Attached files
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended December 31, 2012
or
|
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 Number: 000-51882
VOICESERVE, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
|
98-0597288
|
|
|
(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
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 x 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. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer o
|
Accelerated Filer o
|
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
|
Smaller Reporting Company x
|
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
There were 48,335,198 shares of the Registrant’s Common Stock outstanding as of February 14, 2013.
VOICESERVE, INC.
QUARTERLY REPORT ON FORM 10-Q
DECEMBER 31, 2012
TABLE OF CONTENTS
|
PART I - FINANCIAL INFORMATION
|
||
|
PAGE
|
||
|
Item 1.
|
Financial Statements
|
F-1 |
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
4 |
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
9 |
|
Item 4.
|
Controls and Procedures
|
9 |
|
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.
|
Mine Safety Disclosures
|
9 |
|
Item 5.
|
Other Information
|
9 |
|
Item 6.
|
Exhibits
|
10 |
|
SIGNATURES
|
11 | |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
CERTAIN TERMS USED IN THIS REPORT
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to VoiceServe, Inc. “SEC” refers to the Securities and Exchange Commission.
|
Item 1.
|
Financial Statements.
|
VOICESERVE, INC. AND SUBSIDIARIES
As of December 31, 2012 (unaudited) and March 31, 2012 (audited)
And for the Three and Nine Months Ended December 31, 2012 (unaudited) and 2011 (unaudited)
|
Page
Number
|
|||
|
Consolidated Balance Sheets as of December 31, 2012 (unaudited) and March 31, 2011 (audited)
|
F-2 | ||
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2012 and 2011 (unaudited)
|
F-3 | ||
|
Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011 (unaudited)
|
F-6 | ||
|
Notes to Consolidated Financial Statements (unaudited)
|
F-7 |
F-1
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||
|
Consolidated Balance Sheets
|
||||||||
|
(Unaudited)
|
||||||||
|
December 31,
|
March 31,
|
|||||||
|
2012
|
2012
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash
|
$
|
340,443
|
$
|
315,774
|
||||
|
Accounts receivable, net of allowance
|
||||||||
|
for doubtful accounts of $0 and $89,662, respectively
|
98
|
106,691
|
||||||
|
Prepaid expenses and other current assets
|
45,803
|
27,714
|
||||||
|
Total current assets
|
386,344
|
450,179
|
||||||
|
Property and equipment, net of accumulated depreciation
|
||||||||
|
of $92,015 and $68,573, respectively
|
10,383
|
7,927
|
||||||
|
Intangible assets, net of accumulated amortization of
|
||||||||
|
$1,140,417 and $967,917 respectively
|
1,722,624
|
1,895,124
|
||||||
|
Total assets
|
$
|
2,119,351
|
$
|
2,353,230
|
||||
|
Liabilities and Stockholders' Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued expenses payable
|
$
|
567,210
|
$
|
430,535
|
||||
|
Deferred software license fees and support
|
201,800
|
181,503
|
||||||
|
Loans payable to related parties
|
38,857
|
38,308
|
||||||
|
Derivative liabilities
|
257,570
|
1,066,808
|
||||||
|
Total liabilities
|
1,065,437
|
1,717,154
|
||||||
|
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
|
||||||||
|
48,335,198 and 44,585,198 shares, respectively
|
48,335
|
44,585
|
||||||
|
Additional paid-in capital
|
8,326,999
|
7,017,095
|
||||||
|
Accumulated deficit
|
(7,308,172
|
) |
(6,359,860
|
)
|
||||
|
Accumulated other comprehensive loss
|
(13,248
|
) |
(65,744
|
) | ||||
|
Total stockholders' equity
|
1,053,914
|
636,076
|
||||||
|
Total liabilities and stockholders' equity
|
$
|
2,119,351
|
$
|
2,353,230
|
||||
See notes to unaudited consolidated financial statements.
F-2
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||
|
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine Months Ended
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Operating revenues:
|
||||||||
|
Software license fees
|
$
|
3,438,522
|
$
|
3,561,386
|
||||
|
Revenues from communications airtime and devices
|
-
|
535
|
||||||
|
Total operating revenues
|
3,438,522
|
3,561,921
|
||||||
|
Cost of operating revenues:
|
||||||||
|
Software license fees
|
2,280,431
|
1,951,897
|
||||||
|
Total cost of operating revenues
|
2,280,431
|
1,951,897
|
||||||
|
Gross profit
|
1,158,091
|
1,610,024
|
||||||
|
Operating expenses:
|
||||||||
|
Selling, general and administrative expenses
|
2,915,232
|
3,017,852
|
||||||
|
Total operating expenses
|
2,915,232
|
3,017,852
|
||||||
|
Loss from operations
|
(1,757,141
|
)
|
(1,407,828
|
)
|
||||
|
Gain (loss) on change in fair value of derivative liabilities
|
809,238
|
(39,822
|
)
|
|||||
|
Interest income
|
84
|
48
|
||||||
|
Interest expense
|
(493
|
) |
(51
|
)
|
||||
|
Loss before income taxes
|
(948,312
|
) |
(1,447,653
|
)
|
||||
|
Income taxes
|
-
|
8,646
|
||||||
|
Net loss
|
$ |
(948,312
|
) | $ |
(1,456,299
|
)
|
||
|
Net loss per share - basic and diluted
|
$
|
(0.02
|
) |
$
|
(0.03
|
)
|
||
|
Weighted average number of shares
|
||||||||
|
outstanding - basic and diluted
|
49,028,471
|
43,153,274
|
||||||
|
Comprehensive loss:
|
||||||||
|
Net loss
|
(948,312
|
)
|
(1,456,299
|
)
|
||||
|
Foreign exchange translation adjustment
|
52,496
|
70,556
|
||||||
|
Comprehensive loss
|
$
|
(895,816
|
)
|
$
|
(1,385,743
|
)
|
||
See notes to unaudited consolidated financial statements.
F-3
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||
|
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
||||||||
|
(Unaudited)
|
||||||||
|
Three Months Ended
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Operating revenues:
|
||||||||
|
Software license fees
|
$
|
815,083
|
$
|
1,380,418
|
||||
|
Revenues from communications airtime and devices
|
-
|
(11
|
)
|
|||||
|
Total operating revenues
|
815,083
|
1,380,407
|
||||||
|
Cost of operating revenues:
|
||||||||
|
Software license fees
|
809,846
|
710,717
|
||||||
|
Communications air time
|
-
|
(3,370
|
) | |||||
|
Total cost of operating revenues
|
809,846
|
707,347
|
||||||
|
Gross profit
|
5,237
|
673,060
|
||||||
|
Operating expenses:
|
||||||||
|
Selling, general and administrative expenses
|
275,352
|
660,773
|
||||||
|
Total operating expenses
|
275,352
|
660,773
|
||||||
|
Income (loss) from operations
|
(270,115
|
)
|
12,287
|
|||||
|
Gain on change in fair value of derivative liabilities
|
1,283,170
|
167,989
|
||||||
|
Interest income
|
11
|
23
|
||||||
|
Interest expense
|
(493
|
)
|
(31
|
)
|
||||
|
Income before income taxes
|
1,012,573
|
180,268
|
||||||
|
Income taxes
|
-
|
8,646
|
||||||
|
Net income
|
$
|
1,012,573
|
$
|
171,622
|
||||
|
Net income per share - basic and diluted
|
$
|
0.02
|
$
|
0.00
|
||||
|
Weighted average number of shares outstanding:
|
||||||||
|
Basic
|
49,404,763
|
44,585,198
|
||||||
|
Diluted
|
50,121,657
|
45,209,775
|
||||||
|
Comprehensive income:
|
||||||||
|
Net income
|
1,012,573
|
171,622
|
||||||
|
Foreign exchange translation adjustment
|
(94,477
|
)
|
50,226
|
|||||
|
Comprehensive income
|
$
|
918,096
|
$
|
221,848
|
||||
See notes to unaudited consolidated financial statements.
F-4
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
|
Consolidated Statements of Changes in Stockholders' Equity
|
||||||||||||||||||||||||
|
Nine Months Ended December 31, 2012
|
||||||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||
|
Common Stock,
|
Additional
|
Other
|
Total
|
|||||||||||||||||||||
|
$0.001 par value
|
Paid-In
|
Accumulated
|
Comprehensive
|
Stockholders'
|
||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income (Loss)
|
Equity
|
|||||||||||||||||||
|
Balances, March 31, 2012
|
44,585,198 | $ | 44,585 | $ | 7,017,095 | $ | (6,359,860 | ) | $ | (65,744 | ) | $ | 636,076 | |||||||||||
|
Common shares issued for services
|
4,950,000 | 4,950 | 1,198,950 | - | - | 1,203,900 | ||||||||||||||||||
|
Shares cancelled
|
(1,200,000 | ) | (1,200 | ) | 1,200 | - | - | - | ||||||||||||||||
|
Stock option expense
|
- | - | 109,754 | - | - | 109,754 | ||||||||||||||||||
|
Foreign currency translation adjustment
|
- | - | - | - | 52,496 | 52,496 | ||||||||||||||||||
|
Net loss
|
- | - | - | (948,312 | ) | - | (948,312 | ) | ||||||||||||||||
|
Balances, December 31, 2012
|
48,335,198 | $ | 48,335 | $ | 8,326,999 | $ | (7,308,172 | ) | $ | (13,248 | ) | $ | 1,053,914 | |||||||||||
See notes to unaudited consolidated financial statements.
F-5
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||
|
Consolidated Statements of Cash Flows
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine Months Ended
|
||||||||
|
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$ | (948,312 | ) | $ | (1,456,299 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Bad debt expense
|
51,589 | 19,945 | ||||||
|
Stock-based compensation
|
1,313,654 | 1,055,531 | ||||||
|
Depreciation
|
23,442 | 3,100 | ||||||
|
Amortization
|
172,500 | 172,500 | ||||||
|
(Gain) loss on change in fair value of derivative liabilities
|
(809,238 | ) | 39,822 | |||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable, net
|
55,004 | (181,600 | ) | |||||
|
Prepaid expenses and other current assets
|
(18,089 | ) | 1,722 | |||||
|
Accounts payable and accrued expenses
|
136,675 | 21,169 | ||||||
|
Deferred software license fees
|
20,297 | 983 | ||||||
|
Net cash used in operating activities
|
(2,478 | ) | (323,127 | ) | ||||
|
Cash flows from investing activities:
|
||||||||
|
Cash paid for purchase of fixed assets
|
(25,898 | ) | - | |||||
|
Net cash used in investing activities
|
(25,898 | ) | - | |||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from sales of common stock, net of offering costs of $41,930
|
- | 456,070 | ||||||
|
Increase (decrease) in loans payable to related parties
|
549 | (752 | ) | |||||
|
Net cash provided by financing activities
|
549 | 455,318 | ||||||
|
Effect of exchange rate changes on cash
|
52,496 | 70,556 | ||||||
|
Net increase in cash
|
24,669 | 202,747 | ||||||
|
Cash, beginning of period
|
315,774 | 141,739 | ||||||
|
Cash, end of period
|
$ | 340,443 | $ | 344,486 | ||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Interest paid
|
$ | 493 | $ | 51 | ||||
|
Income taxes paid
|
- | - | ||||||
|
Noncash investing and financing activities
|
||||||||
|
Common shares cancelled
|
$ | 1,200 | $ | - | ||||
See notes to unaudited consolidated financial statements.
F-6
VOICESERVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
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. 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 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. VoipSwitch Inc. was formed to provide a future North American presence and has had no significant operations to date. VoipSwitch AG was formed to coordinate sales and billing activities from Switzerland and commenced operations in the three months ended December 31, 2010.
Limited is engaged in the telephone communications business from its London, United Kingdom office. Limited offers its software to large enterprises and carriers. The software allows communication through the Company’s exchange via the internet. Since January 15, 2008, Limited has also licensed VoipSwitch software systems.
Basis of Presentation
The unaudited consolidated financial statements as of December 31, 2012 and for the three and nine months ended December 31, 2012 and 2011 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 December 31, 2012 and the results of operations and cash flows for the nine months ended December 31, 2012 and 2011. 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 nine month period ended December 31, 2012 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending March 31, 2013. The balance sheet at March 31, 2012 has been derived from the audited financial statements at that date.
Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the year ended March 31, 2012 as reported in the Form 10K have been omitted. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended March 31, 2012 as included in our report on Form 10-K filed July 16, 2012.
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.
Correction of Prior Year Information
During November 2012, the Company identified an error in the accounting for common shares issued for services during June 2011. The Company incorrectly applied a 50% discount to the market price of the Company’s common stock when determining the fair value of the common shares. This resulted in an adjustment to the previously reported amounts in the consolidated financial statements as of March 31, 2012 and for the nine months ended December 31, 2011.
In addition, during January 2013, the Company identified an error in the accounting for stock options issued for services in prior years. The Company failed to account for or disclose certain stock options. This resulted in an adjustment to the previously reported amounts in the consolidated financial statements as of March 31, 2012 and for the three and nine months ended December 31, 2011.
In accordance with the SEC's Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated this error and, based on an analysis of quantitative and qualitative factors, determined that the error was immaterial to each of the prior reporting periods affected. However, if the adjustments to correct the cumulative effect of the above error had been recorded in the nine months ended December 31, 2012, the Company believes the impact would have been significant and would impact comparisons to prior periods. Therefore, as permitted by SAB 108, the Company corrected, in the current filing, previously reported results as of March 31, 2012 and for the three and nine months ended December 31, 2011.
F-7
The correction impacts the consolidated balance sheet as of March 31, 2012 and the consolidated statements of operations and cash flows for the three and nine months ended December 31, 2011 which were revised to reflect the cumulative effect of the error described above. The tables below summarize the impact of this correction:
|
March 31, 2012
|
||||||||||||
|
Consolidated Balance Sheet:
|
As Reported
|
Adjustments
|
As Restated
|
|||||||||
|
Stockholders' equity:
|
||||||||||||
|
Additional paid-in capital
|
$
|
6,310,662
|
$
|
706,433
|
$
|
7,017,095
|
||||||
|
Accumulated deficit
|
$
|
(5,653,427
|
)
|
$
|
(706,433
|
)
|
$
|
(6,359,860
|
)
|
|||
|
Three Months Ended December 31, 2011
|
||||||||||||
|
Consolidated Statement of Operations and Comprehensive Income (Loss):
|
As Reported
|
Adjustments
|
As Restated
|
|||||||||
|
Operating expenses:
|
||||||||||||
|
Selling, general and administrative expenses
|
$
|
652,796
|
$
|
7,977
|
$
|
660,773
|
||||||
|
Total operating expenses
|
652,796
|
7,977
|
660,773
|
|||||||||
|
Income (loss) from operations
|
20,264
|
(7,977
|
)
|
12,287
|
||||||||
|
Net income (loss)
|
$
|
179,599
|
$
|
(7,977
|
)
|
$
|
171,622
|
|||||
|
Net income (loss) per share - basic and diluted
|
$
|
0.00
|
$
|
(0.00
|
)
|
$
|
0.00
|
|||||
|
Comprehensive income (loss):
|
||||||||||||
|
Net income (loss)
|
179,599
|
(7,977
|
)
|
171,622
|
||||||||
|
Foreign exchange translation adjustment
|
50,226
|
-
|
50,226
|
|||||||||
|
Comprehensive income (loss):
|
$
|
229,825
|
$
|
(7,977
|
)
|
$
|
221,848
|
|||||
|
Nine Months Ended December 31, 2011
|
||||||||||||
|
Consolidated Statement of Operations and Comprehensive Income (Loss):
|
As Reported
|
Adjustments
|
As Restated
|
|||||||||
|
Operating expenses:
|
||||||||||||
|
Selling, general and administrative expenses
|
$
|
2,551,701
|
$
|
466,151
|
$
|
3,017,852
|
||||||
|
Total operating expenses
|
2,551,701
|
466,151
|
3,017,852
|
|||||||||
|
Loss from operations
|
(941,677
|
)
|
(466,151
|
)
|
(1,407,828
|
)
|
||||||
|
Net loss
|
$
|
(990,148
|
)
|
$
|
(466,151
|
)
|
$
|
(1,456,299
|
)
|
|||
|
Net loss per share - basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
|||
|
Comprehensive loss:
|
||||||||||||
|
Net loss
|
(990,148
|
)
|
(466,151
|
)
|
(1,456,299
|
)
|
||||||
|
Foreign exchange translation adjustment
|
71,516
|
-
|
71,516
|
|||||||||
|
Comprehensive loss
|
$
|
(918,632
|
)
|
$
|
(466,151
|
)
|
$
|
(1,384,783
|
)
|
|||
|
Nine Months Ended December 31, 2011
|
||||||||||||
|
Consolidated Statement of Cash Flows:
|
As Reported
|
Adjustments
|
As Restated
|
|||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net loss
|
$
|
(990,148
|
)
|
$
|
(466,151
|
)
|
$
|
(1,456,299
|
)
|
|||
|
Adjustments to reconcile net loss to net
|
||||||||||||
|
cash used in operating activities:
|
||||||||||||
|
Stock-based compensation
|
589,380
|
466,151
|
1,055,531
|
|||||||||
|
Net cash used in operating activities
|
$
|
(323,127
|
)
|
$
|
-
|
$
|
(323,127
|
)
|
||||
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting which contemplates continuity of operations, realization of assets, liabilities, and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has a working capital deficit of $679,093 as of December 31, 2012. This raises substantial doubt as to the Company’s ability to continue as a going concern. 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, the Company will need to raise additional capital to continue operations past 12 months, and there is no assurance the Company 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.
F-8
NOTE 2 – INTANGIBLE ASSETS, NET
|
December 31,
|
March 31,
|
|||||||
|
2012
|
2012
|
|||||||
|
Intangible assets, net, consisted of:
|
||||||||
|
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
|
663,041
|
663,041
|
||||||
|
Total
|
2,863,041
|
2,863,041
|
||||||
|
Accumulated amortization
|
(1,140,417
|
)
|
(967,917
|
)
|
||||
|
Intangible assets, net
|
$
|
1,722,624
|
$
|
1,895,124
|
||||
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 nine months ended December 31, 2012 and 2011, amortization of intangible assets expense was $172,500. $150,000 was included in cost of software license fees and $22,500 was included in selling, general and administrative expenses.
NOTE 3 – DEFERRED SOFTWARE LICENSE FEES AND SUPPORT
The licenses of the VoipSwitch systems generally include certain post contract customer support (“PCS”). In accordance with Financial Accounting Standards Board (“FASB”) 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 $1,000 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) totaled $201,800 and $181,503 as of December 31, 2012 and March 31, 2012, respectively.
NOTE 4 – LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consisted of the following as of December 31, 2012 and March 31, 2012:
|
December 31,
2012
|
March 31,
2012
|
|||||||
|
Due chairman of the board of directors
|
$
|
23,681
|
$
|
22,840
|
||||
|
Due chief operational officer
|
15,097
|
15,389
|
||||||
|
Due former chief financial officer
|
79
|
79
|
||||||
|
Total
|
$
|
38,857
|
$
|
38,308
|
||||
The loans payable to related parties are all non-interest bearing, unsecured, and due on demand.
NOTE 5 – DERIVATIVE LIABILITIES
As part of the private placement which closed on May 26, 2010, 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 through May 26, 2015.
As part of the private placement which closed on June 6, 2011, the Company issued a total of 1,915,385 warrants to certain accredited investors. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share through June 6, 2014.
F-9
The exercise price of these warrants is to be adjusted 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 of these warrants. Accordingly, in accordance with FASB ASC 815, the Company has accounted for these warrants as derivative liabilities. The fair value of the warrants was determined to be $257,570 as of December 31, 2012 resulting in a gain on the change in the fair value of derivative liabilities of $809,238 during the nine months ended December 31, 2012. The fair value of the warrants was determined using a lattice option pricing model and the following key assumptions as of December 31, 2012:
|
●
|
The stock price would fluctuate with the Company’s projected volatility. The projected volatility curve was based on historical volatilities of the Company for the valuation periods. The projected volatility curve was as follows:
|
|
1 year
|
2 year
|
3 year
|
4 year
|
5 year
|
||||||||||||||||
|
December 31, 2012
|
182 | % | 278 | % | 306 | % | 394 | % | 450 | % | ||||||||||
|
●
|
The holder would not exercise the warrant as they become exercisable.
|
|
●
|
The holder would exercise the warrant at maturity if the stock price was above the project reset price.
|
|
●
|
A 10% probability of a reset event and a projected financing each year in December (starting in 2013) at prices approximating 110% of the market.
|
|
●
|
The May 26, 2011 warrants’ $0.50 exercise price is projected to reset to $0.037 at maturity and the June 6, 2011 warrants’ $0.30 exercise price is projected to reset to $0.0.49 at maturity.
|
|
●
|
No warrants have been exercised or expired.
|
Fair Value Measurements
FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 were effective January 1, 2008.
As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The Company uses Level 3 to determine the fair value of its derivative financial instruments.
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2012:
|
Quoted Prices
|
||||||||||||||||
|
in Active
Markets for
|
Significant
|
|||||||||||||||
|
Identical
Assets and
|
Other
Observable |
Significant
Unobservable |
Balance as of
|
|||||||||||||
|
Liabilities
|
Inputs
|
Inputs
|
December 31,
|
|||||||||||||
|
Description
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
2012
|
||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivative financial instruments
|
$
|
-
|
$
|
-
|
$
|
257,570
|
$
|
257,570
|
||||||||
F-10
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of March 31, 2012:
|
Quoted Prices
|
||||||||||||||||
|
in Active
Markets for
|
Significant
|
|||||||||||||||
|
Identical
Assets and
|
Other
Observable |
Significant
Unobservable |
Balance as of
|
|||||||||||||
|
Liabilities
|
Inputs
|
Inputs
|
March 31,
|
|||||||||||||
|
Description
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
2012
|
||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivative financial instruments
|
$
|
-
|
$
|
-
|
$
|
1,066,808
|
$
|
1,066,808
|
||||||||
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments measured at fair value under level 3 on a recurring basis using significant unobservable inputs during the nine months ended December 31, 2012.
|
Fair value at March 31, 2012
|
$
|
1,066,808
|
||
|
Additions during the period
|
-
|
|||
|
Transfer in (out) of Level 3
|
-
|
|||
|
Change in the fair value
|
(809,238)
|
|||
|
Fair value at December 31, 2012
|
$
|
257,570
|
NOTE 6 – STOCKHOLDERS’ EQUITY
Common stock
On April 20, 2012, the Company granted a total of 2,400,000 common shares (1,200,000 shares each) to the Company’s Chief Executive Officer and the Company’s President and Chairman of the Board of Directors for prior services rendered. The fair value of the stock of $626,400 was expensed during the nine months ended December 31, 2012.
Also on April 20, 2012, the Company renewed the director agreements with Michael Taylor and Andrew Millet and granted a total of 600,000 common shares (300,000 shares each). The fair value of the stock of $156,600 was expensed during the nine months ended December 31, 2012.
On April 26, 2012, the Company granted a total of 1,800,000 common shares (600,000 shares each) to a member of the Company’s Board of Directors and to two consultants for prior services rendered. The fair value of the stock of $383,400 was expensed during the nine months ended December 31, 2012.
During August 2012, the Company granted 150,000 common shares to a consultant for prior services rendered. The fair value of the stock of $37,500 was expensed during the nine months ended December 31, 2012.
Stock options
On June 4, 2012, pursuant to employment agreements with its (1) President and Chairman and (2) Chief Executive Officer, the Company granted a total of 500,000 common stock options exercisable at $0.1215 per share. The fair value of the options was determined to be $69,763 using the Black-Scholes option pricing model and the following assumptions: (i) $0.162 share price, (ii) $0.1215 exercise price, (iii) term of 2.5 years, (iv) 177% expected volatility, and (v) 0.35% risk free interest rate. The entire fair value was expensed during the nine months ended December 31, 2012.
On December 21, 2012, pursuant to agreements with Michael Taylor and Andrew Millet, the Company modified existing share awards by exchanging the 1,200,000 common shares (600,000 shares each) granted in prior years for 1,200,000 common stock options (600,000 options each). The options are exercisable at $0.01 per share, vest immediately and expire on December 21, 2022. The fair value of the options was determined to be $130,971 using the Black-Scholes option pricing model and the following assumptions: (i) $0.11 share price, (ii) $0.01 exercise price, (iii) term of 5 years, (iv) 194% expected volatility, and (v) 0.75% risk free interest rate. The fair value of the options on the date of the modification of $130,971 was less than the fair value of the outstanding shares on the date of the modification of $132,000. As such, there was no gain recorded for the exchange during the nine months ended December 31, 2011. The 1,200,000 common shares were returned to the Company and cancelled.
Total option expense was $109,754 during the nine months ended December 31, 2012 consisting of the $69,763 fair value of the options granted on June 4, 2012 and $39,991 from options granted on January 4, 2010, July 4, 2011 and December 22, 2011. As of December 31, 2012, there was $46,444 of unamortized stock option expense from the options granted on January 4, 2010, July 4, 2011 and December 22, 2011 that will be expensed through December 22, 2014.
A summary of stock option activity for the nine months ended December 31, 2012 is as follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Options
|
Exercise Price
|
|||||||
|
Outstanding - March 31, 2012
|
2,390,000
|
$
|
0.20
|
|||||
|
Granted
|
1,700,000
|
0.04
|
||||||
|
Forfeited/canceled
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Outstanding - December 31, 2012
|
4,090,000
|
$
|
0.13
|
|||||
|
Exercisable – December 31, 2012
|
3,681,667
|
$
|
0.12
|
|||||
The weighted average remaining life of the outstanding options as of December 31, 2012 was 4.80 years and the intrinsic value of the exercisable options as of December 31, 2012 was $84,000.
F-11
At December 31, 2012, outstanding stock options consisted of the following:
|
Number of
|
|||||||||
|
Stock
|
Expiration
|
||||||||
|
Date of Grant
|
Options
|
Exercise Price
|
Date
|
||||||
|
December 23, 2008
|
915,000
|
$ |
0.1300
|
December 23, 2013
|
|||||
|
January 4, 2010
|
100,000
|
0.1300
|
January 4, 2015
|
||||||
|
June 26, 2010
|
500,000
|
0.2500
|
June 26, 2015
|
||||||
|
June 4, 2011
|
500,000
|
0.2385
|
June 4, 2016
|
||||||
|
July 4, 2011
|
200,000
|
0.2600
|
July 4, 2016
|
||||||
|
December 22, 2011
|
175,000
|
0.2300
|
December 22, 2016
|
||||||
|
June 4, 2012
|
500,000
|
0.1215
|
June 4, 2017
|
||||||
|
December 21, 2012
|
1,200,000
|
$ |
0.0100
|
December 21, 2022
|
|||||
|
Total
|
4,090,000
|
||||||||
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Registration Rights Agreements
In connection with a private placement which closed May 26, 2010, 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. The Registration Statement was declared effective by the SEC on April 25, 2011.
Potential claims for liquidated damages relating to this Registration Rights Agreement, which the Company does not believe are probable of assertion, approximate $41,400 at December 31, 2012 and March 31, 2012.
In connection with the private placement which closed May 6, 2011 and June 6, 2011, 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 6, 2011 or if the Registration Statement filed is not declared effective by the SEC within certain time periods (by December 2, 2011 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. The Registration Statement has not yet been filed.
Potential claims for liquidated damages relating to this Registration Rights Agreement, which the Company does not believe are probably of assertion, approximate $49,800 and $44,820 at December 31, 2012 and March 31, 2012, respectively.
F-12
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Statement on Forward-Looking Information.”
Overview
We were founded December 9, 2005 as 4306, Inc. On February 20, 2007, pursuant to a share exchange agreement (the “Share Exchange”), VoiceServe Limited became our wholly owned subsidiary. Following the Share Exchange, we adopted VoiceServe Limited’s business plan and began conducting business as a global Internet communications company. We are now 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. Immediately following the Share Exchange, 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. Our founders began their careers 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.
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, we acquired all of the issued and outstanding ordinary shares of VoIPSwitch 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 our common stock valued at $0.48 per share or $1,800,000. Payment of the monthly installments of the $600,000 notes payable was contingent upon and limited each month to the future monthly net income of VoIPSwitch. Accordingly, pursuant to ASC 805, 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. As payments of the $600,000 notes payable were made, such paid amounts were added to goodwill.
On December 7, 2010, pursuant to a verbal agreement on October 19, 2010, VoiceServe issued a total of 2,250,000 shares of its common stock to the three sellers of VoipSwitch in full and final satisfaction of debt totaling $463,000, consisting of the $150,000 demand note payable and the remaining $313,000 “contingent consideration” potential amount due the three sellers. The $131,250 excess of the $281,250 estimated fair value of the shares, which was calculated based on the October 19, 2010 nearest day closing trading price of $0.25 per share and a 50% restricted stock discount (2,250,000 shares x $0.125 [50% discount applied to 0.25 per share price] per share = $281,250), over the $150,000 demand note payable was 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 easy to manage. All elements that are necessary for VoIP implementation are already built in. All the features are integrated in one multiple server based application. To date, we have 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 increasing our participation in telecom conferences and exhibitions over the last year, awareness of our comprehensive VoIP software offering has significantly increased.
To further the breadth of VoipSwitch’s system, we added VoIP dialers for cellular phones. Over the last twelve months, we have enhanced its 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. We have also introduced video conferencing for Apple, iPads and iPods, enabling the end-users to conduct economical VoIP video conference calls, worldwide via the internet.
4
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. 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 Video On Demand. 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 2013 is to build on this foundation, and expand our marketing efforts into North, Central and South America and Asia.
During the quarter ended December, 31 2012 the company launched its new eRCS dialers under the brand name “Vippie”; and currently is receiving 2000 downloads daily.
Although the results for the quarter were disappointing, management is confident about the next quarter. The underlying customer base remains strong. The company also signed a large contract with a major global carrier; and there were orders in December which totaled in excess of $500,000 that were not recognized due to non-payment. If and when these do get paid then they will be recognized.
Key market opportunities:
VoipSwitchSoftswitch 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.
In February 2013, the company entered into a major agreement with a global carrier to supply the eRCS dialer. The value of the contract is $650,000 for the first 24 months.
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 Video On Demand capabilities with additional full-time programmers hired during the quarter. We expect to introduce a Video On Demand solution for Hoteliers during our second or third quarter of the current fiscal year. We believe providing VOD 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 Vippie retail service via Internet advertising and direct marketing.
|
|
●
|
Expand our distribution partnership network throughout Asia.
|
Private Placements
On May 6, 2011, we entered into definitive agreements with investors to sell in a private placement an aggregate of 2,623,077 shares of our common stock and warrants to purchase 1,311,539 shares of our common stock at a purchase price of $0.13 per unit, resulting in gross proceeds to us of $341,000, before deducting placement agent fees and other offering expenses. The warrants are exercisable at an exercise price of $0.30 per share and expire three years from the closing date.
On June 6, 2011, we entered into definitive agreements with investors to sell in a private placement an aggregate of 1,207,692 shares of our common stock and warrants to purchase 603,846 shares of our common stock at a purchase price of $0.13 per unit, resulting in gross proceeds to us of $157,000, before deducting placement agent fees and other offering expenses. The warrants are exercisable at an exercise price of $0.30 per share and expire three years from the initial closing date.
In HFP Capital was appointed to assist the Company to raise the necessary funds to allow the business to accelerate its growth plans.
5
Results of Operations
For the three and nine months ended December 31, 2012 compared to December 31, 2011
The following tables present the statements of operations for the three and nine months ended December 31, 2012 and December 31, 2011. The discussion following the tables is based on these results.
|
VOICESERVE, INC. AND SUBSIDIARIES
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
|
(Unaudited)
|
|
Nine Months Ended
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Operating revenues:
|
||||||||
|
Software license fees
|
$
|
3,438,522
|
$
|
3,561,386
|
||||
|
Revenues from communications airtime and devices
|
-
|
535
|
||||||
|
Total operating revenues
|
3,438,522
|
3,561,921
|
||||||
|
Cost of operating revenues:
|
||||||||
|
Software license fees
|
2,280,431
|
1,951,897
|
||||||
|
Total cost of operating revenues
|
2,280,431
|
1,951,897
|
||||||
|
Gross profit
|
1,158,091
|
1,610,024
|
||||||
|
Operating expenses:
|
||||||||
|
Selling, general and administrative expenses
|
2,915,232
|
3,017,852
|
||||||
|
Total operating expenses
|
2,915,232
|
3,017,852
|
||||||
|
Loss from operations
|
(1,757,141
|
)
|
(1,407,828
|
)
|
||||
|
Gain (loss) on change in fair value of derivative liabilities
|
809,238
|
(39,822
|
)
|
|||||
|
Interest income
|
84
|
48
|
||||||
|
Interest expense
|
(493
|
) |
(51
|
)
|
||||
|
Loss before income taxes
|
(948,312
|
) |
(1,447,653
|
)
|
||||
|
Income taxes
|
-
|
8,646
|
||||||
|
Net loss
|
$ |
(948,312
|
) | $ |
(1,456,299
|
) | ||
|
Net loss per share - basic and diluted
|
$
|
(0.02
|
) |
$
|
(0.03
|
)
|
||
|
Weighted average number of shares
|
||||||||
|
outstanding - basic and diluted
|
49,028,471
|
43,153,274
|
||||||
|
Comprehensive loss:
|
||||||||
|
Net loss
|
(948,312
|
)
|
(1,456,299
|
)
|
||||
|
Foreign exchange translation adjustment
|
52,496
|
70,556
|
||||||
|
Comprehensive loss
|
$
|
(895,816
|
)
|
$
|
(1,385,743
|
)
|
||
6
|
VOICESERVE, INC. AND SUBSIDIARIES
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
|
(Unaudited)
|
|
Three Months Ended
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Operating revenues:
|
||||||||
|
Software license fees
|
$
|
815,083
|
$
|
1,380,418
|
||||
|
Revenues from communications airtime and devices
|
-
|
(11
|
)
|
|||||
|
Total operating revenues
|
815,083
|
1,380,407
|
||||||
|
Cost of operating revenues:
|
||||||||
|
Software license fees
|
809,846
|
710,717
|
||||||
|
Communications air time
|
-
|
(3,370
|
) | |||||
|
Total cost of operating revenues
|
809,846
|
707,347
|
||||||
|
Gross profit
|
5,237
|
673,060
|
||||||
|
Operating expenses:
|
||||||||
|
Selling, general and administrative expenses
|
275,352
|
660,773
|
||||||
|
Total operating expenses
|
275,352
|
660,773
|
||||||
|
Income (loss) from operations
|
(270,115
|
)
|
12,287
|
|||||
|
Gain on change in fair value of derivative liabilities
|
1,283,170
|
167,989
|
||||||
|
Interest income
|
11
|
23
|
||||||
|
Interest expense
|
(493
|
) |
(31
|
)
|
||||
|
Income before income taxes
|
1,012,573
|
180,268
|
||||||
|
Income taxes
|
-
|
8,646
|
||||||
|
Net income
|
$
|
1,012,573
|
$
|
171,622
|
||||
|
Net income per share - basic and diluted
|
$
|
0.02
|
$
|
0.00
|
||||
|
Weighted average number of shares outstanding:
|
||||||||
|
- Basic
|
49,404,763
|
44,585,198
|
||||||
|
- Diluted
|
50,121,657
|
45,209,775
|
||||||
|
Comprehensive income:
|
||||||||
|
Net income
|
1,012,573
|
171,622
|
||||||
|
Foreign exchange translation adjustment
|
(94,477
|
)
|
50,226
|
|||||
|
Comprehensive income
|
$
|
918,096
|
$
|
221,848
|
||||
Total Revenue. For the three and nine months ended December 31, 2012 and 2011 we generated revenues of $815,083, $3,438,522, $1,380,407, and $3,561,921, respectively. The change represents a decrease of $123,399 or 3.5% for the nine months ended December 31, 2012, and $565,324 or 41.0% for the three months ended December 31, 2012. The revenue decrease is attributed to the fact that the company is selling many of its solutions on a recurring based revenue policy, thus offering customers the possibility of a hosted license payable monthly rather than an outright purchase. An additional factor to the reduction of revenues is the release of the latest eRCS dialers which was only completed for both Android and Apple phones at the end of January 2013. Clients that had ordered the standard conventional softphones were waiting to test and see the release of the latest Vippie eRCS dialers.
Cost of Revenues. For the three and nine months ended December 31, 2012 and 2011 the cost of revenues were $809,846, $2,280,431, $707,347, and $1,951,897 respectively. The change represents an increase in cost of revenues of $328,534 or 16.8% for the nine months ended December 31, 2012, and $102,499 or 14.5% for the three months ended December 31, 2012. The cost of revenue increase is attributed to the increase in clients that require servicing. Gross margin averaged 33.7% during the nine months ending December 31, 2012 compared to 45.2% during the nine months ending December 31, 2011, and 0.6% during the three months ending December 31, 2012 compared to 48.8% during the three months ending December 31, 2011. The decrease in gross margins is due to the company’s investment in R&D to complete its latest release of the eRCS dialers.
Sales, General and Administrative Costs. For the three and nine months ended December 31, 2012 and 2011, SG&A expenses were $275,352, $2,915,232, $660,773, and $3,017,852, respectively. The change represents a decrease of $385,421 or 58.3% and $102,620 or 3.4% for the three and nine months ended December 31, 2012, respectively. The decrease in S G & A is largely down to numerous cost savings that the Company has achieved.
Net Loss. The Company generated a net loss before the revaluation of the common stock warrants for the three month period ending December 31, 2012. The Company generated net income of $1,012,573 and a net loss of $948,312 compared to net income of $171,622 and a net loss of $1,456,299 for the three and nine months ended December 31, 2012 and December 31, 2011, respectively. The change is due to the reasons described above.
7
Liquidity and Capital Resources.
As of December 31, 2012 we had $340,443 in cash. At December 31, 2012 the Company had liabilities of $1,065,437 comprised of accounts payable and accrued expenses of $567,210, deferred software license fees and support of $201,800, loans payable to related parties totaling $38,857, as well as derivative liabilities for common stock purchase warrants totaling $257,570. Comparatively at March 31, 2012, we had $1,717,154 in liabilities comprised of accounts payable and accrued expenses of $430,535, deferred software license fees and support of $181,503, loans payable to related parties totaling $38,308, as well as derivative liabilities for common stock purchase warrants totaling $1,066,808.
On May 6, 2011, the Company raised $313,700 in net proceeds through the sale of shares of its common stock. In addition, on June 6, 2011 the Company raised $142,370 in net proceeds through the sale of shares of the 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.
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.
On April 20, 2012, the Company granted a total of 2,400,000 common shares (1,200,000 shares each) to the Company’s Chief Executive Officer and the Company’s President and Chairman of the Board of Directors for prior services rendered.
Also on April 20, 2012, the Company renewed the director agreements with Michael Taylor and Andrew Millet and granted a total of 600,000 common shares (300,000 shares each).
On April 26, 2012, the Company granted a total of 1,800,000 common shares (600,000 shares each) to a member of the Company’s Board of Directors and to two consultants for prior services rendered.
During August 2012, the Company granted 150,000 common shares to a consultant for prior services rendered.
On June 4, 2012, pursuant to employment agreements with its (1) President and Chairman and (2) Chief Executive Officer, the Company granted a total of 500,000 common stock options exercisable at $0.1215 per share.
On December 21, 2012, pursuant to agreements with Michael Taylor and Andrew Millet, the Company modified existing share awards by exchanging the 1,200,000 common shares (600,000 shares each) granted in prior years for 1,200,000 common stock options (600,000 options each). The options are exercisable at $0.01 per share, vest immediately and expire on December 21, 2022. The common shares were returned to the Company and cancelled.
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.
Significant Accounting Policies
Our significant accounting policies are summarized in Note 3 of our financial statements included in Item 1 of this Report.
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.
8
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Smaller reporting companies are not required to provide the information required by this item.
|
Item 4.
|
Controls and Procedures.
|
Evaluation of Disclosure 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.
Based upon their evaluation, the Company’s CEO and CAO concluded that the Company’s disclosure controls and procedures were not effective as they principally relate to the disclosure of compensation amounts as reported in the Company’s Management’s Discussion and Analysis section of its Annual Report on Form 10-K for the fiscal year ended March 31, 2012, filed on July 16, 2012.It was determined that the cause for the misstatement was due to a lack of multiple levels of internal review prior to the filing that report with the SEC.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the three months ended December 31, 2012, or are reasonably likely to materially affect, our internal control over financial reporting.
Our management has been actively engaged in the planning for, and implementation of, remediation measures to address our control deficiencies 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.
We have continued to monitor the results of our remediation efforts and related testing as part of our year-end 2013 assessment of the effectiveness of our internal control over financial reporting.
|
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
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
Item 3.
|
Defaults Upon Senior Securities.
|
|
Item 4.
|
Mine Safety Disclosures.
|
Not applicable.
|
Item 5.
|
Other Information.
|
None.
9
|
Item 6.
|
Exhibits.
|
|
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.
|
|
101.INS**
|
XBRL Instance Document
|
|
|
101.SCH **
|
XBRL Taxonomy Schema
|
|
|
101.CAL **
|
XBRL Taxonomy Calculation Linkbase
|
|
|
101.DEF **
|
XBRL Taxonomy Definition Linkbase
|
|
|
101.LAB **
|
XBRL Taxonomy Label Linkbase
|
|
|
101.PRE **
|
XBRL Taxonomy Presentation Linkbase
|
** Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
+ In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are furnished and not filed.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
VOICESERVE, INC.
|
|||
|
Date: February 19, 2013
|
By:
|
/s/ Michael Bibelman
|
|
|
Michael Bibelman
|
|||
|
Chief Executive Officer
(Duly authorized officer and principal executive officer)
|
|||
|
Date: February 19, 2013
|
By:
|
/s/ Andrew Millet
|
|
|
Andrew Millet
Chief Financial Officer
|
|||
|
(Duly authorized officer and principal financial officer)
|
|||
11