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VOICESERVE INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge)
The following discussion provides information which management believes is
relevant to an assessment and understanding of our results of operations and
financial condition. The discussion should be read along with our financial
statements and notes thereto contained elsewhere in this Report. The following
discussion and analysis contains forward-looking statements, which involve risks
and uncertainties. Our actual results may differ significantly from the results,
expectations and plans discussed in these forward-looking statements. See
"Cautionary Statement on Forward-Looking Information."
Our mission is to enable VoIP business and entrepreneurs to offer a full array
of VoIP services globally. Since the company was founded, we have worked to
achieve this mission by creating technology that addresses the principal
communication needs through the economical use of VoIP. We develop and market
software, services and solutions that we believe empowers our customers to
communicate more efficiently and economically through the Internet throughout
the world. VoIPSwitch's software enables communications providers, businesses,
enterprises, hotels and cruise liners VOIP & TDM communication. Our customers
purchase a license from us. The VoIPSwitch license is a central medium in a
telecommunications network that connects telephone calls from one phone line to
another entirely by means of software running on a computerized system. This
work was formerly carried out by hardware with physical switchboards to route
the calls. VoIPSwitch has created an environment whereby the VoIPSwitch license
purchaser can control all its clients' activity via the Internet. VoIPSwitch
controls connections at the junction point between circuit and packet networks.
The end user can make calls from a computer, mobile phone, land line or SIP
device. End users can manage their account online via their specific user names
and passwords, with all the basic features available with landline communication
systems plus many more convenient parameters. These include for example, call
forwarding voice mail SMS and most basic PPX standard features. We do not have
any patents. Capital devoted to research and development is used towards
expanding the possibility of communication and its features.
We generate revenue by developing, manufacturing, licensing, and supporting a
wide range of VoIP software products and services for many different types of
communication devices. Our focus is to build on this foundation through ongoing
innovation in our integrated software platforms, by delivering compelling value
propositions to customers, by responding effectively to customer and partner
needs, and by continuing to emphasize the importance of product excellence,
business efficacy, and accountability.
Company History
The Company was incorporated as 4306, Inc. on December 9, 2005 under the laws of
the State of Delaware to engage in any lawful corporate undertaking, including,
but not limited to, selected mergers and acquisitions. On February 20, 2007, the
Company entered into a share exchange agreement with Voiceserve Limited, a
United Kingdom corporation whose principal place of business at the time of
purchase was located at Cavendish House, 369 Burnt Oak Broadway, Edgware,
Middlesex HA8 5AW ("Voiceserve Limited") and the shareholders of Voiceserve
Limited. Pursuant to the purchase agreement, we acquired all of the outstanding
capital stock of Voiceserve Limited in exchange for the issuance of 20,000,000
shares of our common stock to the Voiceserve Limited shareholders. In addition,
the shareholders of Voiceserve Limited, agreed to cancel their 100,000 shares of
the outstanding common stock of the Company. As a result of the foregoing,
Voiceserve Limited became our wholly-owned subsidiary through which we now
operate our business in the global telecommunications industry. We changed our
name to "Voiceserve, Inc." to reflect our new business plan.
On January 15, 2008, we acquired all of the issued and outstanding ordinary
shares of VoIPSwitch, Inc. ("VoIPSwitch") 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 our common stock valued at $0.48 per share or $1,800,000).
Overview
Our wholly owned subsidiary, VoIPSwitch Inc., develops and implements various
types of Class 5 softswitch software that facilitate the deployment of VoIP
services globally. To-date, the company has successfully implemented over
approximately 16,000 VoIPSwitch licenses around the world.
VoIPSwitch is a complete IP telephony licensed softswitch offering a variety of
services including wholesale VoIP termination, device to phone technology, PC to
phone/web to phone features, calling cards, SMS/ANI/PIN/DID/WEB callback, DIDs'
mapping, call shops and application creating a SIP environment for most mobile
phone handsets in a WiFi, 3G or Edge environment. Unlike competitive systems
composed of many different parts, the VoipSwitch platform is fully integrated in
one application which makes it exceptionally easy to manage. All elements that
are necessary for successful VoIP implementation are already built in. All the
features are integrated in one multiple server based application.
1
--------------------------------------------------------------------------------Results of Operations
For the third quarter of fiscal years 2011 and 2010 ended December 31, 2011 and
December 31, 2010, respectively.
The following table presents the statement of operations for the nine month
periods ended December 31, 2011 and December 31, 2010. The discussion following
the table is based on these results.
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
2--------------------------------------------------------------------------------
Total Revenue. Revenues were $3,561,921 for the nine month period ended December
31, 2011 and $3,372,280 for the nine month period ended December 31, 2010, an
increase of $189,641 or 6%. The revenue increase is attributed to the exposure
of the company's products through exhibitions.
Cost of Revenues. Cost of revenues for the nine month period ended December 31,
2011 was $1,951,897 compared to $1,689,961 for the same period in 2010, an
increase of $261,936 or 15%. The cost of revenues increased due to higher
configuration and support labor costs as a result of the increase in customers
and prospective customers. Gross margin averaged 49% during the third quarter of
fiscal year 2012 (ended December 31, 2011) compared to 46% during the third
quarter of fiscal year 2011. The increase in gross margins is due to the absence
of revenues and costs from communications air time in 2011 which had negative
gross margin in 2010. Also included in cost of revenues is amortization of
intangible assets of 150,000 for both the nine months ended Decenber 31, 2011
and 2010.
Sales, General and Administrative Costs. SG&A for the nine month period December
31, 2011 was $2,551,701 compared to $2,463,181 for the same period of the prior
year, an increase of $88,520 or 4%. The increase in SG&A for the nine months
ended December 31, 2011 compared to the prior year period was primarily due to a
$269,752 increase in stock-based compensation and an increase in office expenses
resulting from the opening of our Swiss office in the three months ended
December 31, 2010, offset by lower advertising and sales promotion expenses in
2011. Also included in SG&A is amortization of intangible assets of $22,500 for
both the nine months ended December 31, 2011 and 2010.
Net Income (Loss). The Company generated net loss for the nine month period
ended December 31, 2011 of $990,148 compared to net loss of $510,321 for the
nine month period ended December 31, 2010. The increase in net loss is due
primarily to the $269,752 increase in stock-based compensation and the $310,992
negative change in income (expense) from revaluation of liability for common
stock purchase warrants ($271,170 income in 2010; $39,822 expense in 2011).
Liquidity and Capital Resources
As of December 31, 2011 we had $344,486 in cash and cash equivalents. At
December 31, 2011 the Company had liabilities of $1,013,948 comprised of
accounts payable of $370,471, accrued expenses payable of $10,655 deferred
software license fees and support of $189,180, loans payable to related parties
totaling $37,484, as well as liability for common stock purchase warrants
totaling $406,158. Comparatively at March 31, 2011, we had $738,604 in
liabilities comprised of accounts payable of $348,493, accrued expenses payable
of $11,464, deferred software license fees and support of $188,197, loans
payable to related partiess totaling $38,236, as well as liability for common
stock purchase warrants totaling $152,214.
Net cash used in operating activities during the nine months ended December 31,
2011 was $323,127 compared to $409,311 in the comparable period in 2010. Net
cash provided by financing activities during the nine months ended December 31,
2011 was $455,318 due to the sale of shares of our common stock, as compared to
$601,477 in the comparable period in 2010.
On May 6, 2011, the Company raised $313,700 in net proceeds through the sale of
shares of its common stock. In addition, on June 6, 2011 the Company raised
$142,370 in net proceeds through the sale of shares of the Company stock, which
was accomplished through advice and support of professional investment
consultants.
Additional capital may be required in order to grow and sustain operations over
the next twelve months. In addition, unless the Company becomes profitable and
begins generating sufficient cash flow, we will need to raise additional capital
to continue our operations past 12 months, and there is no assurance we will be
successful in raising the needed capital. Management believes that, if the
Company's operational cash flow is not sufficient to support its operational
and/or its marketing strategy, its short-term capital needs could range between
$500,000 and $1,500,000 for which it would most probably seek to raise the
capital in the equity markets.
Long term capital needs of the company highly depend upon the amount of time it
takes for us to achieve market penetration. If we are successful in growing
market share and developing new markets around the world, it will be necessary
for us to hire additional employees to support an expanding client base. If
additional working capital is needed to support an expanded operation, we will
seek such capital in the form of debt and/or equity. Management believes that
the Company's long term capital needs could potentially range between $1,500,000
and $3,000,000.
Currently, we have no material commitments for capital expenditures. Management
believes that actions presently being taken to obtain additional funding and
implement its strategic plans provide the opportunity for the Company to
continue as a going concern. In the short term, should the release of our new
features and modules take longer than we anticipate capital will be required to
finance the engineers working on these products. Long term, once the products
are fully developed and enhanced, capital will be required to expand the
marketing prospects into different regions and markets.
3
--------------------------------------------------------------------------------Significant Accounting Policies
Our significant accounting policies are summarized in Note 3 of our financial
statements included in Item 1 of this Report.
Policies determined to be critical are those policies that have the most
significant impact on our financial statements and require management to use a
greater degree of judgment and estimates. Actual results may differ from those
estimates. Our management believes that given current facts and circumstances,
it is unlikely that applying any other reasonable judgments or estimate
methodologies would have materially affected our results of operations,
financial position or liquidity for the periods presented in this report.
Off Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have
never established any special purpose entities. We have not guaranteed any debt
or commitments of other entities or entered into any options on non-financial
assets.
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