UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2012

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-54535

 

 

VOICE ASSIST, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		26-1929199
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

2 South Pointe Dr., Suite 100, Lake Forest, CA		92630
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number: (949) 655-1677

 

Copies of Communications to:

BP Law Group

8815 Research Drive

Suite 200

Irvine, CA 92618

(949) 407-5013

Fax (949) 234-6254

 

Securities registered under Section 12(b) of the Act: None

 

Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ] (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 Act).

Yes [  ] No [X]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of June 30, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was $9,222,238 based on a share value of $0.23.

 

The number of shares of Common Stock, $0.001 par value, outstanding on April 12, 2013 was 42,052,500 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

VOICE ASSIST, INC.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2012

 

Index to Report

on Form 10-K

 

			Page
PART I
Item 1.	Business		4
Item 1A.	Risk Factors		12
Item 1B.	Unresolved Staff Comments		22
Item 2.	Properties		22
Item 3.	Legal Proceedings		22
Item 4.	Mine Safety Disclosures		22
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities		23
Item 6.	Selected Financial Data		29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		36
Item 8.	Financial Statements and Supplementary Data		36
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		36
Item 9A (T)	Control and Procedures		36
Item 9B.	Other Information		37
PART III
Item 10.	Directors, Executive Officers, Promoters and Corporate Governance		38
Item 11.	Executive Compensation		42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		46
Item 13.	Certain Relationships and Related Transactions, and Director Independence		47
Item 14	Principal Accounting Fees and Services		48
PART IV
Item 15.	Exhibits, Financial Statement Schedules		49

 

 

FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

 

●	our current lack of working capital;
●	inability to raise additional financing;

●	the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
●	deterioration in general or regional economic conditions;

●	adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
●	inability to efficiently manage our operations;

●	inability to achieve future sales levels or other operating results; and
●	the unavailability of funds for capital expenditures.
●	codependence on mobile phone manufacturers and wireless carriers and other speech technology companies that we use in order to provide this service.
●	our ability to buy wholesale voice and data services at competitive prices in order to provide cost effective service.
●	codependence on cloud based technology that could fail or be disrupted and thereby interrupt our revenue stream or cause cancellations.

  

Throughout this Annual Report references to “we”, “our”, “us”, “Voice Assist’s”, “the Company”, and similar terms refer to Voice Assist, Inc.

 

 

PART I

 

ITEM 1.

BUSINESS

 

General Business Development

 

Voice Assist, Inc. (the “Company”) was formed as a Nevada corporation on February 4, 2008 as Musician’s Exchange. On September 29, 2010, the Company changed its name from Musician’s Exchange to Voice Assist, Inc. Effective September 30, 2010, the Company completed the acquisition of substantially all of the assets of SpeechPhone LLC, MDM Intellectual Property LLC, SpeechCard LLC, SpeechCall, LLC, SpeechPhone Direct, LLC and Voice Assist LLC, (the “Acquisitions”).

 

Voice Assist operates a cloud-based speech recognition platform that supports speech recognition based enterprise services such as Customer Relationship Management (CRM), field force automation, as well as direct-to-enterprise services such as virtual assistants that unify communications and direct-to-consumer “safe driving” services that allow SMS, email, and social media messaging through a single personal phone number. The technology empowers mobile staff members and especially drivers to use speech commands to access data and send email or text messages by voice instead of typing.

 

Recent Change in Management

 

On November 30, 2012 and December 3, 2012, the Company accepted the resignations of two of its directors, Rod Shipman and Scott Fox, respectively. No directors have been appointed in their place as of the date of this filing.

 

On December 2, 2012, the Company accepted the resignation of its Chief Financial Officer and Treasurer, William Osmundsen. The Company subsequently appointed on December 18, 2012, Mr. Michael Metcalf, the Company’s Chief Executive Officer and Director, as the interim Chief Financial Officer and Helen Metcalf as the Secretary.

 

Business of Voice Assist

 

Voice Assist is a cloud-based speech recognition technology services company focused on communication, information and transaction processing through any device using speech technology. Our technology allows consumers to use simple voice commands to dial, email, text or post to social networks. Our technology allows business clients to automate call answering, call routing and remote access to email, voice mail, CRM or other databases. Our rapid application development environment allows developers to use SpeechScript™, our proprietary development language, to build additional features that can be added to any account. We offer private labeled versions to resellers such as telecom service providers, wireless and wireline carriers, headset manufacturers, smartphone manufacturers, automobile manufacturers, and direct sales companies as well as resellers. Voice Assist functionality powers many new service offerings including enterprise data access and entry and a safe driving application that enables drivers to keep their eyes on the road rather than on the phone. Improving personal productivity and maximizing driving safety are just a few of its many benefits.

 

 

Uniquely packaged services are available for individual subscribers, businesses and telecom carriers. We offer compelling value and cost effective solutions in the web services and communications industries.

 

The proliferation of smartphones has created new revenue streams for Carriers and Developers and accelerated the mobilization of new web and communication services categories such as social networking services (SNS) and location based services (LBS). Equally important to the Company is that the smartphone has changed user behavior and the means with which users interact with data.

 

The proliferation of smart phones and tablet PC’s is increasing the number of people using touch screens to interact with content or data. Unfortunately, touch screens demand the attention of eyes which can be dangerous when driving. We anticipate that the demand for voice enabled devices and applications will grow as smart phones and tablet PC’s continue to saturate the market. Using voice as the primary interface is the only way to use such devices safely while driving.

 

This proliferation of connected smart devices has also led to fragmentation in offerings and challenges supporting legacy mobile customers who do not have smartphones. Voice Assist allows services to be deployed across all handsets and mobile operating systems. With Voice Assist’s legacy telephony, Voice over Internet Protocol (VoIP) and web services background, Voice Assist is uniquely positioned to provide web (HTTP protocol), SIP/VoIP, and telephony access to users data. The ability to provide access via multiple communications paths is critical to Enterprise offerings and allows Voice Assist to enable services across the broadest range of consumer communication devices.

 

Voice Assist’s cloud-based services combine proprietary filtering and routing methods to optimize performance with best of breed hosted speech services from Lucent, Microsoft, and AT&T, Nuance, NeoSpeech and IBM. Voice Assist uses N + tiering architecture to provide a scalable redundant configuration to cost effectively grow platform resources that can be scaled according to demand.

 

Industry Background

 

Enterprise Enablement

 

Enterprises need current, timely, and accurate sales reporting information. The best time to gather this information is immediately after a sales call or a sales meeting. Similarly, many other Enterprise applications such as dispatch, field force, health care, etc. require employees to enter time sensitive data while the employee may be on the phone or on the move or have their hands occupied.

 

 

The Company has developed a Salesforce.com connector that allows a salesperson to update relevant customer information immediately following a meeting as the salesperson enters their car while the information is still fresh on their mind. Voice Assist has also integrated with Salesforce.com’s new Chatter service, which offers a secure social network for the salesperson to communicate with their customers or other team members. The Company also developed a dialer application that allows salespeople to originate sales calls by voice command. The service allows salespeople to verbally report call results after each call and then schedule follow up items or forecast sales when appropriate – all without typing. These features can increase the personal productivity of each salesperson that subscribes to the service.

 

Subject to available capital, the Company plans to market its Salesforce.com service as a Salesforce.com Alliance Partner in parallel with Salesforce.com with a model that is consistent with Salesforce.com.

 

Voice Assist leverages its SpeechScript ^TM technology to quickly integrate to Enterprise web-services and platforms. In addition to Salesforce.com, the Company plans to develop connectors to other CRM and Enterprise Platforms in 2013 to expand its Enterprise Services offerings.

 

Distracted Driving

 

One of the greatest challenges facing people today is driver distractions caused by the use of mobile phones while driving. Distracted drivers who take their hands off the wheel or their eyes off the road to look at or interact with a mobile phone create significant risk. According to the National Highway Traffic Safety Administration (NHTSA) 5,474 people were killed and 448,000 individuals were injured in motor vehicle crashes involving distracted drivers during 2009. The proliferation of smart phones with touch screens is multiplying this problem even further. This problem is so significant that at least 40 states have already passed hands-free driving and/or no texting while driving laws to help reduce fatalities and injuries. These laws are often referred to as “hands free driving laws” and require drivers to use a service like Voice Assist or put the phone down and not use it while driving.

 

Some celebrities have even jumped into the cause such as Oprah Winfrey to promote what she calls the “no phone zone.” In early 2012, the Company obtained an endorsement from Frankie Avalon to help promote hands-free safe driving. Despite the many articles and news reports published and even the celebrity promotion for driver safety, the fact still remains – people are using mobile phones while driving and the problem continues.

 

Mobile phone companies and even automobile manufacturers are now promoting the use of Bluetooth speakerphones and/or Bluetooth headsets that sync up to your mobile phone when you enter the vehicle before driving. Although the use of Bluetooth devices can help reduce physical interaction with the mobile phone, multiple circumstances are still prevalent that require interaction and subsequently accidents.

 

The answer to this situation is to combine the use of hands-free devices such as a headset or speakerphone with a voice activated assistant that eliminates all physical interactions with the phone by replacing any and all physical interactions with simple voice commands.

 

The Voice Assist Solution

 

We develop market and support hosted speech applications that are designed to work with any handset and any carrier. Our solution includes best of breed automatic speech recognition (ASR) technology and text-to-speech (TTS) technology along with speech-to-text (STT) technology combined with a user friendly virtual assistant we call “Voice Assist.”

 

 

Voice Assist is an “enhanced service” that will work with any phone including but not limited to mobile phones, landlines, VoIP phones, SIP clients and instant messenger clients.

 

We build applications designed to increase driver safety and reduce or eliminate physical interaction with the phone except through voice commands. We develop and support private labeled versions of our applications and we help support third party developers to build additional speech applications using our proprietary SpeechScript ^TM language which is an extension of Java Script.

 

Products and Services

 

Our current Direct to Consumer service includes Voice Dialing, Email by Voice, Text by Voice and Post to Social Networks such as Twitter and Facebook by Voice. We also offer add-ons including Live Assist and Voice Assist for Saleforce.com. The service is available on-line with instant activation at www.voiceassist.com. We also offer mobile apps for iPhone s and Android phones. The Android version can be downloaded at: http://www.voiceassist.com/android and the Apple iOS version can be downloaded at: http://bit.ly/RB72uh

 

Voice Dialing allows subscribers to dial by saying a name or a name and location such as “call Michael Metcalf at work” or “call Michael Metcalf at mobile.” When the far end hangs up, Voice Assist returns to the subscriber to process the next voice command (continuous speech with multitasking).

 

Email by Voice allows subscribes to listen to email or reply to email or even originate a new email using simple voice commands such as “send an email to Michael Metcalf.” Subscribers simply say the message desired and then use additional voice commands to repeat it, rerecord it or send it. The voice message is then translated into text and sent to the desired party as if they had typed the original message. To eliminate any ambiguities the original recorded voice file is also sent as an attachment.

 

Texting by Voice is a two way experience with Voice Assist. Subscribers can send a text by using a simple command such as “send a text to Michael Metcalf.” The subscriber then speaks the message and uses additional voice commands to repeat the message, re-record the message or send it. The message is then converted into text and sent to the intended mobile phone number. When a text message is received, the Voice Assist application checks the subscribers setting to determine the best delivery method. In some cases, the text message will simply be sent along to the mobile phone screen of the subscriber. In other cases, such as “I’m driving mode”, Voice Assist will call the subscriber and then announce the identity of the person who sent the text message and then read the text message using text-to-speech. Once the message is delivered, the Voice Assist application offers the subscribers the option to record and send a reply. The reply is automatically converted back into text and sent back to the person who sent the original text. As a result, it is possible for subscribers to send and receive text messages from any phone including mobile phones without a text messaging plan or even from landlines whether or not they are connected to the internet or a computer.

 

Posting to social networks such as Twitter or Facebook is as easy as saying “post to Twitter” and then recording a message. Subscribers can review the message, re-record the message or post the message when ready using nothing but additional voice commands. The message is then converted into text and posted to the social network as requested.

 

 

Voice Assist eliminates the need to look at the phone or press any buttons to make calls, retrieve email, reply to email, send email, send a text, listen to text, reply to text or even post to social networks such as Twitter and Facebook.

 

Subscribers can set up a new account via the internet (www.voiceassist.com) and begin using voice commands with their existing phones in just a few minutes. Unlike other speech applications that require a software download into the handset before use, Voice Assist can be used from any handset regardless of the handset manufacturer or carrier network used.

 

Subscribers can activate a Voice Assist Standard account and then upgrade the account with additional features such as Voice Assist Premium, Live Assist and/or Voice Assist for Salesforce.com.

 

Voice Assist Standard includes 100 minutes of use for $4.95 per month. Voice Assist Premium is an upgrade that allows unlimited personal use for $9.95 per month.

 

Live Assist is another upgrade available for $10 per month more. Live Assist connects subscribers to a live personal concierge 24 hours a day, 7 days a week upon request up to 10 requests per month. Subscribers just say “Live Assist” to get connected. Live Assist can help with turn by turn driving instructions or make dinner reservations or even book travel such as hotel, rental car or airline tickets. Live Assist can also be used to look up information via the web and then have the information sent to your mobile phone via SMS text message or by email.

 

Voice Assist for Salesforce.com is another add-on for $10 per month more. This add-on allows salespeople to make sales calls by voice command and then report sales results at the end of each call. Salespeople just dictate notes and schedule follow up calls or even forecast the sale all by voice without typing. This saves time and helps salespeople report results faster.

 

The Voice Assist service is also optimized for bundling with communications product and for white labeling by Service Providers.

 

SpeechScript ^TM development and hosting services. The Company offers professional development and/or customization services to resellers and/or distribution partners. The Company also supports third party developers seeking to develop applications based on SpeechScript ^TM , our proprietary rapid application development environment. Although SpeechScript ^TM is proprietary, it is an extension of Java Script speeding speech application development to third party developers familiar with Java Script. Java Script is among the most familiar programming languages in the world. Applications written in SpeechScript ^TM are designed to be hosted on our hosted speech platform (HSP) in order to leverage the architecture of our platform including but not limited to our switching systems and billing platforms. Hosted applications are able to leverage our automated provisioning and billing platforms that offer instant on-line activation of new subscribers.

 

 

Customer support services. The Company offers tier 1 and/or tier 2 and tier 3 customer support services to support end users and/or resellers or distribution partners. The Company offers custom support plans based on partner requirements and specifications. Custom support includes the issuance of local or toll free numbers which are answered on behalf of our resellers and/or distribution partners using their brand when required.

 

Voice Platform

 

Voice Assist leverages a hosted speech platform (HSP) that is located in multiple carrier neutral data centers. Each data center is configured in a redundant configuration. Each data center has a soft-switch which acts as the front end to the speech server farms. Callers are connected via the soft-switch (SS) to application servers (AP) which in turn interact with the hosted speech servers (HSP) along with the central database and the billing servers (BS). Voice Assist’s hosted speech platform (HSP) has already processed over 50 million calls and can be scaled as necessary based on subscriber demand.

 

Each data center is monitored via network management software (NMS) to report overall system status and individual status of all major components, servers, and related network equipment.

 

Voice Assist’s platform uses industry standard hardware and software provided by such companies as Dell, HP, Cisco, Microsoft, Sun and others. The overall service that we provide is codependent upon the continual operation of the hardware and/or software provided by such third party vendors. In the event, any hardware and/or software should not continue to operate as normally expected or in the event such manufacturers discontinue making such hardware and/or providing support or software patches thereto, the Company’s service could be interrupted and could be negatively impacted or unable to continue to provide service.

 

Customers

 

We provide access to hosted speech applications directly to end users and to wholesale resellers and/or distribution partners. End users are primarily mobile professionals and other people who prefer the safety and productivity of using speech commands rather than pushing buttons while driving. As of the date of this report the Company had provided hosted speech services to more than 10,000 clients including small businesses, resellers, distribution partners and/or end users.

 

 

Competition

 

The Company currently has and expects to have increased competition as many well known companies are beginning to pay close attention to the distracted driver problem. Some competition is coming from device manufacturers such as BlueAnt who are now imbedding speech technology into Bluetooth headsets and/or Bluetooth speakerphones. Additional competition is coming from mobile phone handset manufacturers and/or mobile operating system manufacturers who are also imbedding speech technology into their handsets such as Apple which includes SIRI and Google which includes Google Now with the sale of new handsets. Some of the companies competing against the Company have significantly more resources and a longer track record than Voice Assist does. Increased competition could negatively impact our Company.

 

There are also some hosted Distracted Driving speech applications that compete with the Company including but not limited to www.drivesafe.ly , www.dial2do.com , www.vlingo.com and www.voiceonthego.com. Some of these competitors have been in business longer and have more financial resources than we do at the present time and therefore they could also negatively impact the Company. Although the Company faces stiff competition from device manufacturers and other hosted speech application service providers, the Company’s management team has a history of building award winning speech applications and has competed favorably against other competitors in the industry for more than 13 years.

 

The Company has a strategy that, it believes, will help give it a competitive advantage and sufficient differentiation and is also taking steps to file patents or has patents pending that may help in this regard.

 

Intellectual Property

 

The Company has nine patents pending and anticipates filing additional patents to protect our intellectual property.

 

To protect our trade secrets and know-how the Company requires all staff members and/or contractors to sign confidentiality agreements and\or invention assignment agreements as appropriate. Although all staff members sign agreements to maintain the confidentiality of such proprietary information, this information is difficult to monitor and control.

 

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology, methods or know-how to develop products with the same functionality as our products. Monitoring unauthorized use of our proprietary information and technology is difficult, and we cannot be certain that the actions we have taken to do so will always prevent misappropriation of our technology methods or know-how, particularly in foreign countries where the laws may not protect proprietary rights as fully as do the laws of the United States.

 

 

The software industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement and the violation of intellectual property rights. Although we attempt to avoid infringing known proprietary rights of third parties, we may become subject to legal proceedings and claims for alleged infringement by us or our resellers of third-party proprietary rights, such as patents, trade secrets, trademarks or copyrights, from time to time in the ordinary course of business or otherwise. Any claims relating to the infringement of third-party proprietary rights, even if not successful or meritorious, could result in costly litigation, divert management’s attention from our business or require us to enter into royalty or license agreements that could be costly or otherwise disadvantageous to us. In addition, parties making these claims may be able to obtain injunctions, which could prevent us from selling our products or services. Furthermore, although we take precautions, former employers of our employees may assert that our employees have improperly or unwittingly disclosed confidential or proprietary information to us without our knowledge. Any of these occurrences could harm our business. We may be increasingly subject to infringement claims as the number and features of our products increase.

 

Software Development

 

The Company continues to improve our core applications and build new applications designed to improve driver safety and increase personal productivity. The Company will continue to spend money in software development in order to maintain its competitive advantage. Although the Company intends to grow the development team as it begins to support a greater number of applications and third party developers, anticipated subscriber growth may lower software development costs in terms of a percentage of sales.

 

The Company has adopted the provisions of FASB ASC 350-40 in order to account for its software developed for internal use since the Company is dependent on the internal use automated speech recognition software to provide the enhanced services. Software development costs are capitalized for certain costs incurred during the application development stage and for upgrades and enhancements. Amortization is computed on an individual project basis using the straight-line method over the estimated economic life of the projected product, generally three to five years.

 

Marketing

 

Subject to available capital, the Company plans to launch a television advertising campaign along with an internet marketing campaign to create public awareness and demand for our products and services. The Company anticipates that such marketing efforts will generate increased revenues for the Company but there is no assurance that such marketing efforts, if carried out, will result in sufficient sales revenues and net margins to cover the expected costs of such marketing endeavors.

 

 

The Company is also currently working with several resellers and distribution partners who are planning additional marketing campaigns focused primarily around selling private labeled services to home based entrepreneurs and small to midsized business clients.

 

Subject to the availability of capital, the Company also plans to retain the assistance of a public relations firm during 2013 to help create additional public awareness of the Voice Assist solution as the solution to the distracted driving problem. The Company was previously featured on Fox 11 news and got additional exposure by winning TMCnet.com’s “2010 Product of the Year” and also by winning “Best of Show” at CTIA 2011. The Company believes that advertising and public relations is important to the success of the Company; however, no assurance can be given that the Company will have the funds necessary to run such advertising or promotion or that such advertising or promotion will actually result in subscriber sales.

 

Employees

 

As of the date of this Current Report, we have 16 full-time and/or part-time employees and/or contractors working for the Company. None of them are represented by a labor union or subject to a collective bargaining agreement. We consider our relations with our staff members and contractors to be good.

 

 

ITEM 1A.

RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

 

RISKS RELATED TO OUR BUSINESS

 

We depend upon third-party resellers for a significant portion of our sales. The loss of key third-party resellers, or a decline in third-party resellers’ resale of our products and services, could limit our ability to sustain and grow our revenue.

 

Our revenues are dependent upon the viability and financial stability of our third-party resellers, as well as upon their continued interest and success in selling our products. In addition, some of our third-party resellers are thinly capitalized or otherwise experiencing financial difficulties. The loss of a significant third-party reseller or our failure to develop new and viable third-party reseller relationships could limit our ability to sustain and grow our revenue. Furthermore, expansion or changes in the focus of our internal sales force, in an effort to increase third-party reseller sales or replace the loss of a significant third-party reseller, could require increased management attention and higher expenditures.

 

 

Our contracts with third-party resellers do not require a third-party reseller to purchase our products or services. In fact, many of our third-party resellers also offer the products of some of our competitors. We cannot guarantee that any of our third-party resellers will continue to market our products or devote significant resources to doing so. In addition, although we are actively working to manage potential channel conflicts and maintain strong third-party reseller relationships, certain third-party reseller relationships likely have been adversely affected by the introduction of our own platform product or our direct sales activities, which may have an unfavorable impact on revenue from certain third-party resellers. Furthermore, we will, from time to time, terminate or adjust some of our relationships with third-party resellers in order to address changing market conditions, adapt such relationships to our business strategy, and resolve disputes or for other reasons. Any such termination or adjustment could have a negative impact on our relationships with third-party resellers and our business and result in decreased sales through third-party resellers or threatened or actual litigation. If our third-party resellers do not successfully market and sell our products or services for these or any other reasons, our sales could be adversely affected and our revenue could decline. In addition, our third-party resellers possess confidential information concerning our products and services, product release schedules and sales and marketing and third-party reseller operations. Although we have non disclosure agreements with our third-party resellers, we cannot guarantee that any third-party reseller would not use our confidential information to compete with us.

 

Speech software products and services generally, and our products and services in particular, may not achieve widespread acceptance which could require us to modify our sales and marketing efforts and could limit our ability to successfully grow our business.

 

The market for speech software products remains immature and is rapidly changing. In addition, some of our products are relatively new to the market. Our ability to increase revenue in the future depends on the acceptance by customers, third-party resellers and end users of speech software solutions generally and our products and services in particular. The adoption of speech software products could be hindered by the perceived costs of licensing and deploying such products, as well as by the perceived deployment time and risks of this relatively new technology. Furthermore, enterprises that have invested substantial resources in existing call centers or touch-tone-based systems may be reluctant to replace their current systems with new products. Accordingly, in order to achieve commercial acceptance, we may have to educate prospective customers, including large, established enterprises and telecommunications companies, about the uses and benefits of speech software in general and our products in particular. We may also need to modify or increase our sales and marketing efforts or adopt new marketing strategies to achieve such education. If these efforts fail, prove excessively costly or unmanageable, or if speech software generally does not continue to achieve commercial acceptance, our business would be harmed.

 

 

The continued development of the market for our products will depend upon the following factors, among others:

 

	●		acceptance by businesses of the benefits of speech technology;
	●		widespread and successful deployment of speech software applications;
	●		end-user demand for services and solutions having a voice user interface;
	●		demand for new uses and applications of speech software technology, including adoption of voice user interfaces by companies that operate web-based and touch tone IVR self service solutions;
	●		adoption of industry standards for speech software and related technologies; and
	●		continued improvements in hardware and telephony technology that may reduce the costs and deployment time of speech software solutions.

 

Our products and services can have a long sales and implementation cycle and, as a result, our quarterly revenues and operating results may fluctuate.

 

The sales cycles for our products have typically ranged from three to twelve months or longer depending on the time needed to evaluate, qualify, test, beta test and eventually roll out and the size of the order and complexity of its terms, the amount of services we are providing, and whether the sale is made directly by us or indirectly through a third-party reseller. Some customers may also require custom programming or interfaces to various API’s.

 

Speech products often require a significant expenditure by a customer. Accordingly, a customer’s decision to purchase our products and services typically requires a lengthy pre-purchase evaluation. We may spend significant time educating and providing information to prospective customers regarding the use and benefits of our products and services. During this evaluation period, we may expend substantial sales, technical, marketing and management resources in such efforts. Because of the length of the evaluation period, we are likely to experience a delay, occasionally significant, between the time we incur these expenditures and the time we generate revenues, if any, from such expenditures. Furthermore, such expenditures frequently do not result in a sale of our products.

 

After purchase by a customer, it may take time and resources to complete any services we are providing and to integrate our software into the customer’s existing systems. If we are performing services that are essential to the functionality of the software, in connection with its implementation, we recognize license and service revenues based on the percentage of services completed using contract accounting. In cases where the contract specifies milestones or acceptance criteria, we may not be able to recognize either license or service revenue until these conditions are met. We have in the past experienced, and may in the future experience, such delays in recognizing revenue. Consequently, the length of our sales and implementation cycles, the deployment process for our products, and the terms and conditions of our license and service arrangements often make it difficult to predict the quarter in which revenue recognition may occur and may cause license and service revenue and our operating results to vary significantly from quarter to quarter.

 

 

We are exposed to general economic conditions, which may continue to harm our business.

 

Over the past several years, there has been a global economic downturn. If the United States or global economic conditions deteriorate in the future, it is likely that capital spending will decline and our sales will be adversely affected. If such unfavorable economic conditions persist or worsen in the United States or internationally, such conditions will have a material adverse impact on our business, operating results and financial condition.

 

If we are unable to attract and retain key personnel, our business could be harmed.

 

If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Our employment relationships are generally at-will and we have had key employees leave in the past. We cannot assure that one or more key employees will not leave in the future. We intend to continue to hire additional highly qualified personnel, including software engineers and operational personnel, but may not be able to attract, assimilate or retain qualified personnel in the future. Any failure to attract, integrate, motivate and retain these employees could harm our business.

 

Our failure to successfully respond to and manage rapid change in the market for speech software could cause us to lose revenue and harm our business. It is essential that we continue to develop new products that achieve commercial acceptance.

 

The speech software industry remains immature and is rapidly changing. Our future success will depend substantially upon our ability to enhance our existing products and to develop and introduce, on a timely and cost-effective basis, new products and features that meet changing third-party reseller and end-user requirements and incorporate technological advancements, such as products that speed deployment and accelerate customers’ return on investment, as well as achieve commercial acceptance. Commercial acceptance of new products and technologies that we may introduce will depend on, among other things, the ability of our services, products and technologies to meet and adapt to the needs of our target markets; the performance and price of our products and services and our competitors’ products and services; and our ability to deliver speech solutions, customer service and professional services directly and through our third-party resellers. If we are unable to develop or deploy new products and enhance functionalities or technologies to adapt to these changes, we may be unable to retain existing customers or attract new customers, which could materially harm our business. In addition, as we develop new products, sales of existing products may decrease. If we are unable to offset a decline in revenue from existing products with sales of new products, our business would be adversely affected.

 

 

Speech products are not 100% accurate, and we could be subject to claims related to the performance of our products. Any claims, whether successful or unsuccessful, could result in significant costs and could damage our reputation.

 

Speech recognition natural language understanding and authentication technologies, including our own, are not accurate in every instance. Our customers, which may include in the future financial institutions, using our products to provide important services to their customers including transferring funds to accounts and buying and selling securities could result in claims against our customers or us for losses incurred for any misrecognition of voice commands or incorrect authentication of a user’s voice in connection with these financial or other transactions. Although our contracts usually contain provisions designed to limit our exposure to such liability claims, a claim brought against us based on misrecognition or incorrect authentication, even if unsuccessful, could be time-consuming, divert management’s attention from business operations, result in costly litigation and harm our reputation. If any such claim is successful, we could be exposed to an award of substantial damages and our reputation could be harmed greatly. Moreover, existing or future laws or unfavorable judicial decisions could limit the enforceability of limitations of liability, disclaimers of warranty or other protective provisions contained in many, but not all of, our contracts.

 

We may incur a variety of costs to engage in future acquisitions of companies, products or technologies, and the anticipated benefits of those acquisitions may never be realized.

 

As a part of our business strategy, we may make acquisitions of, or significant investments in, complementary companies, products or technologies. Any future acquisitions of companies or technologies would be accompanied by risks such as:

 

	●		difficulties in assimilating the operations, personnel and technologies of acquired companies;
	●		diversion of our management’s attention from ongoing business concerns;
	●		our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services;
	●		additional expense associated with impairments of acquired assets, such as goodwill or acquired workforce;
	●		increases in the risk of claims against us related to the intellectual property or other activities of the businesses we acquire;
	●		maintenance of uniform standards, controls, procedures and policies; and
	●		impairment of existing relationships with employees, suppliers and customers as a result of the integration of new management personnel.

 

 

We cannot guarantee that we will be able to successfully integrate any business, products, technologies or related personnel that we might acquire in the future. Our inability to integrate successfully any business, products, technologies or personnel we may acquire in the future could materially harm our business.

 

We are exposed to the liquidity problems of our customers. We may have difficulty collecting amounts owed to us.

 

Certain of our customers and third-party resellers have experienced, and may in the future experience, credit-related issues. We perform ongoing credit evaluations of customers but do not require collateral. However, in some instances we may provide longer payment terms. Should more customers than we anticipate experience liquidity issues, or if payment is not received on a timely basis, we may have difficulty collecting amounts owed to us by such customers, and our business, operating results and financial condition could be adversely impacted.

 

If the industry standards we support are not adopted as the standards for speech software, customers may not use our speech software products.

 

The market for speech software remains immature and emerging and industry standards are still being established. We may not be competitive unless our products support changing industry standards; otherwise, customers may choose not to use our speech software products. The emergence of industry standards, whether through adoption by official standards committees or widespread usage, could require costly and time-consuming redesign of our products. If these standards become widespread and our products do not support them, our customers and potential customers may not purchase our products. Multiple standards in the marketplace could also make it difficult for us to ensure that our products will support all applicable standards, which could in turn result in decreased sales. Furthermore, the existence of multiple standards could chill the market for speech software in general until a dominant standard emerges.

 

We rely on a continuous power supply to conduct our operations, and an energy crisis could disrupt our operations and increase our expenses.

 

We currently have backup generators or alternate sources of power in the event of a blackout, and our current insurance coverage provides for any damages we, or our customers, may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily able to continue operations at our facilities; however, if such interruption was lengthy or occurred repeatedly, it could adversely affect our ability to conduct operations that could damage our reputation, harm our ability to retain existing customers or obtain new customers, and result in lost revenue, any of which could substantially harm our business and results of operations.

 

We also rely on continue access to voice and data services from multiple carriers. In the event these carriers have any network outage or disruption of our service, this may cause an interruption of our service to our customers. This could create liability and/or cancellations of recurring revenue. We limit these risks by including clauses in our contracts to limit our liability caused by 3^rd party networks and/or products and services provided by 3^rd parties.

 

 

Information that we may provide to investors from time to time is accurate only as of the date we disseminate it and we undertake no obligation to update the information.

 

From time to time, we may publicly disseminate forward-looking information or guidance in compliance with Regulation FD promulgated by the Securities and Exchange Commission. This information or guidance represents our outlook only as of the date that we disseminated it, and we undertake no obligation to provide updates to this information or guidance in our filings with the Securities and Exchange Commission or otherwise.

 

The loss of key personnel or the inability to retain and, where necessary, attract additional personnel could impair our ability to expand our operations.

 

We are highly dependent upon the principal members of our management and sales staff, the loss of whose services might adversely impact the achievement of our objectives and the continuation of existing business plans. Our recent change in the position of President and Chief Financial Officer could have an adverse impact on our ability to retain and recruit qualified personnel. Further, all of our employees are employed “at will” and, therefore, may leave our employment at any time.

 

Future sales of our common stock may depress our stock price.

 

If our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of options and warrants and shares issued under our Stock Incentive Plan) in the public market, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

 

RISKS RELATED TO OUR INTELLECTUAL PROPERTY AND TECHNOLOGY

 

Our inability to adequately protect our proprietary technology could harm our ability to compete.

 

Our future success and ability to compete depends in part upon our proprietary technology and our trademarks, which we attempt to protect through reliance upon a combination of patent, copyright, trademark and trade secret laws, as well as with our confidentiality procedures and contractual provisions. These legal protections afford only limited protection and may be time-consuming and expensive to obtain, maintain or enforce. Further, despite our efforts, we may be unable to prevent third parties from infringing or misappropriating our intellectual property or to recover adequate compensation from any such infringements.

 

We have filed multiple U.S. patent applications. There is no guarantee that we will be issued additional patents under our current or future patent applications. Any patents issued to us could be circumvented or challenged. If challenged, a patent might be invalidated or its claims might be substantially narrowed. Our intellectual property rights may not be adequate to provide us with a competitive advantage and, in any event, may not prevent competitors from entering the markets for our products. Additionally, our competitors could independently develop non-infringing technologies that are competitive with, equivalent to, or superior to our technology.

 

 

Monitoring infringement and misappropriation of intellectual property can be difficult, and there is no guarantee that we would detect any infringement or misappropriation of our proprietary rights. Even if we do detect infringement or misappropriation of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources from our business operations. Further, we license our products internationally, and the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States.

 

Third parties may claim in the future that we are infringing their intellectual property and we could be exposed to significant litigation or licensing expenses or be prevented from selling our products if such claims are successful.

 

We may be subject to claims that we or our customers may be infringing upon, or contributing to the infringement of, the intellectual property rights of others. We may be unaware of intellectual property rights of others that may cover some of our technologies and products. If it appears necessary or desirable, we may seek licenses for these intellectual property rights. However, we may not be able to obtain licenses from some or all claimants, the terms of any offered licenses may not be acceptable to us, and we may not be able to resolve disputes without litigation. Any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. In the event of intellectual property infringement claim, we may be required to enter into costly royalty or licensing agreements. Third parties claiming intellectual property infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to develop and sell our products.

 

We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third party claims as a result of litigation or other proceedings.

 

In connection with the enforcement of our own intellectual property rights, the acquisition of third party intellectual property rights, or disputes relating to the validity or alleged infringement of third party intellectual property rights, including patent rights, we may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation are typically very costly and can be disruptive to business operations by diverting the attention and energy of management and key technical personnel. We may incur significant costs in acquiring the necessary third party intellectual property rights for use in our products. Third party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements. Any of these could seriously harm our business.

 

 

Any defects in, or other problems with, our products could harm our business and result in claims against us.

 

Complex software products such as ours may contain errors, defects and bugs (collectively, “errors”). During the development of any product, we may discover errors. As a result, our products may take longer than expected to develop. In addition, we may discover that remedies for errors may be technologically unfeasible. Delivery of products with undetected errors or reliability, quality or compatibility problems could damage our reputation. The existence of errors or reliability, quality or compatibility problems could also cause interruptions, delays or cessations of sales. We could, as well, be required to expend significant capital and other resources to remedy these problems. In addition, customers whose businesses are disrupted by these errors or reliability, quality or compatibility problems could bring claims against us; the defense of which, even if successful, would likely be time consuming and costly. Furthermore, if any such defense were not successful, we might be obligated to pay substantial damage that could materially and adversely affect our operating results.

 

RISKS RELATING TO OUR COMMON STOCK

 

Because our common stock could remain under $5.00 per share, it could continue to be deemed a low-priced “Penny” stock and an investment in our common stock would be considered high risk and subject to marketability restrictions.

 

Since our common stock is currently under $5.00 per share, it is considered a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act. Therefore, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. If the trading price of the common stock stays below $5.00 per share, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

 

	●		Deliver to the customer, and obtain a written receipt for, a disclosure document;
	●		Disclose certain price information about the stock;
	●		Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
	●		Send monthly statements to customers with market and price information about the penny stock; and
	●		Approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules, in some circumstances.

 

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to accept the common stock for deposit into an account or, if accepted for deposit, to sell the common stock. These restrictions may affect the ability of holders to sell their common stock in the secondary market and affect the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

 

 

If we fail to remain current on our reporting requirements with the SEC, we could be removed from the OTC-QB, which would limit the ability of broker dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

 

Companies trading on the OTC-QB generally must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC-QB. More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC-QB by requiring an issuer to be current in its filings with the Commission. Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two year period or our securities are removed from the OTC-QB for failure to timely file twice in a two year period, then we will be ineligible for quotation on the OTC-QB. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. As of the date of this filing, we have no late filings reported by FINRA.

 

Our internal controls may be inadequate which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Exchange Act Rule includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of Voice Assist, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

We have four individuals, including Executive Management, responsible for ensuring compliance with our internal control procedures. Management has determined that our internal controls are, at this time, inadequate or ineffective which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.

 

 

Our auditor’s have substantial doubt about our ability to continue as a going concern. Additionally, our auditor’s report reflects the fact that the ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or financing and, ultimately the achievement of significant operating revenues.

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that the ability of Voice Assist to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or financing and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, you will lose your investment. We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to investors.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

As of the date of the filing of this Annual Report on Form 10-K, the Company does not have any unresolved Securities and Exchange Commission comments.

 

ITEM 2.

PROPERTIES

 

We currently maintain an office at 2 South Pointe Dr., Suite 100, Lake Forest, California. We currently pay $9,107 per month in rent. We do not believe that we will need to obtain additional office space at any time in the foreseeable future, approximately 12 months, until our business plan is more fully implemented.

 

ITEM 3.

LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us that may materially affect us.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES

 

Market Information

 

Our common stock is traded in the over-the-counter securities market through the Financial Industry Regulatory Authority (“FINRA”) Automated Quotation Bulletin Board System, under the symbol “VSST”. We have been eligible to participate in the OTC-QB since January 26, 2010. The following table sets forth the quarterly high and low bid prices for our common stock during our last two fiscal years, as reported by a Quarterly Trade and Quote Summary Report of the OTC-QB. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

 

		2012								2011
		High				Low				High				Low
1 st Quarter			0.40				0.10				3.10				1.55
2 nd Quarter			0.44				0.06				2.19				1.05
3 rd Quarter			0.29				0.11				1.70				0.49
4 th Quarter			0.25				0.04				0.82				0.26

 

As of April, 12, 2013, the Company’s Stock closed at a price of $0.08.

 

Holders of Common Stock

 

As of April 12, 2013, we had 110 stockholders of record of the 42,052,500 shares outstanding.

 

Dividends

 

The payment of dividends is subject to the discretion of the Company’s Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid nor declared any dividends on our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends in the foreseeable future.

 

 

We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of our:

 

	●		financial condition;
	●		earnings;

	●		need for funds;
	●		capital requirements;

	●		prior claims of preferred stock to the extent issued and outstanding; and
	●		other factors, including any applicable laws.

 

Therefore, there can be no assurance that any dividends on the common stock will ever be paid.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

2010 Stock Incentive Plan

 

We have reserved for issuance an aggregate of 10,000,000 shares of common stock under our 2010 Stock Incentive Plan (“the Plan”) that was adopted in August of 2010. On June 29, 2011 all the options granted under the 2010 Stock Incentive Plan were cancelled. On June 30, 2011 the Company issued the holders of the cancelled options the same number of options with the same vesting and exercise schedule under the 2011 Stock Incentive Plan. As of December 31, 2012, zero (-0-) options had been granted under the Plan.

 

Purposes of the 2010 Plan

 

The purposes of the Plan are (a) to enhance the Company’s ability to attract and retain the services of qualified employees, officers and directors, contractors and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.

 

Stock Subject to the 2010 Plan

 

Shares that are eligible for grant under the Plan to participants include Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock. “Incentive Options” are any options designated and qualified as an “incentive stock option” as defined in Section 422 of the Internal Revenue Code. “Non-Qualified Options” are any options that are not an Incentive Option. To the extent that any option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a ten percent stockholder or because it exceeds the annual limit, it shall to that extent constitute a Non-Qualified Option. “Restricted Stock” is shares of common stock issued pursuant to any restrictions and conditions as established in the Plan.

 

The Plan provides that a maximum of Ten Million (10,000,000) shares of common stock are available for grant as awards under the Plan.

 

 

Eligibility

 

Incentive Options. Only employees of the Company or of an affiliated company (including officers of the Company and members of the Board of Directors if they are employees of the Company or of an affiliated company) are eligible to receive Incentive Options under the Plan.

 

Non-Qualified Options and Restricted Stock. Employees of the Company or of an affiliated company, officers of the Company and members of the Board of Directors (whether or not employed by the Company or an affiliated company), and service providers are eligible to receive Non-Qualified Options or acquire Restricted Stock under the Plan.

 

2011 Stock Incentive Plan

 

On June 27, 2011, the Company adopted a 2011 Stock Incentive Plan (“the 2011 Plan”), reserving 10,000,000 shares of common stock. The plan is filed as Exhibit 10-8 to this filing. As of December 31, 2012, 8,307,625 options had been granted under the 2011 Plan, 5,461,325 options had been cancelled, 292,475 had been exercised, and 2,553,825 options were outstanding.

 

Purposes of the 2011 Plan

 

The purposes of the 2011 Plan are (a) to enhance the Company’s ability to attract and retain the services of qualified employees, officers and Directors, contractors and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.

 

Stock Subject to the 2011 Plan

 

Shares that are eligible for grant under the 2011 Plan to participants include Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock. “Incentive Options” are any options designated and qualified as an “incentive stock option” as defined in Section 422 of the Code. “Non-Qualified Options” are any options that are not an Incentive Option. To the extent that any option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a ten percent stockholder or because it exceeds the annual limit, it shall to that extent constitute a Non-Qualified Option. “Restricted Stock” is shares of common stock issued pursuant to any restrictions and conditions as established in the 2011 Plan.

 

The 2011 Plan provides that a maximum of Ten Million (10,000,000) shares of common stock are available for grant as awards under the Plan.

 

 

Equity Compensation Plans Information

 

We maintain the 2010 and 2011 Stock Incentive Plans to allow the Company to compensate employees, directors, consultants and certain other individuals providing bona fide services to the Company or to compensate officers, directors and employees for accrual of salary through the award of common stock.

 

Options give directors, officers, employees and consultants the opportunity to purchase stock at a fixed price for a period of time. To determine the Fair Market Value of the options under this plan, the Board has set the strike price at the fair market value of our common stock on the grant date.

 

The following table sets forth information as of December 31, 2012 regarding outstanding shares granted under the plans and options reserved for future grant under the plans. The grant of these options have not been delayed, accelerated or coordinated with the release of material non-public information.

 

Plan Category		Number of shares to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a))
		(a)				(b)				(c)
Equity compensation plans approved by stockholders			2,553,825			$	0.82				7,446,175
Equity compensation plans not approved by stockholders			--			$	--				--
Total			2,553,825			$	0.82				7,446,175

 

The Plan is intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort for its success and growth, to aid in retaining individuals who put forth such effort, and to assist in attracting the best available individuals to the Company in the future.

 

Recent Sales of Unregistered Securities

 

Stock and Warrant Issuances Pursuant to Subscription Agreements

 

During the fourth quarter of 2012, the Company issued a total of 666,667 Units comprised of shares of restricted Common Stock and Warrants to three accredited investors. The investors purchased the 666,667 Units for a total purchase price of $100,000, all of which was paid in cash.

 

 

We believe that the issuance and sale of the above shares were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule 506 The shares were issued directly by the Company and did not involve a public offering or general solicitation. The recipients of the shares were afforded an opportunity for effective access to files and records of the Company that contained the relevant information needed to make their investment decision, including the financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to the sale of the shares, was an accredited investors and had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the shares.

 

Issuance of Stock Options

 

Other than stock options extended to its new board of advisers, as further described in the section entitled Compensation of Directors below, during the fourth quarter of 2012 and through the date of this filing, the Company has not issued any Stock Options to its employees, directors or consultants.

 

Subsequent Events

 

Issuance of Stock to Independent Contractors

 

Subsequent to year-end in March 2013, the Company issued 213,000 shares of stock to two (2) independent contractors to the Company. The shares were issued pursuant to contracts entered into with these independent contractors and for services rendered.

 

We believe that the issuance and sale of the above shares were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule 506 The shares were issued directly by the Company and did not involve a public offering or general solicitation. The recipients of the shares were afforded an opportunity for effective access to files and records of the Company that contained the relevant information needed to make their investment decision, including the financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to the sale of the shares, was an accredited investors and had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the shares.

 

 

Cancellation of Stock

 

The Company will cancel 187,500 shares of common stock in April 2013. The shares were issued to Augme Technologies as part of the Custom Software Development Contract entered into between Voice Assist and Augme Technologies on July 13, 2012. The cancelled shares pertain to a release agreement entered into by the Company on March 5, 2013 to terminate the Custom Software Development Contract.

 

Shares to be Issued

 

On January 16, 2013, the Company received $100,000 from an unrelated party for Units of common stock. This is pursuant to the subscription agreement dated December 26, 2012. The agreement is for Units consisting of one share of common stock at $0.08 per Unit with a max offering of $200,000. The other $100,000 was received by the Company in December 2012. As of the date of this filing no shares have been issued.

 

Issuer Purchases of Equity Securities

 

The Company did not repurchase any of its equity securities during the year ended December 31, 2012.

 

 

ITEM 6.

SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. References in the following discussion and throughout this annual report to “we”, “our”, “us”, “Voice Assist”, “the Company”, and similar terms refer to Voice Assist, Inc. unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. Voice Assists’ actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this filing.

 

OVERVIEW AND OUTLOOK

 

Background

 

Voice Assist, Inc., formerly Musician’s Exchange was incorporated in the State of Nevada on February 4, 2008. On July 22, 2010 Voice Assist, Inc., entered into agreements with SpeechPhone LLC, MDM Intellectual Property LLC, SpeechCard LLC, SpeechCall LLC, SpeechPhone Direct LLC and VoiceAssist LLC for the acquisition of essentially all the assets of the above entities. As a result of the asset acquisitions that occurred on September 30, 2010, the Company’s entire operations are based on the operations of the assets acquired.

 

 

Our Operations

 

Voice Assist is a hosted speech services provider offering cloud based speech recognition technology designed to voice enable mobile applications and cloud based services. Voice Assist provides hands-free safe driving applications such as voice dialing, email by voice, text by voice and posting to social networks by voice. Voice Assist also works with 3rd party developers to voice enable mobile applications and cloud based services. Voice Assist sells direct to the public via our website at www.voiceassist.com and also through the app stores on Google Play and Apple iTunes for iPhone and also licenses technology or revenue shares and provides hosted services to enterprises, 3rd party developers, wireless and wireline service providers and value added resellers.

 

We believe that the presence of voice technology as an interface in mobile communications has real advantages in a mobile world. Voice interface technology makes portable communications more effective and safer to use. Our development efforts are currently focused on the mobile workforce and building vertical enterprise applications to, among other things, maximize employee productivity and safety while driving. Voice Assist is also focused on building tools to empower third party developers to add voice technology into existing applications.

 

Our strategy is to be a leader in cloud based speech recognition services. We want to leverage our infrastructure, technology, speech server farms, simple APIs and setup process, and expertise to provide a super easy, fast and cost effective means for developers to integrate to and deploy speech recognition technology without requiring a deep knowledge of speech application development or optimization.

 

Voice Assist and developers will build simple to use services with wide market appeal and augment this effort with vertical applications designed for specific purposes such as CRM, Healthcare, Insurance and other vertical markets. Voice Assist will monetize its Hosted Speech Platform (HSP) on a usage model or through its own services offerings built upon the HSP.

 

We intend to aggressively market our “safe driving” application and continue to form strategic alliances with value added resellers and carriers. We believe the combination of these activities will result in increased revenue over time.

 

We currently earn our revenues from enterprises and consumers who pay us a monthly recurring fee to use our services.  We also generate revenue by hosting speech applications and providing enhanced communication services to resellers and other service providers.  When the development portal is complete, we also expect to generate revenue on a pay per use basis and/or also based on revenue sharing with 3rd party application developers. Completion of the development portal is subject to available capital.

 

 

Results of Operations

 

Comparison of Years Ended December 31, 2012 and December 31, 2011

 

The following table sets forth key components of our results of operations during the fiscal years ended December 31, 2012 and December 31, 2011. The financial data should be read in conjunction with the financial statements, related notes and other financial information included in this Annual Report.

 

		Fiscal Year Ended   December 31,								Increase (Decrease)
		2012				2011				$				%
OPERATING REVENUES
Total Revenues		$	564,597			$	872,010			$	(307,413	)			(35	%)
OPERATING EXPENSES
Direct Cost of Services			344,329				480,019				(135,690	)			(28	%)
Other Costs of Revenues			12,756				9,318				3,438				37	%
Total Direct Cost of Services			357,085				489,337				(132,252	)			(27	%)
Legal and Professional			839,306				1,011,589				(172,283	)			(17	%)
Selling, General and Administrative			1,861,886				9,293,198				(7,431,312	)			(80	%)
Selling, General and Administrative – Related Parties			-				40,895				(40,895	)			(100	%)
Advertising and Marketing			54,700				113,119				(58,419	)			(52	%)
Impairment of Software
Development Costs			351,289				-				351,289				100	%
Depreciation and Amortization			164,470				157,651				6,819				4	%
Net Loss from Operations			(3,064,139	)			(10,233,779	)			7,169,640				70	%
OTHER INCOME AND (EXPENSE)
Interest Expense			(1,139	)			(2,316	)			1,177				51	%
Other Income (Expense)			2,850				(1,490	)			4,340				291	%
Total Other Income (Expense)			1,711				(3,806	)			5,517				145	%
Net Loss  before Income Taxes			(3,062,428	)			(10,237,585	)			7,175,157				70	%
Income Tax Expense			-				-				-				-
NET LOSS		$	(3,062,428	)		$	(10,237,585	)		$	7,175,157				70	%

  

 

Revenues. Our revenues decreased to $564,597 in the fiscal year ended December 31, 2012 from $872,010 in the fiscal year ended December 31, 2011, representing a 35% decrease. The decrease in revenues is a result of a decrease in business from our primary reseller after it was sold to a 3^rd party that discontinued providing enhanced telecom services and a decrease in retail subscribers resulting from nonpayment of services.

 

Total Cost of Services. Total cost of services decreased $132,252, or 27% to $357,084 in the fiscal year ended December 31, 2012 from $489,337 for the fiscal year ended December 31, 2011. The decrease in the total cost of services is a result of decreased carrier fees for the services provided.

 

Legal and Professional. Legal and professional expenses decreased $172,283, or 17%, to $839,306 in the fiscal year ended December 31, 2012 from $1,011,589 for the fiscal year ended December 31, 2011. The decrease in legal and professional fees was the result of decreased consulting fees, accounting fees and legal fees relative to a public company, patent applications and corporate transaction work.

 

Selling, General and Administrative. Selling, general and administrative expenses decreased $7,431,312, or 80%, to $1,861,886 for the fiscal year ended December 31, 2012 from $9,293,198 for the fiscal year ended December 31, 2011. The decrease was the result of a reduction of management personnel and stock-based compensation.

 

Selling, General and Administrative – Related Parties. Selling, general and administrative – related parties’ expenses decreased $40,895, or 100%, to $0 in the fiscal year ended December 31, 2012 from $40,895 for the fiscal year ended December 31, 2011. The decrease was the result of no longer receiving related party management fee charges.

 

Advertising and Marketing. Our advertising and marketing expenses decreased $58,419, or 52%, to $54,700 in the fiscal year ended December 31, 2012 from $113,119 for the fiscal year ended December 31, 2011. The decrease was the result of lower marketing expense due to a lack of capital.

 

Impairment of Software Development Costs. During the period ended December 31, 2012, management determined that certain software development costs were impaired and needed to be written off as the expected future net cash flows associated with these assets was less than their carrying value. Therefore, software development costs totaling $351,289 were written off to expense.

 

Depreciation and Amortization. Our depreciation and amortization expenses increased $6,819, or 4%, to $164,470 in the fiscal year ended December 31, 2012 from $157,651 for the fiscal year ended December 31, 2011. The increase was the result of regular annual depreciation of fixed assets and the amortization of capitalized software development costs.

 

Net Loss from Operations. We had $3,064,139 in net loss from operations in the fiscal year ended December 31, 2012, as compared to net loss from operations of $10,233,779 during the period ended December 31, 2011. The decrease was the result of the reduction of management personnel, advertising and marketing costs, expenses for stock options granted to executives and employees and accounting and legal fees.

 

 

Interest Expense. Interest expense decreased $1,177, or 51%, to $1,139 in the fiscal year ended December 31, 2012 from $2,316 for the fiscal year ended December 31, 2011. The decrease was the result of a reduction of finance related transactions.

 

Other Income (Expense). Other income (expense) increased $4,340 to income of $2,850 in the fiscal year ended December 31, 2012 from expense of $1,490 for the fiscal year ended December 31, 2011. The increase was mainly the result of sublet rental income.

 

Net Loss. In the fiscal year ended December 31, 2012, we generated a net loss of $3,062,428, a decrease of $7,175,157, or 70%, from $10,237,585 for the period ended December 31, 2011. This increase was primarily attributable to the reduction of management personnel, decreased advertising and marketing costs, expense for stock options granted to executives and employees and accounting and legal fees.

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, total current liabilities and working capital at December 31, 2012 compared to December 31, 2011.

 

										Increase / (Decrease)
		December 31, 2012				December 31, 2011				$				%
Current Assets		$	198,991			$	281,106			$	(82,115	)			(29	%)
Current Liabilities		$	968,482			$	2,923,726			$	(1,955,244	)			(67	%)
Working Capital		$	(769,491	)		$	(2,642,620	)		$	(1,873,129	)			(71	%)

 

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock and by borrowings. In the future, we anticipate we will be able to provide the necessary liquidity needed from the revenues generated from operations.

 

Since inception, we have financed our cash flow requirements through issuance of common stock and related party notes payable. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending additional revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from product and software sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.

 

 

During the year ended December 31, 2012, the current assets decreased by $82,115 when compared to December 31, 2011 mostly due to a reduction in prepaid expenses from December 31, 2011 that were amortized at the rate of $6,833 per month through December 31, 2012.

 

During the twelve months ended December 31, 2012, the current liabilities decreased by $1,955,244 when compared to December 31, 2011 current liabilities of $2,923,726. Approximately $273,536 of the balance in accounts payable at the fiscal year end December 31, 2012 is for attorneys, software developers and consultant’s fees. The major decrease in current liabilities was from the extinguishment of a liability to a related party for shares previously transferred from personal holdings for Company purposes.

 

We anticipate that we may incur operating losses during the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, obtain a larger customer base, implement and successfully execute our business and marketing strategy, continually develop and upgrade our software and website, provide national and regional industry participants with an effective, efficient and accessible website on which to promote their products and services through the Internet, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Going Concern

 

The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of Voice Assist as a going concern. Voice Assist may not have a sufficient amount of cash required to pay all of the costs associated with operating and marketing of its services. Management intends to use revenues and sales of its common stock to mitigate the effects of cash flow deficits; however no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should Voice Assist be unable to continue existence.

 

 

Critical Accounting Policies and Estimates

 

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.

 

Revenue Recognition

 

For recognizing revenue, the Company applies the provisions of the Revenue Recognition Topic of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Revenues are generated from telephony services including activation fees, hardware fees and monthly usage fees. In most cases, the services performed do not require significant production, modification or customization of the Company’s software or services; therefore, revenues for the hardware fees and monthly usage fees are recognized when evidence of a completed transaction exists, generally when services have been rendered. The Company recognized revenue from sales of $564,597 during the twelve months ended December 31, 2012.

 

The activation fees generated from new accounts are recorded as deferred revenue and are amortized over the estimated average customer relationship period. The net unamortized activation fees were $6,000 at the twelve months ended December 31, 2012. The costs associated with these activation fees are recorded as deferred costs and are similarly amortized over the estimated average customer relationship period. The net unamortized costs are $1,500 at the twelve months ended December 31, 2012. For both the activation fees and costs associated therewith, the estimated average customer relationship period was 24 months for the twelve months ended December 31, 2012.

 

Stock-Based Compensation

 

The Company accounts for stock-based awards to employees in accordance with Financial Accounting Standards Board’s Accounting Standard Codification (ASC) 718 “Stock Compensation.” Options granted to consultants, independent representatives and other non-employees are accounted for using the fair value method as prescribed by ASC 505-50.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

 

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable because we are a smaller reporting company.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-18 of this Form 10-K.

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

We have had no disagreements with our independent auditors on accounting or financial disclosures.

 

ITEM 9A

(T). CONTROLS AND PROCEDURES

 

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on that evaluation, it was concluded that our disclosure controls and procedures are ineffective in timely alerting to material information relating to us required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports filed or submitted under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls including the possibility of human error and overriding of controls. Consequently, an ineffective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

 

 

Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and that the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

 

Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, and as a result in the recent change in management, management concluded that our internal control over financial reporting was ineffective as of December 31, 2012.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

No other information noted.

 

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following sets forth information about our directors and executive officers as of the date of this report:

 

Name		Age		Title		Term Commencing
Michael Metcalf		50		Chairman of the Board, Chief Executive Officer, Interim Chief Financial Officer		09/30/10

 

Duties, Responsibilities and Experience

 

Michael Metcalf, Chairman of the Board, Chief Executive Officer, Interim Chief Financial Officer: Since 2002, Mr. Metcalf has served as Chairman and Founder of SpeechPhone LLC. Between 1997 and 2002, Mr. Metcalf served as Chairman and CEO of Sound Advantage LLC. While at Sound Advantage, Mr. Metcalf raised $42 million before merging the company with AVST, Inc. Prior to Sound Advantage, Mr. Metcalf spent 7 Years at TelWest, where he raised $3 million and eventually sold to a public company, USLD. During the early stage of his career, Mr. Metcalf developed skills as a PBX engineer, software engineer, product manager, development manager, and proven ability in corporate development. More recently, the Southern California business community recognizes him as a successful serial entrepreneur, noteworthy for innovative product inventions. He has led his product development organizations to win 25 top industry awards over the past twelve years including five “Product of the Year” awards.

 

Following the resignations of Rod Shipman and Scott Fox from the Board of Directors during the last quarter of 2012, Mr. Metcalf remained as the sole director (“Sole Director”) of the Company and immediately extended offers to Barry George, Bob Howard, and Andrew Rauch to assist the Sole Director in an advisory capacity.

 

 

Family Relationships

 

In the last quarter of 2012, Helen Metcalf, was appointed as Secretary of the Corporation. Ms. Metcalf is the wife of the Chief Executive Officer and Interim Chief Financial Officer.

 

Code of Ethics

 

On September 29, 2010, we adopted a Code of Business Conduct and Ethics for directors, officers and employees of the Company. A copy of the Code of Business Conduct and Ethics is attached as Exhibits 99.3 to the 8-K filed November 12, 2010.

 

Limitation of Liability of Directors and Indemnification

 

Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws.

 

In accordance with the Nevada General Corporation Law and our bylaws, we have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

 

Election of Directors and Officers

 

Directors are elected to serve for a 3 year term and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.

 

Director Nomination Procedures

 

Generally, nominees for Directors are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates in the past and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:

 

1.	Whether the nominee has the personal attributes for successful service on the Board such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to the affairs of the Company;
2.	Whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations;

3.	Whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to the Company’s current or future business, will add specific value as a Board member.
4.	Whether there are any other factors related to the ability and willingness of a new nominee to serve or an existing Board member to continue his service.

 

The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion, and make a determination regarding whether a candidate should be recommended to the stockholders for election as a Director.

 

The Company will consider for inclusion in its nominations of new Director nominees proposed by stockholders who have held at least 1% of the outstanding voting securities of the Company for at least one year. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for the Company’s consideration a prospective nominee to serve on the Board of Directors may do so by giving the candidate’s name and qualifications in writing to the Company’s Secretary at the following address: 2 South Pointe Dr., Suite 100, Lake Forest, California 92630.

 

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past five years:

 

●	been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

 

●	had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

●

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

●	been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

●

been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

●

been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires executive officers and directors, and persons who beneficially own more than ten percent of an issuer’s common stock that has been registered under Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with the SEC.

 

 

Executive officers, directors and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and Directors, we believe that as of the date of this filing they were current in their filings.

 

Corporate Governance

 

We currently do not have standing audit, nominating or compensation committees of the Board of Directors, or committees performing similar functions. Until formal committees are established, our entire Board of Directors, perform the same functions as an audit, nominating and compensation committee.

 

In September 2010, the Board of Directors adopted an Audit Committee Charter, Nominating Committee Charter, and Compensation Committee Charter. The Charters are attached as Exhibit 99.4, 99.5 and 99.6 to the 8-K filed November 12, 2010.

 

ITEM 11.

EXECUTIVE COMPENSATION

 

Overview of Compensation Program

 

We currently have not appointed members to serve on the Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable and competitive.

 

Compensation Philosophy and Objectives

 

The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having one executive officer, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to establish a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.

 

 

Role of Executive Officers in Compensation Decisions

 

The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officer and Director of the Company. Decisions regarding the non-equity compensation of other employees of the Company are made by the Chief Executive Officer.

 

Summary Compensation

 

During the year ended December 31, 2012, Mr. Metcalf received compensation for his role as the Company’s Chief Executive Officer. During the year ended December 31, 2012. Mr. Osmundsen received compensation for his role as Chief Financial Officer and interim Chief Financial Officer. During the year ended December 31, 2012, Mr. Weber received compensation for his role as Chief Technology Officer. As of December 31, 2012, executives received compensation totaling $200,256.

 

During the year ended December 31, 2012, the Company began deferring compensation for one executive. At December 31, 2012, the Company had $138,375 accrued for his deferred payroll. In exchange for deferring the payroll, the executive elected to receive 20% of his deferred salary in options valued at $0.01. The Company granted $20,600 in options and accrued $5,589 for additional options at December 31, 2012.

 

During the year ended December 31, 2012, members of the Board of Directors received compensation as further outlined in the section entitled Compensation of Directors below.

 

SUMMARY COMPENSATION AND GRANTS

 

Summary Compensation Table

 

The table below summarizes the total compensation paid to or earned by our Executive Officers, for the last two fiscal years ended December 31, 2012 and 2011.

 

SUMMARY COMPENSATION TABLE
Name and Principal Positions		Year				Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards ($)				Non- Equity Incentive Plan Compen- sation ($)				Non-qualified Deferred Compensation Earnings ($)				All Other Compen sation ($)				Total ($)
Michael Metcalf,
Chief Executive Officer (1)			2012			$	64,625	(5)			-0-				-0-				20,600				-0-				-0-				-0-			$	85,225
			2011			$	107,871	(5)			-0-				-0-				1,138,643				-0-				-0-				-0-			$	1,246,514
Donna Moore,
Former Chief Financial Officer (2)			2012				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
			2011				-0-				-0-			$	20,500				-0-				-0-				-0-				-0-			$	20,500
Bill Osmundsen
Former Chief Financial Officer (6)			2012			$	12,000				-0-				-0-			$	41,412				-0-				-0-				-0-			$	53,412
			2011				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
Dean Weber
Former Chief Technology Officer (7)			2012			$	19,195				-0-				-0-			$	42,424				-0-				-0-				-0-			$	61,619
			2011				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
Randy Granovetter,
Former President (3)			2012				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
			2011			$	126,708				10,000				-0-				1,004,298				-0-				-0-				-0-			$	1,141,006
Michael Silva,
Former Chief Financial Officer (4)			2012				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
			2011			$	104,943				-0-				-0-				514,160				-0-				27,500				-0-			$	646,603

 

(1)	Mr. Metcalf was appointed Chief Executive Officer of the Company on September 30, 2010.
(2)	Ms. Moore was appointed Chief Financial Officer of the Company on October 20, 2011 and resigned her position on August 31, 2012.

 

 

(3)	Mr. Silva was appointed Chief Financial Officer of the Company on January 1, 2011 and resigned his position on October 17, 2011.

(4)	Ms. Granovetter was appointed President of the Company on January 1, 2011 and resigned her position on October 14, 2011.
(5)	Mr. Metcalf has a total of $132,375 accrued but unpaid salary.
(6)	Mr. Osmundsen was appointed Chief Financial Officer on September 1, 2012 and resigned his position on December 2, 2012.

(7)	Mr. Weber was appointed Chief Technology Officer on March 1, 2012. He was terminated on August 10, 2012.

 

Stock Options Granted During the Most Recently Completed Financial Year

 

OUTSTANDING EQUITY AWARDS
OPTION AWARDS																						STOCK AWARDS
Name		Number of Securities Underlying Unexercised Options				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options				Option Exercise Price				Option Expiration Date				Number of Shares or Units of Stock that have not Vested				Market Value of Shares of Units of Stock that have not Vested				Equity Incentive Plan Awards: Number of unearned shares, Units or other Rights that have not Vested				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or other rights that have not vested
Michael Metcalf, Chief Executive Officer			20,600				0				0			$	0.01				6/1/2017				0				0				0				0
Dean Weber, Former Chief Technology Officer			125,000				0				0			$	0.50				4/10/2013				0				0				0				0
Bill Osmundsen, Former Chief Financial Officer			300,000				0				0			$	0.50				1/3/2013				0				0				0				0
Donna Moore, Former Chief Financial Officer			0				0				0				0				0				0				0				0				0

 

Employment Agreements

 

The company did not enter into any employment agreements during the fourth quarter of 2012 nor through the date of this report.

 

 

Compensation of Directors

 

On December, 18, 2012, the Board of Directors extended offers to Barry George, Bob Howard, and Andrew Rauch to assist the Sole Director in an advisory capacity. They will each receive 15,000 restricted common shares for each quarter that they serve as advisors as compensation for their advisory services.

 

There are no other compensatory plans or arrangements, including payments to be received from the Company, with respect to any person other than those named above, that would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person’s responsibilities following a change in control of the Company, except with respect to a breach of contract on the part of the Company.

 

The table below summarizes the total compensation paid to Directors of the Company during the year ended December 31, 2012. Any executives of the Company also serving on the Board are represented in the Summary Compensation Table above.

 

DIRECTOR COMPENSATION
Name		Fees Earned or Paid in Cash				Stock Awards				Option Awards				Non-Equity Incentive Plan Compensation				Nonqualified Deferred Compensation Earnings				All other Compensation				Total
Donald Sutherland		$	54,000			$	54,000	(1)		$	0.00			$	0.00			$	0.00			$	0.00			$	0.00
Scott Fox (2)		$	32,000			$	0.00			$	0.00	(3)(4)		$	0.00			$	0.00			$	0.00			$	0.00

 

(1)	On April 13, 2012, Mr. Sutherland was issued 600,000 shares of the Company’s Common Stock as compensation for his services on the Company’s Board of Directors. Mr. Sutherland resigned on September 6, 2012.

(2)	Independent Director. Scott Fox resigned on December 3, 2012.
(3)	The 250,000 options granted on June 30, 2011 have an exercise price of $0.01. The options vested immediately. Scott Fox resigned on December 3, 2012. These options expired unexercised one month after his resignation date subsequent to year-end on January 3, 2013.

(4)	The 225,000 options granted on April 15, 2011, have an exercise price of $1.00. Scott Fox resigned on December 3, 2012. These options expired unexercised one month after his resignation date subsequent to year-end on January 31, 2013.

  

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information, to the best of our knowledge, about the beneficial ownership of our common stock on April 12, 2013 relating to the beneficial ownership of our common stock by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership for the following table is based on 42,052,500 shares of common stock outstanding.

 

Security Ownership of Management

 

Title of Class		Name of Beneficial Owner (1)		Amount of Beneficial Ownership				Percent of Class (2)
Common		Michael D. Metcalf			14,823,376	(3)(4)			35.4	%
		All Beneficial Owners as a Group			14,823,376				35.4	%

 

(1)	As used in this table, “beneficial ownership” means the sole or united power to vote, or to direct the voting of, a security, or the sole or united investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). Each Parties’ address is in care of the Company at 2 South Pointe Dr., Suite 100, Lake Forest, CA 92630.
(2)	Figures are rounded to the nearest tenth of a percent.

(3)

Includes: (i) 2,000,000 shares of Series A preferred stock issued to Mr. Metcalf and may be converted on a 1:1 basis into shares of common stock at any time; (ii) 10,250,000 shares of common stock issued to SpeechPhone LLC pursuant to the Agreements of Purchase and Sale of Assets and (iii) 2,573,376 shares of common stock issued to Metcalf Family Trust; Mr. Metcalf has sole voting power over the 2,000,000 shares of common stock he may acquire through the conversion of the Series A preferred stock, and he shares voting and investment power over the 10,250,000 SpeechPhone LLC shares. Mr. Metcalf is a managing member of SpeechPhone LLC and Trustee of the Metcalf Family Trust.

(4)

Although Mr. Metcalf has beneficial control over 14,823,376 shares, which include the 2,000,000 preferred shares, other members of SpeechPhone, LLC have ownership rights of 10,250,000 of the allocated shares.

 

Security Ownership of Certain Beneficial Owners

 

Title of Class		Name of Beneficial Owner (1)		Amount of Beneficial Ownership				Percent of Class (2)
Common		SpeechPhone, LLC (3)			10,250,000				33.0	%
Common		Donald Sutherland			2,250,000	(4)			5.3	%
		All Beneficial Owners as a Group			12,500,000				38.3	%

 

	(1)		As used in this table, “beneficial ownership” means the sole or united power to vote, or to direct the voting of, a security, or the sole or united investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). Each Parties’ address is in care of the Company at 2 South Pointe Dr., Suite 100, Lake Forest, CA 92630.
	(2)		Figures are rounded to the nearest tenth of a percent.
	(3)		Michael Metcalf is the majority owner in SpeechPhone LLC. Mr. Metcalf shares voting and investment power over the 10,250,000 shares.
	(4)		Includes 1,400,000 shares issued to Donald W. Sutherland & Susan C. Sutherland Rev Trust, as well as 850,000 issued to Donald Sutherland personally.

 

“Beneficial ownership” means the sole or shared power to vote or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days from the date of this filing.

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Transactions and Certain Relationships 

 

For the years ended December 31, 2012 and 2011, the Company received $117,000 and $75,000, respectively from a director as a convertible loan payable with no interest rate and payable upon demand. He resigned as director on September 6, 2012.

 

Director Independence

 

Michael Metcalf, the Company’s Chief Executive Officer and interim Chief Financial Officer, is not an independent director by virtue of his employment with the Company.

 

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

During the years ended December 31, 2012 and 2011, Mantyla McReynolds, LLC billed the Company $82,752 and $79,569, respectively, for audit and review services.

 

Audit-Related Fees

 

There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under “Audit Fees.”

 

Tax Fees

 

During the years ended December 31, 2012 and 2011, Mantyla McReynolds, LLC billed the Company $7,595 and $17,250 for tax compliance, tax advice, and tax planning for fiscal years 2012 and 2011, respectively.

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)

 

1.	The financial statements listed in the “Index to Financial Statements” at page F-1 are filed as part of this report.

 

2.	Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

 

3.	Exhibits included or incorporated herein: See index to Exhibits.

 

(b) Exhibits

 

						Incorporated by reference
Exhibit Number		Exhibit Description		Filed herewith		Form		Exhibit		Filing date
3(i)(a)		Articles of Incorporation of Musician’s Exchange				S-1		3(i)(a)		2/29/08
3(ii)(a)		Bylaws of Musician’s Exchange				S-1		3(ii)(a)		2/29/08
10.1		Subscription Agreement				S-1		10.1		2/29/08
31		Certification pursuant to Section 302 of the Sarbanes-Oxley Act		X
32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act		X
10.2		Asset Purchase Agreement between Musician’s Exchange, and Speech Phone LLC dated July 22, 2010				8-K				7/29/10
10.3		Asset Purchase Agreement between Musician’s Exchange, and Speech Card LLC dated July 22, 2010				8-K				7/29/10
10.4		Asset Purchase Agreement between Musician’s Exchange, and MDM International LLC dated July 22, 2010				8-K				7/29/10
10.5		Asset Purchase Agreement between Musician’s Exchange, and Voice Assist LLC dated July 22, 2010				8-K				7/29/10
10.8		2011 Stock Incentive Plan		X
101.INS		XBRL Instance Document		X
101.SCH		XBRL Taxonomy Extension Schema		X
101.CAL		XBRL Taxonomy Extension Calculation Linkbase		X
101.DEF		XBRL Taxonomy Extension Definition Linkbase		X
101.LAB		XBRL Taxonomy Extension Label Linkbase		X
101.PRE		XBRL Taxonomy Extension Presentation Linkbase		X

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

VOICE ASSIST, INC.

 

By:	/s/ Michael Metcalf
	Michael Metcalf, Chief Executive Officer and interim Chief Financial Officer

 

Date: April 16, 2013

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Michael Metcalf		Chief Executive Officer, Director, and interim Chief Financial Officer		April 16, 2013
Michael Metcalf

 

 

VOICE ASSIST, INC.

 

INDEX TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2012 AND DECEMBER 31, 2011

 

		PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-1
BALANCE SHEETS		F-2
STATEMENTS OF OPERATIONS		F-3
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)		F-4
STATEMENTS OF CASH FLOWS		F-5
NOTES TO FINANCIAL STATEMENTS		F-6 – F-18

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Shareholders

Voice Assist, Inc.

 

We have audited the accompanying balance sheets of Voice Assist, Inc. as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ deficit, and cash flows, for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Voice Assist, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years ended December 31, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has working capital deficits and has incurred losses from operations and negative operating cash flows during the years ended December 31, 2012 and 2011. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Mantyla McReynolds LLC
Mantyla McReynolds LLC
Salt Lake City, Utah
April 16, 2013

 

 

VOICE ASSIST, INC.

BALANCE SHEETS

 

		December 31, 2012				December 31, 2011
ASSETS
CURRENT ASSETS
Cash		$	51,478			$	5,853
Accounts Receivable			80,325				80,608
Deferred Customer Activation Costs			1,500				17,033
Prepaid Expenses			65,688				177,612
Total Current Assets			198,991				281,106
Property & Equipment, Net			133,398				187,626
Software Development, Net			235,706				580,322
OTHER ASSETS
Other Assets			32,027				40,135
Total Other Assets			32,027				40,135
Total Assets		$	600,122			$	1,089,189
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable		$	406,922			$	534,997
Accounts Payable - Related Parties			-				2,023,000
Accrued Expenses			307,560				209,395
Deferred Revenue			6,000				68,134
Deposits			20,000				-
Loans Payable			36,000				13,200
Loans Payable - Related Parties			192,000				75,000
Total Current Liabilities			968,482				2,923,726
Total Liabilities			968,482				2,923,726
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 2,000,000 shares issued and outstanding as of December 31, 2012 and 2011, respectively			2,000				2,000
Common stock, $0.001 par value, 100,000,000 shares authorized, 41,839,500 and 30,699,223 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively			41,839				30,699
Additional Paid in Capital			25,484,005				21,066,540
Shares to be Issued			100,000				-
Retained Earnings			(25,996,204	)			(22,933,776	)
Total Stockholders’ Equity (Deficit)			(368,360	)			(1,834,537	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	600,122			$	1,089,189

 

See Accompanying Notes to Financial Statements

 

 

VOICE ASSIST, INC.

STATEMENTS OF OPERATIONS

 

		Years Ended December 31,
		2012				2011
OPERATING REVENUES
Total Revenues		$	564,597			$	872,010
OPERATING EXPENSES
Direct Cost of Services			344,329				480,019
Other Costs			12,756				9,318
Total Direct Cost of Services			357,085				489,337
Legal and Professional			839,306				1,011,589
Selling, General and Administrative			1,861,886				9,293,198
Selling, General and Administrative - Related Parties			-				40,895
Advertising and Marketing			54,700				113,119
Impairment of Software Development Costs			351,289				-
Depreciation and Amortization			164,470				157,651
Total Operating Expenses			3,628,736				11,105,789
Net Loss from Operations			(3,064,139	)			(10,233,779	)
OTHER INCOME AND (EXPENSE)
Interest Expense			(1,139	)			(2,316	)
Other Income (Expense)			2,850				(1,490	)
Total Other Income (Expense)			1,711				(3,806	)
Net Loss before Income Taxes			(3,062,428	)			(10,237,585	)
Income Tax Provision			-				-
NET LOSS		$	(3,062,428	)		$	(10,237,585	)
Weighted Average Shares Outstanding – Basic & Diluted			37,134,573				28,569,735
Loss Per Share – Basic & Diluted		$	(0.08	)		$	(0.36	)

 

See Accompanying Notes to Financial Statements

 

 

VOICE ASSIST, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

																		Common				Additional								Total
		Preferred Shares								Common Shares								Shares				Paid-in				Accumulated				Stockholders’
		Shares				Amount				Shares				Amount				To Be Issued				Capital				Deficit				Equity (Deficit)
Balance December 31, 2010			2,000,000			$	2,000				26,600,000			$	26,600			$	970,000			$	12,007,389			$	(12,696,191	)		$	309,798
Issuance of common stock for cash			-				-				3,148,000				3,148				(900,000	)			3,044,852				-				2,148,000
Issuance of common stock for services			-				-				690,000				690				(70,000	)			770,810				-				701,500
Issuance of common stock for debt conversion			-				-				261,223				261				-				652,796				-				653,057
Stock Based Compensation			-				-				-				-				-				4,590,693				-				4,590,693
Net Loss			-				-				-				-				-				-				(10,237,585	)			(10,237,585	)
Balance December 31, 2011			2,000,000			$	2,000				30,699,223			$	30,699			$	-			$	21,066,540			$	(22,933,776	)		$	(1,834,537	)
Issuance of common stock and warrants for services			-				-				3,119,469				3,118				-				540,843				-				543,961
Conversion of Related Party Debt to Equity			-				-				1,195,000				1,195				-				2,022,205				-				2,023,400
Issuance of common stock for cash			-				-				6,533,333				6,534				100,000				973,466				-				1,080,000
Issuance of common stock for option exercise			-				-				292,475				293				-				2,634				-				2,927
Stock Based Compensation			-				-				-				-				-				878,317				-				878,317
Net Loss			-				-				-				-				-				-				(3,062,428	)			(3,062,428	)
Balance December 31, 2012			2,000,000			$	2,000				41,839,500			$	41,839			$	100,000			$	25,484,005			$	(25,996,204	)		$	(368,360	)

 

See Accompanying Notes to Financial Statements

 

 

VOICE ASSIST, INC.

STATEMENTS OF CASH FLOWS

 

		Years Ended December 31,
		2012				2011
Cash Flows From Operating Activities
Net Loss		$	(3,062,428	)		$	(10,237,585	)
Adjustments to reconcile from Net Loss to net cash used in operating activities:
Depreciation and amortization			164,470				157,651
Shares Issued for Services and Accounts payable			208,913				638,250
Noncash Compensation – in exchange for payable			-				2,000,000
Issuance of Warrants for Services			95,301				-
Stock-Based Compensation Expense			878,317				4,590,693
Impairment of Software Development Costs			351,289				-
Changes in operating assets and liabilities
Accounts Receivable			283				(35,869	)
Deferred Customer Activation Costs			15,533				4,028
Prepaid Expense			111,924				(28,106	)
Other Assets			8,108				(11,492	)
Accounts Payable			128,075				280,361
Accounts Payable - Related Party			-				23,000
Customer Deposits			20,000				-
Accrued Expenses			98,165				199,395
Deferred Customer Activation Fees			(62,134	)			(16,104	)
Net cash used in operating activities			(1,044,184	)			(2,435,778	)
Cash flows from investing activities
Acquisition and development of software assets			(116,196	)			(185,405	)
Purchase of Equipment			(16,722	)			(85,355	)
Net cash used in investing activities			(132,918	)			(270,760	)
Cash flows from financing activities
Proceeds from Convertible Loans Payable, Related Party			117,000				104,040
Repayment of Equipment Loans			-				(13,985	)
Repayment of Convertible Loans Payable, Related Party			-				(84,586	)
Repayment of Loans Payable			(13,200	)			(12,000	)
Proceeds from Issuance of Common Stock			1,080,000				2,078,000
Proceeds from Loans Payable			36,000				25,200
Proceeds from Stock Option Exercises			2,927				-
Net cash provided by financing activities			1,222,727				2,096,669
Net Increase/(Decrease) in Cash			45,625				(609,869	)
Cash, Beginning of Year			5,853				615,722
Cash, End of Year		$	51,478			$	5,853
Supplemental Information:
Cash paid for:
Taxes		$	-			$	6,004
Interest Expense		$	709			$	2,195
Non Cash Financing and operating activities:
Conversion of loans payable through issuance of common stock		$	2,263,147			$	653,057
Common stock issued for prepaid expense		$	-			$	133,250

 

See Accompanying Notes to Financial Statements

 

 

VOICE ASSIST, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 – THE COMPANY

 

Organization

 

Voice Assist, Inc. (the “Company”) was formed as a Nevada corporation on February 4, 2008 as Musician’s Exchange. On September 29, 2010, the Company changed its name from Musician’s Exchange to Voice Assist, Inc. Effective September 30, 2010, the Company completed the acquisition of substantially all of the assets of SpeechPhone LLC, MDM Intellectual Property LLC, SpeechCard LLC, SpeechCall, LLC, SpeechPhone Direct, LLC and Voice Assist LLC, (the “Acquisitions”).

 

For accounting purposes, the acquisition of substantially all of the assets and certain liabilities of Speechphone by the Company has been recorded as a reverse acquisition of a public company and recapitalization of Speechphone based on the factors demonstrating that Speechphone represents the accounting acquirer. The historic financial statements of Speechphone and related entities, while historically presented as an LLC equity structure, have been retroactively presented as a corporation for comparability purposes. The Company changed its business direction and is now a voice recognition technology company focused on enabling access to any information through any device using speech technology.

 

Voice Assist operates a cloud-based speech recognition platform that supports speech recognition based enterprise services such as Customer Relationship Management (CRM), field force automation, as well as direct-to-enterprise services such as virtual assistants that unify communications and direct-to-consumer “safe driving” services that allow SMS, email, and social media messaging through a single personal phone number. The technology empowers mobile staff members and especially drivers to use speech commands to access data and send email or text messages by voice instead of typing.

 

Basis of presentation

 

These financial statements have been prepared to reflect the financial position, results of operations and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Generally, matters subject to estimation and judgment include amounts related to asset impairments, useful lives of fixed assets, capitalization of costs for software developed for internal use and estimated average customer relationship period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers highly liquid investments with insignificant interest rate risk and original maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of interest-bearing bank accounts and money market funds. The Company’s cash positions represent cash on deposit in checking accounts. These assets are generally available on a daily basis and are highly liquid in nature.

 

Revenue Recognition

 

For recognizing revenue, the Company applies the provisions of the Revenue Recognition Topic of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Revenues are generated from telephony services including activation fees, hardware fees and monthly usage fees. In most cases, the services performed do not require significant production, modification or customization of the Company’s software or services; therefore, revenues for the hardware fees and monthly usage fees are recognized when evidence of a completed transaction exists, when services have been rendered. The Company recognized revenue from sales of $564,597 and $872,010 for the years ending December 31, 2012 and 2011, respectively.

 

 

The activation fees generated from new accounts are recorded as deferred revenue and are amortized over the estimated average customer relationship period. The net unamortized activation fees were $6,000 and $68,134 at the years ending December 31, 2012 and 2011, respectively. The costs associated with these activation fees are recorded as deferred costs and are similarly amortized over the estimated average customer relationship period. The net unamortized costs are $1,500 and $17,033 at the years ending December 31, 2012 and 2011, respectively. For both the activation fees and costs associated therewith, the estimated average customer relationship period was 24 months for the years ending December 31, 2012 and 2011, respectively.

 

Concentrations

 

During the year ended December 31, 2012, about 40% of the sales revenue was from one customer and December 31, 2011, over 50% of the sales revenue was generated from one customer.

 

Accounts Receivable

 

During the year ended December 31, 2012, the Company had three customers for whom invoices were prepared and recorded as accounts receivable. The accounts receivable totals were $80,325 and $80,608 for the years ending December 31, 2012 and 2011, respectively. Management has determined that there is no need to establish an allowance for doubtful accounts because there has been no history of non-payment.

 

Impairment

 

FASB ASC 360-10-35-21 requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company regularly evaluates whether events or circumstances have occurred that indicate the carrying value of our long-lived assets may not be recoverable. If factors indicate the asset may not be recoverable, we compare the related undiscounted future net cash flows to the carrying value of the asset to determine if impairment exists. If the expected future net cash flows are less than the carrying value, an impairment charge is recognized based on the fair value of the asset.

 

During the period ended December 31, 2012, management determined that certain software development costs were impaired and needed to be written off as the expected future net cash flows associated with these assets was less than their carrying value. Therefore, software development costs totaling $351,289 were written off to expense.

 

Software Development Costs

 

The Company has adopted the provisions of FASB ASC 350-40 in order to account for its software developed for internal use since the Company is dependent on the internal use automated speech recognition software to provide the enhanced services. Software development costs are capitalized for certain costs incurred during the application development stage and for upgrades and enhancements. Amortization is computed on an individual project basis using the straight-line method over the estimated economic life of the projected product, generally three to five years.

 

 

For the years ended December 31, 2012 and 2011, net software development costs are $235,706 and $580,322, respectively. The accumulated amortization of the capitalized software development costs were $109,522 and $198,519 as of December 31, 2012 and 2011, respectively. During the year ended December 31, 2012, the Company recognized impairment in the amount of $351,289 and charged to expense.

 

The following is a listing of the estimated amortization expense for the next five years:

 

2013		$	204,737
2014			10,323
2015			10,323
2016			10,323
2017			-
			235,706

  

Advertising and Marketing

 

Advertising expense included the cost of print advertising, trade show participation, news wires, and maintenance of an internet site. Advertising is expensed when incurred. Advertising expense for the years ended December 31, 2012 and 2011 was $54,700 and $113,119, respectively.

 

Net Loss Per Common Share

 

Basic income or loss per common share is based on the weighted-average number of shares outstanding. Diluted income or loss per share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method.  As the Company has incurred losses for the years ended December 31, 2012 and 2011, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. At the end of December 31, 2012 and 2011, there were 403,825 and 9,130,489 potential dilutive shares outstanding that were not included in the calculation as the effect would be anti-dilutive.

 

Income Taxes

 

The Company accounts for income taxes under FASB ASC 740-10-30. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

 

Stock-Based Payments

 

The Company records the stock-based compensation awards issued to non-employees and other external entities for goods and services at either the fair market value of the goods received or services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30.

 

Recent Pronouncements

 

From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

 

 

NOTE 3 – GOING CONCERN

 

The report of our independent registered public accounting firm on the financial statements for the year ended December 31, 2012, includes an explanatory paragraph indicating substantial doubt as to our ability to continue as a going concern. We have an accumulated deficit of $25,996,204, a working capital deficit, and negative cash flows from operations. We have not generated meaningful revenues in the last two fiscal years. Our ability to establish the Company as a going concern is dependent upon our ability to obtain additional financing in order to fund our planned operations and ultimately to achieve profitable operations.

 

The Company is dependent upon debt and equity financing to continue operations. It is management’s plans to raise necessary funds via private placements of its common stock to satisfy the capital requirements of the Company’s business plan. There is no assurance that the Company will be able to obtain the necessary funds through continuing debt and equity financing to have sufficient operating capital to support a level of operations to obtain a level of cash flow to sustain continuing operations. If the Company is successful in raising the necessary funds, there is no assurance that the Company will successfully implement its business plan. The Company’s continuation as a going concern is dependent on the Company’s ability to raise additional funds through a private placement of its common stock or debt sufficient to meet its obligations on a timely basis and ultimately to attain profitable operations.

 

NOTE 4 – LOANS PAYABLE AND LOANS PAYABLE – RELATED PARTIES

 

		December 31,
		2012				2011
Loans Payable consist of the following:
Convertible debt, no interest rate, conversion at market value on date of conversion, due on demand		$	192,000			$	75,000
Due on demand, no interest rate			36,000				13,200
TOTAL LOANS PAYABLE		$	228,000			$	88,200

 

 

NOTE 5 – PROPERTY PLANT AND EQUIPMENT

 

Property and equipment are depreciated using the straight-line method over the estimated useful lives that range from 3 to 7 years. Property and equipment consist of the following:

 

		December 31,
		2012				2011
Network Infrastructure		$	1,156,839			$	1,156,120
Software			344,515				344,514
Machinery & Equipment			68,455				68,453
Furniture & Fixtures			34,936				34,936
Less: Accumulated Depreciation			(1,471,347	)			(1,416,397	)
Net Property and Equipment		$	133,398			$	187,626

 

Depreciation expense of $54,950 and $56,339 was recorded for the years ended December 31, 2012 and 2011, respectively.

 

NOTE 6 – LEASE COMMITMENT AND CONTINGENCIES

 

Lease Commitment

 

The Company leases commercial office space. The office space comprises approximately 4,200 square feet located at 2 South Pointe Drive, Suite 100, Lake Forest, CA 92630. The lease was signed on June 17, 2011 and is for twenty-four (24) months with a monthly cost of $9,017. The rental expense was $107,023 and $108,412 for the years ended December 31, 2012 and 2011, respectively. The future rental expense for the commercial office space lease is $54,102 and $0 for years 2013 and 2014, respectively. The lease is up for renewal in June 2013.

 

Contingent Liability

 

The Company has a disputed invoice with a vendor over charges on an invoice received in the fourth quarter of 2012. The amount of the dispute is $342,803. The Company believes the liability is limited to the $20,000 credit limit with the vendor. On January 16, 2013, the Company, through its counsel, issued a ‘notice of invoice dispute’ concerning the amount in question together with payment of $15,000 for undisputed charges.

 

As of the date of this filing, the vendor has not responded to the Company’s notice of invoice dispute. The Company does not consider an unfavorable outcome probable. The liability, however, would be limited to $342,803, the disputed amount.

 

NOTE 7 – INCOME TAXES

 

The Company’s provision for income taxes was $0 for the years ended both December 31, 2012 and December 31, 2011 since the company incurred net operating losses which have a full valuation allowance through December 31, 2012. The provision for income taxes consists of the following for the years ended December 31, 2012 and 2011:

 

		2012				2011
Current Taxes		$	-			$	-
Deferred Tax Benefit
Federal			(996,377	)			(1,317,189	)
State			(259,058	)			(223,376	)
Benefits of Operating Loss Carryforwards			1,255,435				1,540,565
Income Tax Provision		$	-			$	-

 

 

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a full valuation allowance equal to the deferred tax asset has been recorded. The valuation allowance increased by $707,168 from $2,517,176 to $3,224,344 for the year ended December 31, 2012.

 

The Company’s federal and state net operating loss carry forwards of approximately $7,916,952 and $7,720,960, respectively expire in various years beginning in 2028 and carrying forward through 2038.

  

		Federal Amount				State Amount		Expires
2008		$	31,990		$	-		2028
2009			50,437			-		2029
2010			1,031,979			968,962		2030
2011			3,872,025			3,821,477		2031
2012			2,930,521			2,930,521		2032
Total		$	7,916,952		$	7,720,960

 

The tax effects of the temporary differences that give rise to significant portions of the deferred tax asset at December 31, 2012 and 2011 and summarized below:

 

		2012				2011
Deferred Tax Assets
Current Deferred Tax Assets
Stock Compensation		$	-			$	557,682
Noncurrent Deferred Tax Assets
Net Operating Losses			3,142,235				1,984,258
Software Development			122,690				29,042
Total Deferred Tax Assets			3,264,925				2,570,982
Less: Valuation Allowance			(3,224,344	)			(2,517,176	)
Net Deferred Tax Assets			40,581				53,806
Deferred Tax Liabilities
Fixed Assets			(40,581	)			(53,806	)
Total Deferred Tax Liabilities			(40,581	)			(53,806	)
Net Deferred Taxes		$	-			$	-

 

 

The effective tax rate for continuing operations differs from the federal statutory rate of 34% as follows:

 

		2012				2011
Expected Income Tax (Benefit) based on Statutory Rate		$	(1,041,226	)		$	(3,480,779	)
Effects of:
State Taxes, net of Federal Benefit			(178,674	)			(597,574	)
Nondeductible Expenses			497,476				1,997,060
Change in Valuation Allowance			707,168				2,081,293
Other, net			15,256				-
Income Tax Provision		$	-			$	-

 

Under FASB ASC 740, tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.  The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement.  Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2012 and 2011, the Company has no liabilities for unrecognized tax benefits.

 

The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense.  For the years ended December 31, 2012, and 2011, the Company did not recognize any interest or penalties in its consolidated statement of operations, nor did it have any interest or penalties accrued in its consolidated balance sheet at December 31, 2012 and 2011 relating to unrecognized tax benefits.

 

The Company has filed income tax returns in the U.S and California. The years ended December 31, 2012, 2011, 2010, and 2009 are open for examination.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

For the years ended December 31, 2012 and 2011, the Company received $117,000 and $75,000, respectively from a director as a convertible loan payable with no interest rate and payable upon demand. The director resigned on September 6, 2012.

 

 

NOTE 9 – STOCK-BASED COMPENSATION

 

The Company has reserved for issuance an aggregate of 10,000,000 shares of common stock under our 2011 Stock Incentive Plan (“the Plan”) that was adopted in June 2011. As of December 31, 2012, 8,307,625 options have been granted under the Plan, 5,461,325 options have been cancelled, 292,475 have been exercised, and 2,553,825 options were outstanding.

 

The purposes of the Plan are (a) to enhance the Company’s ability to attract and retain the services of qualified employees, officers, directors, contractors and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.

 

NOTE 10 – PREFERRED AND COMMON STOCK

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of its $0.001 par value preferred stock.

 

On October 4, 2010, the Company’s board of directors authorized Series A Convertible Preferred Stock. The Series A Convertible Preferred stock has a liquidation preference of $1.25 per share and is not entitled to dividends. The Series A Convertible Preferred stock may be converted on a 1:1 basis into shares of common stock at any time at the option of the holder, subject to adjustments for stock dividends, combinations or splits. The Series A Convertible Preferred stock has protective provisions. As long as any Series A Convertible Preferred are outstanding, this Corporation shall not without first obtaining approval of the holders of at least two-thirds of the outstanding Series A Convertible Preferred which is entitled, other than solely by law, to vote with respect to the matter, and which Series A Convertible Preferred represents at least two-thirds of the voting power of the then outstanding Series A Convertible Preferred: (a) sell, convey or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of; (b) alter or change the rights, preferences or privileges of the Series A Convertible Preferred so as to affect adversely the Series A Convertible Preferred; (c) increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock; (d) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Series A Convertible Preferred with respect to dividends or upon liquidation, or (ii) having rights similar to any of the rights of the Preferred Stock; or amend the Corporation’s Articles of Incorporation or bylaws.

 

 

On September 30, 2010, the Company issued 2,000,000 shares of Series A Convertible Preferred stock in exchange for extinguishment of $1,700,000 in debt.

 

As of the year ended December 31, 2012 and 2011, there have been no other issuances of preferred stock.

 

Common Stock

 

The Company is authorized to issue 100,000,000 shares of its $0.001 par value common stock.

 

During the year ended December 31, 2012, the Company issued the following shares of $0.001 par value common stock:

 

●	5,866,666 shares for cash totaling $880,000 received during the year ended December 31, 2012. These shares were sold as Units at $0.15 per Unit which consisted of 1 restricted common share and 1 noncallable common stock purchase warrants having an exercise price of $0.50 for up to three years.
●	666,667 shares for cash totaling $100,000 received during the year ended December 31, 2012. These shares were sold as Units at $0.15 per Unit which consisted of 1 restricted common share and 2 noncallable common stock purchase warrants having an exercise price of $0.50 for up to three years

●	292,475 shares from the exercise of options.

●	1,195,000 shares to Metcalf Family Trust in exchange for outstanding indebtedness of $2,023,000. Michael Metcalf is the trustee of the trust.

●	2,519,471 shares in exchange for services from nine vendors providing legal, investor relations, consulting, and finance related services valued at $405,444.
●	600,000 shares in exchange for service with a director of the Company valued at $72,000.

 

Shares to be Issued

 

In December 2012, the Company received $100,000 from an unrelated party pursuant to the subscription agreement dated December 26, 2012. The agreement is for Units consisting of one share of common stock at $0.08 per Unit with a max offering of $200,000. The other $100,000 was received by the Company on January 16, 2013. As of the date of this filing no shares have been issued.

 

 

NOTE 11 – WARRANTS AND OPTIONS

 

In September 2012, pursuant to the employment agreement effective September 1, 2012, the Company granted Bill Osmundsen, former CFO, 300,000 options to buy shares of common stock under the Company’s 2011 Stock Option Plan. The options vested immediately. Mr. Osmundsen ceased employment with the Company as of December 2, 2012. The Company recorded compensation expense of $41,412. The options expired unexercised one month after his separation date subsequent to year-end on January 2, 2013.

 

In June 2012, the Company granted Rod Shipman, former Board of Director for the Company 300,000 options to buy shares of common stock under the Company’s 2011 Stock Option Incentive Plan. The options vested immediately. Mr. Shipman resigned from the board effective November 30, 2012. The fair value of the stock options is $45,431 and the Company recorded compensation expense. The options expired unexercised during the year ended December 31, 2012.

 

On March 2, 2012, the Company entered into an agreement with an unrelated party (“Placement Agent” or “Agent”) wherein this Agent would provide financing to the Company and in turn would get compensated by receiving warrants equal to 3.5% of the common equity raised. This Placement Agent then raised $695,000 in May of 2012. Consequently, the Company owes this Agent 40,542 warrants. The warrants have not been granted as of the date of this report.

 

Throughout 2012 and pursuant to the employment agreement effective March 1, 2012, the Company granted to a former employee 125,000 options each to buy shares of common stock under the Company’s 2011 Stock Option Plan. These options vested immediately on the date of grant. This individual ceased employment with the Company effective August 10, 2012. The Company recorded compensation expense of $37,500.

 

On June 30, 2012, Michael Metcalf, Tracy Roberts, and Helen Metcalf each received an additional grant of 20,600, 14,174, and 7,000 stock options, respectively, in exchange for accrued salaries and wages. The options vested immediately and are exercisable over a period of five years with an exercise price of $0.01. The Company recorded compensation expense of $41,775, calculated as 20% of their accrued salary as of June 30, 2012, per the agreements.

 

 

The stock option expense recorded for all stock options issued was $821,540 for the year ended December 31, 2012. Stock option expense recorded for the year ended December 31, 2012 was $4,590,693.

 

At December 31, 2012, there was $1,034,085 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted.

 

The following is a summary of the status of all of the Company’s stock options as of December 31, 2011 and changes during the year ended on that date:

 

			Number of Stock Options				Weighted-Average Exercise Price				Weighted- Average Grant- date Fair Value
Outstanding at January 1, 2012				4,082,489			$	0.83			$	0.92
Granted				795,275			$	0.85			$	0.15
Exercised				(292,475	)		$	0.01				-
Cancelled/Expired				(2,031,464	)		$	0.91				-
Outstanding at December 31, 2012				2,553,825			$	0.82			$	1.01
Options exercisable at December 31, 2012				403,825			$	0.01			$	1.27

 

The following table summarizes information about stock options outstanding and exercisable at December 31, 2012:

 

				STOCK OPTIONS OUTSTANDING AND EXERCISABLE
Exercise Price				Number of Options Outstanding				Weighted-Average Remaining Contractual Life in Years				Weighted- Average Exercise Price				Number of Options Exercisable				Intrinsic Value
$	0.01				403,825				3.50			$	0.01				403,825			$	20,191
$	0.50				425,000				4.50			$	0.50				-			$	0.00
$	1.00				1,725,000				0.86			$	1.00				-			$	0.00

 

 

As noted above, warrants were issued as part of Units sold to investors for cash. Thus, there is no compensation expense. The following is a summary of the status of all of the Company’s non-compensation warrants as of December 31, 2012 and changes during the year ended on that date:

 

			Number of Warrants				Weighted- Average Exercise Price
Outstanding at January 1, 2012				3,048,000			$	1.16
Granted				7,610,000			$	0.49
Exercised				-			$	0.00
Rescinded				-			$	0.00
Outstanding at December 31, 2012				10,658,000			$	0.78

 

NOTE 12 – SUBSEQUENT EVENTS

 

On January 16, 2013, the Company received $100,000 from an unrelated party for Units of common stock. This is pursuant to the subscription agreement dated December 26, 2012. The agreement is for Units consisting of one share of common stock at $0.08 per Unit with a max offering of $200,000. The other $100,000 was received by the Company in December 2012. As of the date of this filing no shares have been issued.

 

On February 21, 2013 and March 29, 2013, the Company received $21,845 and $10,000, respectively, from an unrelated party. This amount was recorded as a loan payable and increased the total outstanding loan payable to $67,845 as of April 12, 2013.

 

On March 5, 2013, the Company entered into a release agreement with a customer from contracts entered into between the customer and the Company in May and June 2012 that resulted in (a) a payment to Voice Assist in the amount of $20,000 (b) the cancellation of shares of 187,500 previously issued by the Company (as of the date of this filing, these shares have not been cancelled) (c) the expiration of 100,000 warrants issued by the Company and (d) releases the Company from those original contracts and any claims arising from them.

 

On March 7, 2013 and March 21, 2013, the Company issued 143,000 and 70,000 shares to two vendors for $14,300 and $4,200, respectively, in satisfaction of balances owed in accounts payable.