UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K/A

 

[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  incorporation or organization)		(I.R.S. Employer Identification No.)

 

15 Enterprise, Suite 350, Aliso Viejo, CA		92656
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number: (949) 655-1611

 

Copies of Communications to:

Wilson Harvey Browndorf LLP

8815Research 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.

 

 

 

*EXPLANATORY NOTE – Following the initial filing of this Form 10-K, the Commission discovered the consent by the public registered accountant regarding the Form S-8 Registration Statement was missing. Consequently, the Registrant is amending this Form 10-K to include the consent. No disclosure was changed as a result of this amendment and the current certifications pursuant to 18 U.S.C. SECTION 1350, as adopted pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, are herein provided.

 

VOICE ASSIST, INC.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2012

 

Index to Report

on Form 10-K/A

 

		Page
PART IV
Item 15.	Exhibits, Financial Statement Schedules	4

 

 

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 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 again (without change) as part of this report on Form 10-K/A
	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
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				10-K				4/16/12
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
23(b)		Consent of Mantyla McReynolds LLC as to incorporation by reference regarding Form S-8 Registration Statement		X
31		Certification pursuant to Section 302 of the Sarbanes-Oxley Act		X
32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act		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, interim Chief Financial Officer and Principal Accounting Officer

 

Date: January 15, 2014

 

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, interim Chief Financial Officer and Principal Accounting Officer		January 15, 2014
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.