,283
 
                 
Supplemental disclosures of cash flow information:
               
                 
Interest paid
 
$
   
$
20
 
                 
Income taxes paid
 
$
   
$
 
 
See notes to consolidated financial statements.
 
 
F-5

 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(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.

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 licensed 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, including Limited (since February 20, 2007) and VoipSwitch (since January 15, 2008).  In 2010, VoiceServe formed two additional subsidiaries:  VoipSwitch Inc., a Delaware corporation, and VoipSwitch AG, a Swiss corporation.

Limited is engaged in the telephone communications business.  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 and 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 (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
 
 
F-6

 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)
 
NOTE 2 – INTERIM FINANCIAL STATEMENTS

The unaudited financial statements as of September 30, 2010 and for the six months ended September 30, 2010 and 2009 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 September 30, 2010 and the results of operations and cash flows for the six months ended September 30, 2010 and 2009.  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, 2010 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending March 31, 2011.  The balance sheet at March 31, 2010 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, 2010 as included in our report on Form 10-K/A filed November 10, 2010.

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, 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, 2010
(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 “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. The balance remaining on the “contingent consideration” notes payable at September 30, 2010 is $313,000.
 
 
F-8

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)

NOTE 4 – INTANGIBLE ASSETS, NET

Intangible assets, net consisted of:
 
   
September 30,
   
March 31,
 
   
2010
   
2010
 
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
     
531,791
 
                 
Total
   
2,731,791
     
2,731,791
 
                 
Accumulated amortization
   
(622,917
)
   
(507,917
)
                 
Intangible assets, net
 
$
2,108,874
   
$
2,223,874
 
 
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, 2010 and 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.
 
 
F-9

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)
 
Expected future amortization expense for acquired intangible assets as of September 30, 2010 follows:

Year ended March 31,
 
Amount
 
2011
 
$
115,000
 
2012
   
230,000
 
2013
   
225,833
 
2014
   
210,000
 
2015
   
210,000
 
Thereafter
   
586,250
 
         
Total
 
$
1,577,083
 
 
NOTE 5 – DEFERRED SOFTWARE LICENSE FEES

As described in Note 1, the licenses of the VoipSwitch systems generally include certain postcontract customer support (“PCS”).  In accordance with Accounting Standards Codification (“ASC”) Topic 985-605-25, “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, 2010 and 2009 were accounted for as follows:
 
   
Six Months Ended September 30,
 
   
2010
   
2009
 
Balance, beginning of period
 
$
245,666
   
$
121,993
 
Additions
   
197,900
     
187,873
 
Recognized as revenue
   
(167,067
)
   
(97,700
)
                 
Balance, end of period
 
$
276,499
   
$
212,166
 
 
 
F-10

 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)

NOTE 6 – LOANS PAYABLE TO RELATED PARTIES

Loans payable to related parties consisted of:
   
September 30, 2010
   
March 31, 2010
 
Due chairman of the board of directors
 
$
20,129
   
$
19,415
 
Due former chief operational officer
   
15,264
     
14,722
 
Due former chief financial officer
   
78
     
75
 
                 
Total
 
$
35,471
   
$
34,212
 

The loans payable to related parties are all non-interest bearing, unsecured, and due on demand.

NOTE 7 – DUE SELLERS OF VOIPSWITCH INC.

The $150,000 notes payable due to the sellers of VoipSwitch Inc, (see Note 3) are non-interest bearing and due on demand.

NOTE 8 – LIABILITY FOR COMMON STOCK PURCHASE WARRANTS

As part of the private placement which closed on May 26, 2010 (see Note 9), the Company issued a total of 1,380,000 warrants to certain accredited investors.  Each warrant entitles the holder to purchase one share of common stock at a price of $0.50 per share (the “Exercise Price”) to May 26, 2015.
 
 
F-11

 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)
 
 
The Exercise Price of the warrants is to be adjusted in the event of any stock splits or stock dividends or in the event that the Company issues or sells any shares of common stock, options, warrants or any convertible instruments (other than exempted issuances) at an effective price per share which is less than the Exercise Price. Accordingly, in accordance with EITF Issue No. 07-05, "Determining whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock", the Company reflected the $457,608 fair value of the warrants at May 26, 2010 (calculated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.45 per share, exercise price of $0.50 per share, risk-free interest rate of 2.06%, term of five years, and expected volatility of 100%) as a liability and will remeasure the fair value of the warrants each quarter, adjust the liability balance, and reflect changes in operations as "income( expense) from revaluation of liability for common stock purchase warrants”.
 
Below is a reconciliation of the change in the fair values of the warrants from May 26, 2010 to September 30, 2010.
 
   
Shares
   
Fair
 
   
Equivalent
   
Value
 
Balance, May 26, 2010
    1,380,000     $ 457,608  
Revaluation credited to operations
          (121,854 )
Balance, June 30, 2010
    1,380,000       335,754  
Revaluation credited to operations
          (33,120 )
Balance, September 30, 2010
    1,380,000     $ 302,634  
 
NOTE 9 – 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, which was calculated based on the nearest day trading price of $0.25 per share and a 50% restricted stock discount, is included in selling, general and administrative expenses in the three months ended June 30, 2009.

Effective April 2010, VoiceServe issued 41,494 shares of its common stock to a consultant for services rendered.  The $10,000 estimated fair value of the shares is included in selling, general and administrative expenses in the three months ended September 30, 2010.

On May 26, 2010, VoiceServe closed on the sale to certain accredited investors of a total of 2,760,000 shares of common stock at a price of $0.25 per share and 1,380,000 warrants to purchase 1,380,000 shares of common stock, for $690,000 gross proceeds ($600,501 net proceeds after deducting costs of the private placement). Each warrant (see Note 8) entitles the holder to purchase one share of common stock at a price of $0.50 per share (the "Exercise Price") to May 26, 2015.
 
 
F-12

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)

On September 30, 2010, VoiceServe committed to issue a total of 900,000 shares of its common stock to its new chief financial officer (300,000 shares) and to two new members of the Board of Directors (300,000 shares each) pursuant to the employment agreement and director agreements discussed in Note 12.  The $148,050 estimated fair value of the shares, which was calculated based on the closing trading price of $0.329 per share and a 50% restricted stock discount, is included in selling, general and administrative expenses in the three months ended September 30, 2010.

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.

On January 4, 2010, VoiceServe granted non-qualified stock options to 2 service providers exercisable into a total of up to 200,000 shares of common stock at an exercise price of $0.13 per share to January 4, 2015.  The options vest 2/3 on January 4, 2012 and 1/3 on January 4, 2013. The $39,520 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.24 share price, (ii) 5 year term, (iii) 100% expected volatility, and (iv) 2.65% risk free interest rate) is being expensed ratably over the three year requisite service period.

Effective July 26, 2010, VoiceServe committed to grant non-qualified stock options exercisable into up to a total of 500,000 shares of common stock at an exercise price of $0.25 per share to its president and chairman (250,000 options) and chief executive officer (250,000 options) pursuant to the employment agreements discussed in Note 12.  The $128,200 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions:  (i) $0.33 share price, (ii) term of 1773 days, (iii) 100% expected volatility, and (iv) 1.7037% risk free interest rate) was expensed and is included in selling, general and administrative expenses in the three months ended September 30, 2010.

Stock options expense for the six months ended September 30, 2010 and 2009 was $150,412 and $12,110, respectively. As of September 30, 2010, there was $68,154 of total unrecognized compensation cost relating to unexpired stock options. That cost is expected to be recognized in the years ending March 31 2011, 2012, and 2013 in the amounts of $22,090, $36,030, and $10,034, respectively.
 
 
F-13

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)

NOTE 10 – INCOME TAXES

No provisions for income taxes were recorded in the six months ended September 30, 2010 and 2009 since the Company didn’t have any income subject to income tax (after taking into account available net operating loss carryforwards in the respective tax jurisdictions) 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, 2010 will be realized.  Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at September 30, 2010.  The Company will continue to review this valuation allowance and make adjustments as appropriate.

NOTE 11 – RELATED PARTY TRANSACTIONS

For the six months ended September 30, 2010 and 2009, consulting fees paid to officers, directors, and their affiliates totaled $322,519 and $339,484, respectively.  These fees are included in selling, general, and administrative expenses in the accompanying statements of operations.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Registration Rights Agreement
 
In connection with the private placement which closed May 26, 2010 (see Note 9), the Company and the investors executed a Securities Purchase Agreement and a Registration Rights Agreement. Among other things, the Registration Rights Agreement provides that the Company will prepare and file with the SEC a Registration Statement covering the resale of the Registrable Securities and use its commercially reasonable efforts to cause it to be declared effective. If the Registration Statement is not filed by July 30, 2010 or if the Registration Statement filed is not declared effective by the SEC within certain time periods (by December 27, 2010 in the event of a "full review" by the SEC) and the Company has not exercised its reasonable best efforts to secure the Registration Statement's effectiveness with the SEC, the Registration Agreement provides that the Company will pay monthly (until cured) partial liquidated damages to the investors equal to 1% of the purchase price paid by the investors, subject to a maximum of 10% of the purchase price paid by the investors.
 
 
F-14

 

VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)

Employment and Director Agreements

On June 4, 2010, VoiceServe, Inc. executed employment agreements with (i) its President and Chairman, Alexander Ellinson, and (ii) its Chief Executive Officer, Michael Bibelman. Each agreement has a term of five (5) years and each provides for (i) an annual base salary of $240,000, (ii) an annual bonus of up to 100% of the base salary as determined in the sole discretion of the Board of Directors, and (iii) annual grants of stock options under the Company's Equity Incentive Stock Plan to purchase 250,000 shares of common stock at $0.25 per share for the first year, which shall occur on or before July 26, 2010, and at a 25% discount off the price on each June 4 thereafter in 2011, 2012, 2013, and 2014 (which vest at such time as approved by the Board of Directors). The Board has not yet approved the initial grant of the 250,000 common stock share options, which was to occur on or before July 26, 2010, for either Mr. Ellison or Mr. Bibelman.

Both employment agreements also provide for other employee benefits, such as an allowance for leasing a car for the Company or the Company providing one, healthcare insurance, vacation and other benefits provided in accordance with Company policy. In addition, each agreement contains provisions concerning early termination of the executive for death, disability, or with or without cause by the executive. In the event of death or disability, the Company is obligated to pay three months base salary plus accrued benefits. In the event of a termination of the executive "without cause," the Company is obligated to pay each executive, in lieu of "severance payments," his base pay and bonus, including percentage of profits, for the term in which the termination occurs for 36 months after the termination date in accordance with Company payroll practices, and maintain other benefits for that executive also for that 36 month period. Finally, the Company is obligated to pay the exercise price for the stock options to be granted as described in the preceding paragraph and the Company is required to issue 250,000 shares of common stock to the terminated executive with demand registration rights.

On September 30, 2010, VoiceServe, Inc. executed an employment agreement with Alfred Stefansky, its concurrently appointed Chief Financial Officer. The agreement has a term of five (5) years and provides for (i) a monthly base salary of $8,000, (ii) an annual bonus of up to 100% of the base salary as determined in the sole discretion of the Board of Directors, and (iii) a one-time issuance of 300,000 restricted shares of Company common stock. Additionally, the agreement provides that the Company shall provide standard health insurance coverage for the executive and each individual family member and the Executive shall be eligible to participate in any employee benefit plans of the Company. Either party may terminate the agreement without cause upon 60 days prior written notice. In the event of death or disability, the Company is obligated to pay three months base salary plus accrued benefits.

 
F-15

 
 
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)

Also on September 30, 2010, VoiceServe, Inc, executed director agreements with Michael Taylor and Andrew Millet, concurrently appointed members of the Board of Directors. Both agreements have terms of one year, subject to a one year renewal term upon reelection by a majority of the Company stockholders. Both agreements provide for (i) a monthly retainer of $1,000 and (ii) a one-time issuance of 300,000 restricted shares of Company common stock. Additionally, the agreements provide that the Company shall provide reimbursements for all reasonable out-of- pocket expenses incurred.

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 agreement

Limited rents office space at monthly rentals of £710 (or $1,117 translated at the September 30, 2010 exchange rate).  For the six months ended September 30, 2010 and 2009, rent expense was $6,480 and $6,772, respectively.
 
 
F-16

 
 
Item 2.        Management’s Discussion and Analysis or Plan of Operation
   
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements 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
 
The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of Voiceserve Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements (“Notes”).

The Company was founded 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. Voiceserve Limited is a global Internet communications company that makes it possible for anyone with an Internet connection to make low cost, high quality voice calls over the Internet. Following the merger, we adopted Voiceserve Limited’s business plan, and began conducting business as a global Internet communications company. We 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 each have over 15 years of experience in the telecommunications industry.
 
We generate revenue by developing, manufacturing, licensing, and supporting a wide range of VoIP software products and services for many different types of devices, including a wide range of cellular telephones. Their careers began in 1991 with Econophone Inc. (“Econophone”) a marketer of international “call-back” and “calling cards”. The founders worked as independent resellers of calling cards creating markets in Europe and third world countries transmitting the calls via universal 0800 numbers. While working at Econophone, the founders discovered a huge potential in the market for pre-paid calling cards and were one of the first groups in the industry to market such a product in Europe. Our founders introduced, among 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. 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 marketing a comprehensive VoIP solution.
 
 
1

 

Our marketing efforts are focused on VoIP wholesalers termination carriers, retail VoIP providers, Internet providers, including WiFi and WiMax operators, Cable TV networks, GSM providers, telecom resellers, prepaid serve companies, and small-to-medium size companies (businesses, hotels, hospitals, etc.).

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

VoipSwitch is a complete IP telephony system 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 VoIP systems composed of many different parts, the VoipSwitch platform is fully integrated into one application, which 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.  To-date, the Company has successfully installed over 16,000 VoipSwitch systems around the world. The“VoipSwitch Brand” has gained recognition and popularity especially in countries where land-line telecommunication infrastructure are less developed.  Since the Company has increased its participation in telecom conferences and exhibitions over the last year, awareness of its comprehensive VoIP software offering has significantly increased.
 
To further the breadth of VoipSwitch’s system, the Company added VoIP dialers for cellular phones.  Over the last twelve months, the Company has introduced dialers for Blackberry and Apple’s iPhone, in addition to its existing dialers for Symbian (Nokia, Motorola, Samsung, Sony, etc.), Android and Windows® cellular phones.  Subsequent to the September 30, 2010, the fiscal first quarter close, the Company introduced softphone dialers for Apple ,iPads and iPods, enabling the devices to conduct economical VoIP calls, worldwide.
 
The Company cultivates long-term growth of its businesses through technological innovation, engineering excellence, advanced functionality and security, and a commitment to delivering high-quality products and services. VoIPVoIP Our goal is to deliver products that provide the best platform with the lowest total cost of ownership.
 
We will continue to invest in research and development in existing and new lines of business, including IPTV. We will also invest in research and development of advanced technologies for future products. We believe that delivering innovative and high-value solutions through our integrated platform is the key to meeting customer needs and to our future growth.
 
We believe that we have laid a foundation for long-term growth by delivering innovative products, creating opportunities for wholesale and retail partners, and offering a comprehensive VoIP software platform with a low cost of ownership for service providers as well as end users. Our focus in fiscal year 2011 is to build on this foundation, and expand our marketing efforts into North, Central and South America and Asia.
 
Key market opportunities include:
 
VoipSwitch Softswitch Technology. We are focused on delivering consumers softswitch products that we believe are compelling in terms of design, features, and functionality. We also are working to define the next era of VoIP telephony through the development of innovative software that runs on a wide range of devices and connects people quickly and easily to the information, experiences, and communities they care about.
 
Mobile phone VoIP connectivity. The ability to combine the power of VoIP and mobile technology via the Internet represents an opportunity across all our businesses lines. We believe our approach will enable us to deliver new experiences to end users and new value to businesses.
 
Expanding our presence. Through our ability to deliver additional value in VoIP telephony, we believe we are well-positioned to build on our strength. In addition to wholesalers and retailers, we intend to market our VoIP software to small-to-medium size business, hotels, cruise lines, hospitals and schools/universities.
 
 
2

 
 
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:
  
·  
Maintain a strong presence at key telecommunications exhibitions across the world

·  
Further develop our IPTV capabilities with additional full-time programmers hired during the quarter. We expect to introduce an IPTV service to our customers during our third quarter or fourth quarter of the current fiscal year. We believe providing IPTV to our customers will have a material impact on our ability to penetrate market opportunities.
 
·  
Market our VoIP software capabilities to the transportation industry (commercial and leisure), hotel industry, small-to-medium size business and larger commercial enterprises, as well as wholesalers and resellers.
 
·  
Amass a large subscription base for our Call-to-PBX service through Internet advertising and direct marketing through partnerships with transportation providers to the consumer sector.
 
·  
Expand our distribution partnership network throughout North and Latin America.
 
 
3

 
 
RESULTS OF OPERATIONS FOR THE SECOND QUARTERS AND FIRST SIX MONTHS OF FISCAL YEARS
2011 AND 2010 ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009, RESPECTIVELY

The following table presents the statement of operations for the three month periods and six month periods ended September 30, 2010 and September 30, 2009. The discussion following the table is based on these results.
 
   
Three Months Ended September 30,
   
Six Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Operating revenues:
                       
    Software license fees
 
$
953,114
   
$
725,709
   
$
1,957,211
   
$
1,363,700
 
    Revenues from communications air time and devices
   
81,611
     
24,074
     
151,474
     
47,987
 
    Total operating revenues
   
1,034,725
     
749,783
     
2,108,685
     
1,411,687
 
                                 
Cost of operating revenues:
                               
    Software license fees
   
457,197
     
218,901
     
872,418
     
424,983
 
   Communications air time
   
96,732
     
36,834
     
134,433
     
78,706
 
    Total cost of operating revenues
   
553,929
     
255,735
     
1,006,851
     
503,689
 
                                 
Gross profit (loss)
   
480,796
     
494,048
     
1,101,834
     
907,998
 
                                 
Operating expenses:
                               
    Selling, general and administrative expenses, including
                               
    stock-based compensation of $287,398, $7,845,    $308,462 and $387,110, respectively)
   
1,107,232
     
551,529
     
1,724,116
     
1,409,897
 
                                 
       Total operating expenses
   
1,107,232
     
551,529
     
1,724,116
     
1,409,897
 
                                 
Income (loss) from operations
   
(626,436
)
   
(57,481
)
   
(622,282
)
   
(501,899
)
                                 
Income from revaluation of liability for common stock purchase warrants
   
33,120
     
-
     
154,974
     
-
 
Interest income
   
614
     
-
     
614
     
1
 
Interest expense
   
499
     
3
     
-
     
(20
)
                                 
Income (loss) before income taxes
   
(592,203
)
   
(57,478
)
   
(466,694
)
   
(501,918
)
                                 
Income taxes (benefit)
   
-
     
-
     
-
     
-
 
                                 
Net income (loss)
 
$
(592,203
)
 
$
(57,478
)
 
$
(466,694
)
 
$
(501,918
)
                                 
Net income (loss) per share - basic and diluted
 
$
(0.02
 
$
(0.00
)
 
$
(0.01
)
 
$
(0.02
)
                                 
Weighted average number of shares outstanding -
                               
 basic and diluted
   
35,204,429
     
32,402,935
     
34,370,363
     
31,578,760
 
 
 
4

 
 
Total Revenue
 
Operating revenues increased $284,942, or approximately 38% from $749,783 in 2009 to $1,034,725 in 2010. The increase was due to a larger number of licenses of Voipswitch products sold in 2010 due to increased marketing at industry shows and conferences.
 
Cost of Revenues
 
Cost of operating revenues increased $298,194, or approximately 117%, from $255,735 in 2009 to $553,929 in 2010. As a percentage of operating revenues, cost of operating revenues was approximately 54% and 34% in 2010 and 2009, respectively. The increases were due to higher expenditures for product development labor and customer support labor in 2010. Included in the cost of operating revenues is amortization of intangible assets of $100,000 for both 2010 and 2009.
 
Operating Expenses
 
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $555,703, or approximately 101% from $551,529 in 2009 to $1,107,232 in 2010. The increase was primarily due to higher stock-based compensation ($279,553 increase from $7,845 in 2009 to $287,398 in 2010) and higher advertising and marketing expenses ($147,089 increase from $83,372 in 2009 to $230,461 in 2010).
 
Other Income
 
Other income, net increased $34,230 from $3 in 2009 to $34,233 in 2010. The increase was due mainly to the $33,120 income from revaluation of liability for common stock purchase warrants in 2010 ($0 in 2009).
 
Net Income (Loss)
 
Net loss increased $534,725 from $57,478, or $0.00 per share, in 2009 to $592,203, or $(0.02) per share in 2010. The increase was due primarily to higher stock-based compensation and higher advertising and marketing expenses in 2010, as explained in the Selling, General and Administrative Costs section above.
 
Six Months Ended September 30, 2010 compared to Six Months Ended September 30, 2009
 
Total Revenue

Revenues were $2,108,685 for the six month period ended September 30, 2010 and $1,411,687 for the six month period September 30, 2009.  The increase in sales of $696,998 or 49% is primarily attributed to increased marketing at industry shows and conferences, an increase in sales personnel added in June 2010, the addition of softswitch modules during fiscal year 2011, and increased sales to existing clients. The company has been 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.

Cost of Revenues

Cost of revenues for the six month period ended September 30, 2010 was $1,006,851 compared to $503,689 for the same period in 2009.  Gross margin averaged 52% during the first six months of fiscal year 2011 (ended September 30, 2010) compared to 64% during the same period of fiscal 2010.  The reduction is gross margin reflects a temporary pricing strategy as the company moves into new geographic markets and also its strategy to expand its focus on large businesses in addition to small-to-medium size businesses.
 
 
5

 
 
Operating Expenses
 
Selling, General and Administrative Expenses
SG&A for the six month period September 30, 2010 was $1,724,116, which includes stock based compensation of $308,462, compared to $1,409,897 for the same period of the prior fiscal year, which includes stock based compensation of $387,110. Excluding the stock based compensation, SG&A in the current fiscal year period increased $392,867 due to the addition of sales and engineering professionals, increased marketing costs reflecting the company’s increased presence at industry conferences and increased Internet advertising, and the cost of Directors and Officers insurance, which the company added during the first quarter of fiscal 2011. The company added to its engineering staff to support the continued development of leading-edge features including IPTV, instant messaging capabilities for mobile phones and softphone dialers Apple products.

Net Income (Loss)

The Company incurred a net loss for the six month period ending September 30, 2010 of $(466,694) or $(0.01) per basic share compared to a loss of $(501,918) or $(0.02) per basic share for the six month period ended September 30, 2009.  Excluding stock based compensation, the Company incurred a net loss of $(158,232) compared to $(114,808) during the six month periods ended September 30, 2010 and 2009, respectively.  
 
LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2010 we had $553,471 in cash and cash equivalents. On May 26, 2010 the Company raised $690,000 through the sale of shares of Company stock, which was accomplished through advice and support of professional investment consultants.   Additional capital may be required in order to grow and sustain operations over the next twelve months. In addition, unless the Company becomes profitable and begins generating sufficient cash flow, 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. Management believes that, if the Company’s operational cash flow is not sufficient to support its operational and/or its marketing strategy, its short-term capital needs could range between $500,000 and $1,500,000 for which it would most probably seek to raise the capital in the equity markets.

Long term capital needs of the company highly depend upon the amount of time it takes for us to achieve market penetration.  If we are successful in growing market share and developing new markets around the world, it will be necessary for us to hire additional employees to support an expanding client base.  If additional working capital is needed to support an expanded operation, we will seek such capital in the form of debt and/or equity. Management believes that the Company’s long term capital needs could potentially range between $1,500,000 and $3,000,000.
 
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. In the short term, should the release of our new features and modules take longer than we anticipate capital will be required to finance the engineers working on these products. Long term, once the products are fully developed and enhanced, capital will be required to expand the marketing prospects into different regions and markets.
 
 
6

 
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 committed to purchase up to $10,000,000 of our common stock over the course of thirty-six (36) months.  The amount that we were be entitled to request from each purchase (“Puts”) was 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 was to be the date that the Investor receives a put notice of a draw down by us.  The purchase price was to 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 would have been five (5) consecutive trading days immediately after the put notice date.  There were put restrictions applied on days between the put date and the closing date with respect to that particular put.
 
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 registration statement with the SEC covering the Investor shares on October 4, 2007, which was then declared effective on November 6, 2007.

The Company did not exercise any Puts under this agreement, and the Investment Agreement with the Investor expired on August 20, 2010.

CRITICAL ACCOUNTING PRONOUNCEMENTS

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

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 affected our results of operations, financial position or liquidity for the periods presented in this report.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
 
Item 3.   Quantitative And Qualitative Disclosures About Market Risk
 
Market risk is the risk of loss from adverse changes in market prices and interest rates. We do not have substantial operations at this time so they are not susceptible to these market risks.  If, however, we begin to generate substantial revenue, our operations may be materially impacted by interest rates and market prices.

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 not 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.
 
 
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Changes in internal controls
 
Based upon their evaluation, the Company’s CEO and CAO concluded that the Company’s disclosure controls and procedures were not effective as they relate to the disclosure of compensation amounts as reported on our Form 10-K for the fiscal year ended March 31, 2010, filed on June 29, 2010. It was determined that the cause for the misstatement was due to a lack of multiple levels of internal review prior to the filing the Form 10-K with the SEC.    
Our management has been actively engaged in the planning for, and implementation of, remediation measures to address our control deficits and to enhance our overall financial control environment. This is necessary for us to maintain a strong control environment, high ethical standards, and financial reporting integrity.

On September 30, 2010, we appointed Andrew Millet, as the chairmen of our newly formed Audit Committee to mitigate the risk of misstating compensation amounts. Thereafter the figures are reviewed by our auditor.

We intend to consider the results of our remediation efforts and related testing as part of our year-end 2011 assessment of the effectiveness of 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.
 
On May 26, 2010, we closed on the sale to certain accredited investors of a total of 2,760,000 shares of common stock at a price of $0.25 per share and 1,380,000 warrants to purchase 1,380,000 shares of common stock, for $690,000 gross proceeds ($600,501 net proceeds after deducting costs of the private placement). Each warrant entitles the holder to purchase one share of common stock at a price of $0.50 per share to May 26, 2015.  
 
Item 3.    Defaults Upon Senior Securities.
 
None

Item 4.     Removed and Reserved.
  
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: March 1, 2011
By:
/s/  Michael Bibelman
 
   
Michael Bibelman
 
   
Chief Executive Officer
 
 
Date: March 1, 2011
By:
/s/  Aron Sandler
 
   
Chief Financial Officer and Principal
 
   
Accounting Officer
 
 
 
 
 
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