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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Voiceserve Inc (CE) | USOTC:VSRV | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.0001 | 0.00 | 01:00:00 |
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware
|
98-0597288
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
Grosvenor House, 1 High Street
Middlesex
England
|
HA8, 7TA
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Large Accelerated Filer
o
|
Accelerated Filer
o
|
Non-Accelerated Filer
o
|
Smaller Reporting Company
x
|
PART I - FINANCIAL INFORMATION
|
||
PAGE
|
||
Item 1.
|
Financial Statements (Unaudited)
|
F-1
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
1
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
4
|
Item 4.
|
Controls and Procedures
|
4
|
PART II - OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings
|
5
|
Item 1A.
|
Risk Factors
|
5
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
5
|
Item 3.
|
Defaults Upon Senior Securities
|
5
|
Item 4.
|
(Removed and Reserved)
|
5
|
Item 5.
|
Other Information
|
5
|
Item 6.
|
Exhibits
|
5
|
SIGNATURES
|
6
|
Item 1.
|
Financial Statements.
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||
Consolidated Balance Sheets
|
||||||||
December 31,
|
March 31,
|
|||||||
2011
|
2011
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 344,486 | $ | 141,739 | ||||
Accounts receivable, net of allowance
|
||||||||
for doubtful accounts of $25,004 and $6,735, respectively
|
210,424 | 48,769 | ||||||
Prepaid expenses and other current assets
|
81,101 | 82,823 | ||||||
Total current assets
|
636,011 | 273,331 | ||||||
Property and equipment, net of accumulated depreciation
|
||||||||
of $66,490 and $66,878 respectively
|
7,905 | 10,045 | ||||||
Intangible assets, net of accumulated amortization of
|
||||||||
$910,417 and $737,917, respectively
|
1,952,624 | 2,125,124 | ||||||
Total assets
|
$ | 2,596,540 | $ | 2,408,500 | ||||
Liabilities and Stockholders' Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 370,471 | $ | 348,493 | ||||
Accrued expenses payable
|
10,655 | 11,464 | ||||||
Deferred software license fees and support
|
189,180 | 188,197 | ||||||
Loans payable to related parties
|
37,484 | 38,236 | ||||||
Total current liabilities
|
607,790 | 586,390 | ||||||
Liability for common stock purchase warrants
|
406,158 | 152,214 | ||||||
Total liabilities
|
1,013,948 | 738,604 | ||||||
Stockholders' equity:
|
||||||||
Preferred stock, $.001 par value; authorized
|
||||||||
10,000,000 shares, none issued and outstanding
|
- | - | ||||||
Common stock, $.001 par value; authorized
|
||||||||
100,000,000 shares, issued and outstanding
|
||||||||
44,585,198 and 38,354,429 shares, respectively
|
44,585 | 38,354 | ||||||
Additional paid-in capital
|
6,307,378 | 5,482,281 | ||||||
Deficit
|
(4,756,360 | ) | (3,766,212 | ) | ||||
Accumulated other comprehensive loss
|
(13,011 | ) | (84,527 | ) | ||||
Total stockholders' equity
|
1,582,592 | 1,669,896 | ||||||
Total liabilities and stockholders' equity
|
$ | 2,596,540 | $ | 2,408,500 | ||||
See notes to consolidated financial statements.
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||||||||||
Consolidated Statements of Operations
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Three Months
|
Nine Months
|
|||||||||||||||
Ended December 31,
|
Ended December 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Operating revenues:
|
||||||||||||||||
Software license fees
|
$ | 1,380,418 | $ | 1,166,175 | $ | 3,561,386 | $ | 3,123,386 | ||||||||
Revenues from communications air time
|
(11 | ) | 97,420 | 535 | 248,894 | |||||||||||
Total operating revenues
|
1,380,407 | 1,263,595 | 3,561,921 | 3,372,280 | ||||||||||||
Cost of operating revenues:
|
||||||||||||||||
Software license fees
|
710,717 | 573,494 | 1,955,267 | 1,445,912 | ||||||||||||
Communications air time
|
(3,370 | ) | 109,616 | (3,370 | ) | 244,049 | ||||||||||
Total cost of operating revenues
|
707,347 | 683,110 | 1,951,897 | 1,689,961 | ||||||||||||
Gross profit
|
673,060 | 580,485 | 1,610,024 | 1,682,319 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative expenses (including stock-based
|
||||||||||||||||
compensation of $10,569, $11,166, $589,380, and $319,628, respectively)
|
652,796 | 739,065 | 2,551,701 | 2,463,181 | ||||||||||||
Total operating expenses
|
652,796 | 739,065 | 2,551,701 | 2,463,181 | ||||||||||||
Income (loss) from operations
|
20,264 | (158,580 | ) | (941,677 | ) | (780,862 | ) | |||||||||
Income (expense) from revaluation of liability for
|
||||||||||||||||
common stock purchase warrants
|
167,989 | 116,196 | (39,822 | ) | 271,170 | |||||||||||
Interest income
|
23 | 19 | 48 | 23 | ||||||||||||
Interest expense
|
(31 | ) | (42 | ) | (51 | ) | (652 | ) | ||||||||
Income (loss) before income taxes
|
188,245 | (42,407 | ) | (981,502 | ) | (510,321 | ) | |||||||||
Income taxes
|
8,646 | - | 8,646 | - | ||||||||||||
Net income (loss)
|
$ | 179,599 | $ | (42,407 | ) | $ | (990,148 | ) | $ | (510,321 | ) | |||||
Net income (loss) per share
|
||||||||||||||||
- basic and diluted
|
$ | 0.00 | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | |||||
Weighted average number of shares
|
||||||||||||||||
outstanding:
|
||||||||||||||||
- Basic
|
44,585,198 | 37,914,212 | 43,153,274 | 35,551,646 | ||||||||||||
- Diluted
|
45,209,775 | 37,914,212 | 43,153,274 | 35,551,646 | ||||||||||||
See notes to consolidated financial statements.
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
Consolidated Statements of Changes in Stockholders' Equity
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Common Stock,
|
Additional
|
Other
|
Total
|
|||||||||||||||||||||
$.001 par value
|
Paid-In
|
Comprehensive
|
Stockholders'
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Income (Loss)
|
Equity
|
|||||||||||||||||||
Balances,
|
||||||||||||||||||||||||
March 31, 2010
|
32,402,935 | $ | 32,403 | $ | 4,733,537 | $ | (2,994,155 | ) | $ | (12,112 | ) | $ | 1,759,673 | |||||||||||
Private placement of shares
|
||||||||||||||||||||||||
and warrants,
|
||||||||||||||||||||||||
less $89,499 costs and
|
||||||||||||||||||||||||
less $457,608
|
||||||||||||||||||||||||
attributable to warrants
|
||||||||||||||||||||||||
classified as liabilities
|
2,760,000 | 2,760 | 140,133 | - | - | 142,893 | ||||||||||||||||||
Shares issued for services
|
941,494 | 941 | 157,109 | - | - | 158,050 | ||||||||||||||||||
Shares issued in satisfaction of debt
|
||||||||||||||||||||||||
and contingent debt due sellers of
|
||||||||||||||||||||||||
VoipSwitch Inc.
|
2,250,000 | 2,250 | 279,000 | - | - | 281,250 | ||||||||||||||||||
Stock options expense
|
- | - | 172,502 | - | - | 172,502 | ||||||||||||||||||
Foreign currency
|
||||||||||||||||||||||||
translation
|
||||||||||||||||||||||||
adjustment
|
- | - | - | - | (72,415 | ) | (72,415 | ) | ||||||||||||||||
Net loss
|
- | - | - | (772,057 | ) | - | (772,057 | ) | ||||||||||||||||
Balances,
|
||||||||||||||||||||||||
March 31, 2011
|
38,354,429 | 38,354 | 5,482,281 | (3,766,212 | ) | (84,527 | ) | 1,669,896 | ||||||||||||||||
Unaudited:
|
||||||||||||||||||||||||
Private placement of shares
|
||||||||||||||||||||||||
and warrants,
|
||||||||||||||||||||||||
less $41,930 costs and
|
||||||||||||||||||||||||
less $214,122
|
||||||||||||||||||||||||
attributable to warrants
|
||||||||||||||||||||||||
classified as liabilities
|
3,830,769 | 3,831 | 238,117 | - | - | 241,948 | ||||||||||||||||||
Shares issued to the Company's chairman and
|
||||||||||||||||||||||||
to the Company's chief executive officer
|
||||||||||||||||||||||||
for services
|
2,400,000 | 2,400 | 429,600 | - | - | 432,000 | ||||||||||||||||||
Stock options expense
|
- | - | 157,380 | - | - | 157,380 | ||||||||||||||||||
Foreign currency
|
||||||||||||||||||||||||
translation
|
||||||||||||||||||||||||
adjustment
|
- | - | - | - | 71,516 | 71,516 | ||||||||||||||||||
Net loss
|
- | - | - | (990,148 | ) | - | (990,148 | ) | ||||||||||||||||
Balances, December 31, 2011
|
44,585,198 | $ | 44,585 | $ | 6,307,378 | $ | (4,756,360 | ) | $ | (13,011 | ) | $ | 1,582,592 | |||||||||||
See notes to consolidated financial statements.
|
VOICESERVE, INC. AND SUBSIDIARIES
|
||||||||
Consolidated Statements of Cash Flows
|
||||||||
(Unaudited)
|
||||||||
Nine Months Ended December 31,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (990,148 | ) | $ | (510,321 | ) | ||
Adjustments to reconcile net loss to net
|
||||||||
cash used in operating activities:
|
||||||||
Stock-based compensation
|
589,380 | 319,628 | ||||||
Depreciation
|
3,100 | 7,512 | ||||||
Amortization
|
172,500 | 172,500 | ||||||
Provision for doubtful accounts
|
19,945 | 55,217 | ||||||
(Income) expense from revaluation of liability for common stock purchase warrants
|
39,822 | (271,170 | ) | |||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable, net
|
(181,600 | ) | (163,158 | ) | ||||
Prepaid expenses and other current assets
|
1,722 | (76,449 | ) | |||||
Accounts payable
|
21,978 | 30,510 | ||||||
Accrued expenses payable
|
(809 | ) | 1,095 | |||||
Deferred software license fees
|
983 | 25,325 | ||||||
Net cash used in operating activities
|
(323,127 | ) | (409,311 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchases of property and equipment
|
(44,585 | ) | ||||||
Net cash used in investing activities
|
- | (44,585 | ) | |||||
Cash flows from financing activities:
|
||||||||
Proceeds from sales of common stock, net of offering costs of $41,930 and $89,499,
|
||||||||
respectively
|
456,070 | 600,501 | ||||||
Increase (decrease) in loans payable to related parties
|
(752 | ) | 976 | |||||
Net cash provided by financing activities
|
455,318 | 601,477 | ||||||
Effect of exchange rate changes on cash and cash equivalents
|
70,556 | (28,786 | ) | |||||
Increase in cash and cash equivalents
|
202,747 | 118,795 | ||||||
Cash and cash equivalents, beginning of period
|
141,739 | 218,438 | ||||||
Cash and cash equivalents, end of period
|
$ | 344,486 | $ | 337,233 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 51 | $ | 652 | ||||
Income taxes paid
|
$ | - | $ | - | ||||
Non - cash investing and financing activities:
|
||||||||
Shares issued in satisfaction of debt and contingent debt
|
||||||||
due 3 sellers of VoipSwitch Inc. (See Note 3):
|
||||||||
Debts satisfied in exchange for issuance of restricted common stock:
|
||||||||
Contingent consideration remaining due to 3 sellers before agreement to
|
||||||||
accept restricted common stock
|
$ | - | $ | 313,000 | ||||
Contingent consideration paid added to goodwill by virtue of issuance
|
||||||||
of restricted common stock
|
$ | - | $ | 131,250 | ||||
Notes payable to 3 sellers of VoipSwitch outstanding as debt in financial
|
||||||||
statements prior to agreement to accept issuance of restricted common stock
|
- | 150,000 | ||||||
Total
|
$ | - | $ | 281,250 | ||||
Fair value of 2,250,000 shares of restricted common stock issued in exchange
|
||||||||
for debts satisfied
|
$ | - | $ | 281,250 | ||||
See notes to consolidated financial statements.
|
|
Intangible
assets, net are stated at their estimated fair values at date of acquisition less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.
|
(i)
|
Goodwill and Intangible Assets with Indefinite Lives
|
|
The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually. When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value. If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced and an impairment loss is recorded.
|
(j)
|
Long-lived Assets
|
|
The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the asset’s carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.
|
(k)
|
Revenue Recognition
|
Revenue
from licenses of software are recognized upon delivery of the software when persuasive evidence of an arrangement exists, the fee is fixed or determinable, and collectibility is probable. The portion of the fee allocated to post contract customer support and services is recognized ratably over the period of the agreed support and services.
|
(l)
|
Advertising
|
Advertising
costs, which include sales promotion costs, are expensed as incurred and amounted to $295,673 and $598,231 for the nine months ended December 31, 2011 and 2010, respectively.
|
(m)
|
Stock-Based Compensation
|
Stock-based
compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation”.
|
|
In addition to requiring supplemental disclosures, ASC 718,
Compensation – Stock Compensation
, addresses the accounting for share-based payment transactions in which a company receives goods in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. FASB ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.
|
|
References to the issuances of restricted stock refer to stock of a public company issued in private placement transactions to individuals who are eligible to sell all or some of their shares of restricted Common Stock pursuant to Rule 144 promulgated under the Securities Act of 1933 (“Rule 144”), subject to certain limitations. In general, pursuant to Rule 144, a stockholder who is not an affiliate and has satisfied a six-month holding period may sell all of his restricted stock without restriction, provided that the Company has current information publicly available. Rule 144 also permits, under certain circumstances, the sale of restricted stock, without any limitations, by a non-affiliate of the Company that has satisfied a one- year holding period.
|
(n)
|
Income Taxes
Income
taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
|
(o) |
Net Income (Loss) per Share
|
|
Basic net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted
net income (loss) per share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the nine months ended December 31, 2011 and 2010, the diluted net loss per share calculation excluded the effect of stock options outstanding and exercisable into a total of 1,903,000 and 1,403,000 shares of common stock, respectively, and warrants outstanding and exercisable into a total of 3,295,385 and 1,380,000 shares of common stock, respectively.
|
NOTE 4 – ACQUISITION OF VOIPSWITCH INC. | |||
On January 15, 2008, VoiceServe closed an Acquisition Agreement with VoipSwitch Inc. (“VoipSwitch”) whereby VoiceServe acquired all VoipSwitch issued and outstanding ordinary shares as well as all of VoipSwitch’s assets, including customer orders and intangible assets, for total consideration of $3,000,000 ($450,000 cash, $150,000 notes payable due on demand, $600,000 notes payable in total monthly installments of $50,000 per month for 12 months, and 3,750,000 shares of VoiceServe common stock valued at $0.48 per share or $1,800,000). | |||
Payment of the monthly installments of the $600,000 notes payable was contingent upon and limited each month to the future monthly net income of VoipSwitch. Accordingly, pursuant to SFAS No. 141, this $600,000 “contingent consideration” portion of the $3,000,000 total purchase price was not included in the initial recorded cost of the acquisition or the recorded notes payable. As payments of the $600,000 notes payable were made, such paid amounts were added to goodwill. | |||
The estimated fair values of the identifiable net assets of VoipSwitch at January 15, 2008 (date of acquisition) consisted of : |
Cash and cash equivalents
|
$ | 6,682 | ||
Developed software (for licensing to customers)
|
2,000,000 | |||
In-place contracts and customer list
|
100,000 | |||
Trade name
|
100,000 | |||
Accounts payable and accrued expenses
|
(2,999 | ) | ||
Deferred software license fees
|
(48,474 | ) | ||
Identifiable net assets
|
$ | 2,155,209 | ||
Goodwill of $244,791 (excess of the $2,400,000 consideration, excluding the $600,000 contingent consideration, over the $2,155,209 identifiable net assets) was recorded at the acquisition date January 15, 2008. In February and March 2008, $100,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill. In the year ended March 31, 2009, an additional $99,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill. In the three months ended June 30, 2009, an additional $88,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill. |
On December 7, 2010, pursuant to a verbal agreement on October 19, 2010, Voiceserve issued a total of 2,250,000 SEC Rule 144 restricted shares of its common stock to the three sellers of VoipSwitch in full and final satisfaction of debt totaling $463,000, consisting of the $150,000 demand note payable and the remaining $313,000 “contingent consideration” potential amount due the three sellers. The $131,250 excess of the $281,250 estimated fair value of the shares, which was calculated based on the October 19, 2010 nearest day closing trading price of $0.25 per share and a 50% restricted stock discount (2,250,000 shares x $0.125 [50% discount applied to $0.25 per share price] per share = $281,250), over the $150,000 demand note payable was added to goodwill. |
NOTE 5 – INTANGIBLE ASSETS, NET |
Intangible assets, net, consisted of: |
December 31
|
March 31,
|
|||||||
2011
|
2011
|
|||||||
Acquisition of VoipSwitch:
|
||||||||
Developed software (for licensing to customers)
|
$ | 2,000,000 | $ | 2,000,000 | ||||
In-place contracts and customer list
|
100,000 | 100,000 | ||||||
Trade name
|
100,000 | 100,000 | ||||||
Goodwill
|
663,041 | 663,041 | ||||||
Total
|
2,863,041 | 2,863,041 | ||||||
Accumulated amortization
|
(910,417 | ) | (737,917 | ) | ||||
Intangible assets, net
|
$ | 1,952,624 | $ | 2,125,124 |
The developed software, in-place contracts and customer list, and trade name are amortized using the straight-line method over their estimated economic lives (ten years for the developed software and trade name; five years for the in-place contracts and customer list). Goodwill is not amortized. |
For the nine months ended December 31, 2011 and 2010, amortization of intangible assets expense was $172,500. $150,000 was included in cost of software license fees and $22,500 was included in selling, general and administrative expenses. |
Expected future amortization expense for acquired intangible assets as of December 31, 2011 follows: |
Year ending March 31
,
|
Amount
|
|||
2012
|
57,500 | |||
2013
|
225,833 | |||
2014
|
210,000 | |||
2015
|
210,000 | |||
2016
|
210,000 | |||
Thereafter
|
376,250 | |||
Total
|
$ | 1,289,583 |
NOTE 6 – DEFERRED SOFTWARE LICENSE FEES AND SUPPORT |
The licenses of the VoipSwitch systems generally include certain postcontract customer support (“PCS”). In accordance with Accounting Standards Codification (“ASC”) Topic 985-605-25, “Software Revenue Recognition”, the Company allocates a portion of the license fees to PCS based on the vendor-specific objective evidence of fair value (generally $1,000 for 1 year technical support) of the PCS and recognizes the PCS revenues ratably over the period of the agreed PCS. |
Deferred software license fees (attributable to PCS) for the nine months ended December 31, 2011 and 2010 were accounted for as follows: |
Nine Months Ended December 31,
|
||||||||
2011
|
2010
|
|||||||
Balance, beginning of period
|
$ | 188,197 | $ | 245,666 | ||||
Additions
|
232,119 | 311,500 | ||||||
Recognized as revenue
|
(231,136 | ) | (286,175 | ) | ||||
Balance, end of period
|
$ | 189,180 | $ | 270,991 |
NOTE 7 – LOANS PAYABLE TO RELATED PARTIES |
Loans payable to related parties consisted of: |
December 31, 2011
|
March 31, 2011
|
|||||||
Due chairman of the board of directors
|
$ | 22,348 | $ | 22,582 | ||||
Due former chief operational officer
|
15,059 | 15,574 | ||||||
Due former chief financial officer
|
77 | 80 | ||||||
Total
|
$ | 37,484 | $ | 38,236 |
The loans payable to related parties are all non-interest bearing, unsecured, and due on demand. |
NOTE 8 – LIABILITY FOR COMMON STOCK PURCHASE WARRANTS |
As part of the private placement which closed on May 26, 2010 (see Note 9), the Company issued a total of 1,380,000 warrants to certain accredited investors. Each warrant entitles the holder to purchase one share of common stock at a price of $0.50 per share (the “Exercise Price”) to May 26, 2015. |
As part of the private placement which closed on June 6, 2011 (see Note 9), the Company issued a total of 1,915,385 warrants to certain accredited investors. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share (the “Exercise Price”) to June 6, 2014. |
The Exercise Price of the warrants is to be adjusted in the event of any stock splits or stock dividends or in the event that the Company issues or sells any shares of common stock, options, warrants or any convertible instruments (other than exempted issuances) at an effective price per share which is less than the Exercise Price. Accordingly, in accordance with EITF Issue No. 07-05, "Determining whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock", the Company reflected the $457,608 fair value of the warrants issued on May 26, 2010 (calculated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.45 per share, exercise price of $0.50 per share, risk-free interest rate of 2.06%, term of five years, and expected volatility of 100%) and the $214,122 fair value of the warrants issued on June 6, 2011 (calculated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.15 per share for the 1,311,539 warrants sold May 6, 2011 and $0.318 per share for the 603,846 warrants sold June 6, 2011, exercise price of $0.30 per share, risk-free interest rate of 0.96% for the 1,311,539 warrants sold May 6, 2011 and 0.74% for the 603,846 warrants sold June 6, 2011, term of 3 years, and expected volatility of 100%) as a liability and remeasures the fair value of the warrants each quarter, adjusts the liability balance, and reflects changes in operations as "income (expense) from revaluation of liability for common stock purchase warrants”.
|
At December 30, 2011 and March 31, 2011, the fair values of the warrants (calculated using the Black-Scholes option pricing model with a 100% expected volatility assumption regarding the trading price of the Company’s common stock) consisted of: |
December 31, 2011
|
March 31, 2011
|
|||||||||||||||
Common
|
Common
|
|||||||||||||||
Shares
|
Fair
|
Shares
|
Fair
|
|||||||||||||
Equivalent
|
Value
|
Equivalent
|
Value
|
|||||||||||||
Warrants issued May 26, 2010,
|
||||||||||||||||
exercise price of $0.50 per share, expiration
|
||||||||||||||||
date May 26, 2015.
|
1,380,000 | $ | 167,118 | 1,380,000 | $ | 152,214 | ||||||||||
Warrants issued June 6, 2011,
|
||||||||||||||||
exercise price of $0.30 per share, expiration
|
||||||||||||||||
date June 6, 2014.
|
1,915,385 | 239,040 | - | - | ||||||||||||
Totals
|
3,295,385 | $ | 406,158 | 1,380,000 | $ | 152,214 |
Below is a reconciliation of the change in the fair values of the warrants from May 26, 2010 to December 31, 2011. |
Common
|
||||||||
Shares
|
Fair
|
|||||||
Equivalent
|
Value
|
|||||||
Issuance to accredited investors in
|
||||||||
conjuction with common stock in private
|
||||||||
placement on May 26, 2010 (see Note 9)
|
1,380,000 | $ | 457,608 | |||||
Revaluation credited to operations
|
- | (121,854 | ) | |||||
Balance, June 30, 2010
|
1,380,000 | 335,754 | ||||||
Revaluation credited to operations
|
- | (33,120 | ) | |||||
Balance, September 30, 2010
|
1,380,000 | 302,634 | ||||||
Revaluation credited to operations
|
- | (116,196 | ) | |||||
Balance, December 31, 2010
|
1,380,000 | 186,438 | ||||||
Revaluation credited to operations
|
- | (34,224 | ) | |||||
Balance, March 31, 2011
|
1,380,000 | 152,214 | ||||||
Issuance to accredited investors in
|
||||||||
conjuction with common stock in private
|
||||||||
placement which closed June 6, 2011
|
||||||||
(see Note 9)
|
1,915,385 | 214,122 | ||||||
Revaluation charged to operations
|
- | 450,954 | ||||||
Balance, June 30, 2011
|
3,295,385 | 817,290 | ||||||
Revaluation credited to operations
|
- | (243,143 | ) | |||||
Balance, September 30, 2011
|
3,295,385 | 574,147 | ||||||
Revaluation credited to operations
|
- | (167,989 | ) | |||||
Balance, December 31, 2011
|
3,295,385 | $ | 406,158 |
Common stock issuances |
Effective April 2010, VoiceServe issued 41,494 shares of its common stock to a consultant for services rendered. The $10,000 estimated fair value of the shares was included in selling, general and administrative expenses in the three months ended June 30, 2010. |
On May 26, 2010, VoiceServe closed on the sale to certain accredited investors of a total of 2,760,000 shares of common stock at a price of $0.25 per share and 1,380,000 warrants to purchase 1,380,000 shares of common stock, for $690,000 gross proceeds ($600,501 net proceeds after deducting costs of the private placement). Each warrant (see Note 8) entitles the holder to purchase one share of common stock at a price of $0.50 per share (the "Exercise Price") to May 26, 2015 . |
Effective September 30, 2010, VoiceServe issued a total of 900,000 shares of its common stock to its new chief financial officer (300,000 shares) and to two new members of the Board of Directors (300,000 shares each) pursuant to the employment agreement and director agreements discussed in Note 12. The $148,050 estimated fair value of the shares, which was calculated based on the closing trading price of $0.329 per share and a 50% restricted stock discount, was included in selling, general and administrative expenses in the three months ended September 30, 2010. |
On December 7, 2010, pursuant to a verbal agreement on October 19, 2010, VoiceServe issued a total of 2,250,000 SEC Rule 144 restricted shares of its common stock to the three sellers of VoipSwitch (see Note 3) in full and final satisfaction of debt totaling $463,000, consisting of the $150,000 demand note payable (see Note 7) and the remaining $313,000 “contingent consideration” potential amount due the three sellers. The $131,250 excess of the $281,250 estimated fair value of the shares, which was calculated based on the October 19, 2010 nearest day closing trading price of $0.25 per share and a 50% restricted stock discount (2,250,000 shares x $0.125 [50% discount applied to $0.25 per share price] per share = $281,250), over the $150,000 demand note payable was added to goodwill. |
On May 6, 2011, the Company closed on the sale to certain accredited investors of a total of 2,623,077 shares of common stock at a price of $0.13 per share and 1,311,539 warrants to purchase 1,311,539 shares of common stock, for $341,000. Net proceeds, after deducting $27,280 in commissions and $20 in other expenses, were $313,700. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share (the “Exercise Price”) to June 6, 2014. |
On June 6, 2011, the Company closed on the sale to certain accredited investors of a total of an additional 1,207,692 shares of common stock at a price of $0.13 per share and 603,846 warrants to purchase 603,846 shares of common stock for $157,000. Net proceeds, after deducting $12,560 in commissions and $2,070 in other expenses, were $142,370. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share to June 6, 2014. |
On June 21, 2011, the Company’s Board of Directors authorized the issuance of a total of 2,400,000 shares (1,200,000 shares each) of common stock to the Company’s Chief Executive Officer and the Company’s President and Chairman of the Board of Directors for prior services rendered. The $432,000 estimated fair value of the shares, based on the nearest day closing trading price of $0.36 per share and a 50% restricted stock discount, was included in selling, general and administrative expenses in the three months ended June 30, 2011. |
Stock options |
Effective May 12, 2009, VoiceServe granted non-qualified stock options to 4 service providers exercisable into a total of up to 703,000 shares of common stock at an exercise price of $0.13 per share to December 23, 2013. The options vest 2/3 on December 23, 2010 and 1/3 on December 23, 2011. The $81,618 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.15 share price, (ii) 5 year term, (iii) 100% expected volatility, and (iv) 3% risk free interest rate) was expensed ratably over the requisite service period from May 12, 2009 to December 23, 2011. To date, none of the options which vested December 23, 2010 have been exercised. |
On January 4, 2010, VoiceServe granted non-qualified stock options to 2 service providers exercisable into a total of up to 200,000 shares of common stock at an exercise price of $0.13 per share to January 4, 2015. The options vest 2/3 on January 4, 2012 and 1/3 on January 4, 2013. The $39,520 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.24 share [rice. (ii) 5 year term, (iii) 100% expected volatility, and (iv) 2.65% risk free interest rate) is being expensed ratably over the three year requisite service period. |
Effective July 26, 2010, VoiceServe committed to grant non-qualified stock options exercisable into up to a total of 500,000 shares of common stock at an exercise price of $0.25 per share to its president and chairman (250,000 options) and chief executive officer (250,000 options) pursuant to the employment agreements discussed in Note 12. The $128,200 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.33 share price, (ii) term of 1773 days, (iii) 100% expected volatility, and (iv) 1.7037% risk free interest rate) was expensed and included in selling, general and administrative expenses in the three months ended September 30, 2010. |
On June 4, 2011, pursuant to employment agreements with its (1) President and Chairman and (2) Chief Executive Officer (See Note 12), the Company became obligated to issue a total of 500,000 common stock options exercisable at a 25% discount from the common stock closing price on that date. The $124,600 estimated fair value of the options at June 4, 2011 (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.318 share price, (ii) $0.2385 exercise price, (iii) term of 5 years, (iv) 100% expected volatility, and (v) 1.6% risk free interest rate) was included in selling, general and administrative expenses in the three months ended June 30, 2011 . |
Stock options expense for the nine months ended December 31, 2011 and 2010 was $157,380 and $161,578, respectively. As of December 31, 2011, there was $13,284 of total unrecognized compensation cost relating to unexpired stock options. That cost is expected to be recognized in the years ending March 31, 2012 and 2013 in the amounts of $3,250 and $10,034, respectively. |
NOTE 10 – INCOME TAXES |
The provision for income taxes consisted of: |
Nine Months Ended
|
||||||||
December 31,
|
||||||||
2011
|
2010
|
|||||||
Current:
|
||||||||
Switzerland
|
$ | 8,646 | $ | - | ||||
United States
|
- | - | ||||||
United Kingdom
|
- | - | ||||||
Total Current
|
8,646 | - | ||||||
Deferred
|
- | - | ||||||
Totals
|
$ | 8,646 | - |
Based on management‘s present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of net operating loss carryforwards of VoiceServe and Limited as of December 31, 2011 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at December 31, 2011. The Company will continue to review this valuation allowance and make adjustments as appropriate. |
For the nine months ended December 31, 2011 and 2010, consulting fees paid to officers, directors, and their affiliates totaled $1,259,039 and $1,193,722, respectively. These fees were included in cost of software license fees and support ($697,231 and $605,779 for the nine months ended December 31, 2011 and 2010, respectively) and selling, general, and administrative expenses ($561,808 and $587,943 for the nine months December 31, 2011 and 2010, respectively) in the accompanying statements of operations. |
NOTE 12 – COMMITMENTS AND CONTINGENCIES |
Registration Rights Agreements |
In connection with the private placement which closed May 26, 2010 (see Note 9), the Company and the investors executed a Securities Purchase Agreement and a Registration Rights Agreement. Among other things, the Registration Rights Agreement provides that the Company will prepare and file with the SEC a Registration Statement covering the resale of the Registrable Securities and use its commercially reasonable efforts to cause it to be declared effective. If the Registration Statement is not filed by July 30, 2010 or if the Registration Statement filed is not declared effective by the SEC within certain time periods (by December 27, 2010 in the event of a "full review" by the SEC) and the Company has not exercised its reasonable best efforts to secure the Registration Statement's effectiveness with the SEC, the Registration Agreement provides that the Company will pay monthly (until cured) partial liquidated damages to the investors equal to 1% of the purchase price paid by the investors, subject to a maximum of 10% of the purchase price paid by the investors . The Registration Statement was declared effective by the SEC on April 25, 2011. |
Potential claims for liquidated damages relating to this Registration Rights Agreement, which the Company does not believe are probable of assertion, approximate $41,400 at March 31, 2011 and December 31, 2011. |
In connection with the private placement which closed May 6, 2011 and June 6, 2011 (see Note 9), the Company and the investors executed a Securities Purchase Agreement and a Registration Rights Agreement. Among other things, the Registration Rights Agreement provides that the Company will prepare and file with the SEC a Registration Statement covering the resale of the Registrable Securities and use its commercially reasonable efforts to cause it to be declared effective. |
If the Registration Statement is not filed by July 6, 2011 or if the Registration Statement filed is not declared effective by the SEC within certain time periods (by December 2, 2011 in the event of a "full review" by the SEC) and the Company has not exercised its reasonable best efforts to secure the Registration Statement's effectiveness with the SEC, the Registration Agreement provides that the Company will pay monthly (until cured) partial liquidated damages to the investors equal to 1% of the purchase price paid by the investors, subject to a maximum of 10% of the purchase price paid by the investors . The Registration Statement has not yet been filed. |
Potential claims for liquidated damages relating to this Registration Rights Agreement, which the Company does not believe are probable of assertion, approximate $29,880 at December 31, 2011. |
Employment and Director Agreements |
On June 4, 2010, VoiceServe, Inc. executed employment agreements with (i) its President and Chairman, Alexander Ellinson, and (ii) its Chief Executive Officer, Michael Bibelman. Each agreement has a term of five (5) years and each provides for (i) an annual base salary of $240,000, (ii) an annual bonus of up to 100% of the base salary as determined in the sole discretion of the Board of Directors, and (iii) annual grants of stock options under the Company's Equity Incentive Stock Plan to purchase 250,000 shares of common stock at $0.25 per share for the first year, which shall occur on or before July 26, 2010, and at a 25% discount off the price on each June 4 thereafter in 2011, 2012, 2013, and 2014 (which vest at such time as approved by the Board of Directors). The Board has not yet approved the initial grant of the 250,000 common stock options, which was to occur on or before July 26, 2010, nor the grant of an additional 250,000 common stock options, which was to occur on June 4, 2011, for either Mr. Ellinson or Mr. Bibelman. |
Both employment agreements also provide for other employee benefits, such as an allowance for leasing a car for the Company or the Company providing one, healthcare insurance, vacation and other benefits provided in accordance with Company policy. In addition, each agreement contains provisions concerning early termination of the executive for death, disability, or with or without cause by the executive. In the event of death or disability, the Company is obligated to pay three months base salary plus accrued benefits. In the event of a termination of the executive "without cause," the Company is obligated to pay each executive, in lieu of "severance payments," his base pay and bonus, including percentage of profits, for the term in which the termination occurs for 36 months after the termination date in accordance with Company payroll practices, and maintain other benefits for that executive also for that 36 month period. |
Finally, the Company is obligated to pay the exercise price for the stock options to be granted as described in the preceding paragraph and the Company is required to issue 250,000 shares of common stock to the terminated executive with demand registration rights. |
On September 30, 2010, VoiceServe, Inc. executed an employment agreement with Alfred Stefansky, its concurrently appointed Chief Financial Officer. The agreement has a term of five (5) years and provides for (i) a monthly base salary of $8,000, (ii) an annual bonus of up to 100% of the base salary as determined in the sole discretion of the Board of Directors, and (iii) a one-time issuance of 300,000 restricted shares of Company common stock (which was issued as discussed in Note 9). Additionally, the agreement provides that the Company shall provide standard health insurance coverage for the executive and each individual family member and the Executive shall be eligible to participate in any employee benefit plans of the Company. Either party may terminate the agreement without cause upon 60 days prior written notice. In the event of death or disability, the Company is obligated to pay three months base salary plus accrued benefits. |
Also on September 30, 2010, VoiceServe, Inc. executed director agreements with Michael Taylor and Andrew Millet, concurrently appointed members of the Board of Directors. Both agreements had terms of one year, subject to a one year renewal term upon reelection by a majority of the Company stockholders). Both agreements provide for (i) a monthly retainer of $1,000 and (ii) a one-time issuance of 300,000 restricted shares of Company common stock (which was issued as discussed in Note 9. Additionally, the agreements provide that the Company shall provide reimbursements for all reasonable out-of- pocket expenses incurred. |
Rental Agreements |
Limited rents office space at monthly rentals of £710 (or $1,102 translated at the December 31, 2011 exchange rate). For the nine months ended December 31, 2011 and 2010, rent expense was $10,256 and $9,833, respectively. |
VoipSwitch AG rents office space at quarterly rentals of CHF 6,000 (or $6,393 translated at the December 31, 2011 exchange rate). For the nine months ended December 31, 2011 and 2010, rent expense was $20,751 and $8,217, respectively. |
Product and Services Contract |
On April 25, 2011, the Company signed a contract with Emirates Telecommunications Corporation (“Etisalat”) to provide certain services for Etisalat for compensation totaling $214,500. The contract provides for our installation of hardware and software in addition to 12 months of technical support from the Ready For Service (“RFS”) date. As of February 14, 2012, the RFS notice has not yet been issued by Etisalat. |
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Three Months
|
Nine Months
|
|||||||||||||||
Ended December 31,
|
Ended December 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Operating revenues:
|
||||||||||||||||
Software license fees
|
$ | 1,380,418 | $ | 1,166,175 | $ | 3,561,386 | $ | 3,123,386 | ||||||||
Revenues from communications air time
|
(11 | ) | 97,420 | 535 | 248,894 | |||||||||||
Total operating revenues
|
1,380,407 | 1,263,595 | 3,561,921 | 3,372,280 | ||||||||||||
Cost of operating revenues:
|
||||||||||||||||
Software license fees
|
710,717 | 573,494 | 1,955,267 | 1,445,912 | ||||||||||||
Communications air time
|
(3,370 | ) | 109,616 | (3,370 | ) | 244,049 | ||||||||||
Total cost of operating revenues
|
707,347 | 683,110 | 1,951,897 | 1,689,961 | ||||||||||||
Gross profit
|
673,060 | 580,485 | 1,610,024 | 1,682,319 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative expenses (including stock-based
|
||||||||||||||||
compensation of $10,569, $11,166, $589,380, and $319,628, respectively)
|
652,796 | 739,065 | 2,551,701 | 2,463,181 | ||||||||||||
Total operating expenses
|
652,796 | 739,065 | 2,551,701 | 2,463,181 | ||||||||||||
Income (loss) from operations
|
20,264 | (158,580 | ) | (941,677 | ) | (780,862 | ) | |||||||||
Income (expense) from revaluation of liability for
|
||||||||||||||||
common stock purchase warrants
|
167,989 | 116,196 | (39,822 | ) | 271,170 | |||||||||||
Interest income
|
23 | 19 | 48 | 23 | ||||||||||||
Interest expense
|
(31 | ) | (42 | ) | (51 | ) | (652 | ) | ||||||||
Income (loss) before income taxes
|
188,245 | (42,407 | ) | (981,502 | ) | (510,321 | ) | |||||||||
Income taxes
|
8,646 | - | 8,646 | - | ||||||||||||
Net income (loss)
|
$ | 179,599 | $ | (42,407 | ) | $ | (990,148 | ) | $ | (510,321 | ) | |||||
Net income (loss) per share
|
||||||||||||||||
- basic and diluted
|
$ | 0.00 | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | |||||
Weighted average number of shares
|
||||||||||||||||
outstanding:
|
||||||||||||||||
- Basic
|
44,585,198 | 37,914,212 | 43,153,274 | 35,551,646 | ||||||||||||
- Diluted
|
45,209,775 | 37,914,212 | 43,153,274 | 35,551,646 |
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Item 4.
|
Controls and Procedures.
|
Item 1.
|
Legal Proceedings.
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
Item 3.
|
Defaults Upon Senior Securities.
|
Item 4.
|
(Removed and Reserved).
|
Item 5.
|
Other Information.
|
Item 6.
|
Exhibits.
|
Exhibit Number
|
Descriptions
|
|
31.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1+
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2+
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS**
|
XBRL Instance Document
|
101.SCH **
|
XBRL Taxonomy Schema
|
101.CAL **
|
XBRL Taxonomy Calculation Linkbase
|
101.DEF **
|
XBRL Taxonomy Definition Linkbase
|
101.LAB **
|
XBRL Taxonomy Label Linkbase
|
101.PRE **
|
XBRL Taxonomy Presentation Linkbase
|
VOICESERVE, INC.
|
||
Date: February 14, 2012
|
By:
|
/s/
Michael Bibelman
|
Michael Bibelman
|
||
Chief Executive Officer
|
Date: February 14, 2012
|
By:
|
/s/
Alex Ellinson
|
Chief Financial Officer and Principal
|
||
Accounting Officer
|
1 Year Voiceserve (CE) Chart |
1 Month Voiceserve (CE) Chart |
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