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CHATTER BOX CALL CENTER LTD. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Management's Discussion and Analysis contains various "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to "anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management's discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein. Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended March 31, 2011, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future. In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this report. Organizational History and Operations We are a holding company formed in the state of Delaware on June 26, 2006. On October 25, 2007, our predecessor merged with a registered company, Freedom 3, Inc., or Freedom, a Delaware corporation. Through our wholly-owned subsidiary, Sound Worldwide Limited, or Sound Worldwide or SWL, a British Virgins Island corporation, and its subsidiaries, we manufactured and sold denim fabrics and garments from our facilities in Hong Kong and China. SWL's subsidiary is Asian Point Investment Limited, or Asian Point. Through our subsidiaries, Sound Worldwide was able to produce various types of fabric and garment products. Additionally, Sound Worldwide was a garment contractor for a number of well known brands such as GAP, Levis, ECKO, and Giordano. The Company's products were sold to customers worldwide, with over 50% exported to the U.S. marketplace and the rest throughout Western Europe and other countries. Sound Worldwide has been devoting resources to enhance its fabric and garment production technology, capacity, efficiency, and flexibility. This is intended to help Sound Worldwide to meet the perceived increasing and changing demand of the textile and garment market. Our Subsidiaries' Organizational History The following summarizes the organizational history: ? SWL was formed in July 1999. ? Asian Point was registered in China in June 1999. 16-------------------------------------------------------------------------------- On October 25, 2007, Freedom 3, Inc. a Delaware corporation ("Freedom 3"), sold one share of its common stock to Sound Worldwide Limited ("Sound Worldwide" or "SWL") for $1.00 and redeemed 100,000 shares of its common stock from its prior sole stockholder constituting 100% of Freedom 3's issued and outstanding shares of its common stock prior to the sale, resulting in Sound Worldwide owning 100% of Freedom 3. After the sale and redemption by Freedom 3, Sound Worldwide and Freedom 3 entered into a Share Exchange Agreement, dated October 25, 2007, or Exchange Agreement, pursuant to which each issued and outstanding share of Sound Worldwide's common stock and preferred stock was converted into 350 shares of Freedom 3's common stock and preferred stock, respectively, and all of the issued and outstanding shares of Sound Worldwide's common and preferred stock were retired and cancelled, resulting in Freedom 3 owning 100% of Sound Worldwide (the "Exchange"). This resulted in the stockholders of Sound Worldwide to become stockholders of Freedom 3. The previous stockholder of Freedom was then issued 300,000 shares of Freedom 3 as agreed previously. The one share of Freedom's common stock held by Sound Worldwide was then cancelled and Sound Worldwide sold one share of its common stock to Freedom 3, which resulted in Freedom 3 owning 100% of Sound Worldwide. Freedom 3 then changed its name to Sound Worldwide Holdings, Inc. For accounting purposes, the Exchange has been treated as an acquisition of Freedom 3 by Sound Worldwide and as a recapitalization of Sound Worldwide (i.e. a "reverse acquisition"), in which Sound Worldwide was deemed to be the accounting acquirer. As a result of the Exchange, the historical consolidated financial statements of the Company for periods prior to the date of the transaction are those of Sound Worldwide, as the accounting acquirer, and all references to the consolidated financial statements of the Company apply to the historical financial statements of Sound Worldwide prior to the transaction and the consolidated financial statements of the Company subsequent to the transaction. The Company's shares have been restated retroactively to reflect the share exchange ratio as at the date of the transaction in a manner similar to a stock split. On May 27, 2008, the Company and SWL, entered into a Share Purchase and Exchange Agreement (the "Exchange Agreement") with Best Allied, a wholly-owned subsidiary of SWL, and Ms. Ivy S.K. Lam, a director and officer of Best Allied and a stockholder of an aggregate of 6,063,750 shares of the Company's Common Stock. Pursuant to the Exchange Agreement, at a closing held on May 30, 2008, Ms. Lam purchased from the Company and SWL 10,000 shares of Common Stock of Best Allied owned by SWL, which constituted 100% of the issued and outstanding shares of Best Allied, in exchange for 6,063,750 shares of the Company's Common Stock held by Ms. Lam, which constituted 100% of the shares of the Company's Common Stock held by Ms. Lam (the "Exchange"). The effective date of the Exchange is April 1, 2008. Pursuant to the agreement, Ms. Lam had agreed to the return and cancellation of 6,063,750 shares of our common stock held by her. As of December 31, 2008, the subsidiaries of the Company include the following: · Sound Worldwide Limited ("SWL"), incorporated in the British Virgin Islands on July 28, 1999, 100% of which is owned by the Company. SWL's primary business is as an investment holding company; · Asian Point Investment Limited ("Asian Point"), incorporated in the British Virgin Islands on March 26, 1997, 100% of which is owned by the Company. Asian Point's primary business is manufacturing and trading denim fabrics. Our major operating subsidiary, Asian Point Investment Limited ("APIL"), has sold out all its plant and equipment at a loss of US$1,108,946 resulting to a net financial loss of US$2,370,460 during the year ended March 31, 2010. APIL has ceased operation during the year. On March 31, 2011, the Company has entered into an agreement to disposed of its wholly-owned subsidiaries, Asian Point Investment Ltd. and Sound Worldwide Ltd. and all their respective assets in return for payment of an aggregate of $250,000 in cash and promissory note, the latter secured by a chattel mortgage and financing statement covering the property to be sold hereunder, together with any and all other property acquired during the term of said note and placed in or within the premises. The disposal has been completed on June 25, 2011. 17-------------------------------------------------------------------------------- Chatter Box Call Center Our Board of Directors has determined to revise and develop the business plan to build up and operate a Business and Knowledge Process Outsourced (BPO / KPO) Technology / IT company that will play an active role in the IT / Telecom and Call Center / BPO / KPO Industry. The call center industry is an emerging industry in the Philippines and business process outsourcing or BPO is regarded, in managements'' opinion, as one of the fastest growing industries in the world. While the Philippine government is hoping to attract capital to fund infrastructure projects, it is also aiming to bring in more investment in the business process outsourcing (BPO) sector. We believe the Philippines has emerged as a strong rival to India. We believe the Philippine business process outsourcing industry is growing and may soon overtake India as the industry leader with proper funding. Our group's objectives is to become one of the most viable call center/ business process outsourcing companies in the Philippines, if not globally. We are recommending the name of the new company to be Chatter Box Call Center Inc. This represents voice and non-voice customer support for all our BPO Clients. We intend to develop an initial 100 seat call center facility to be structured both as a virtual call center as well as being located within the Philippines. Chatter Box Call Center developed the plans, design and engineering of the facility and will be the implementing Systems Integrator and Overall Project Manager for the Project Roll Out. A Call Center can be found within a company (in-house) or it can be a separate entity that manages calls for an array of clients for a variety of products and services. In house call centers focus on the product and services their own company offers to consumers and businesses. Aside from the typical office set-up which includes the following departments: Admin., HR., Operations, Finance, etc., they also have an additional area within their premises where stations are set-up to call their clientele or receive calls from existing and new customers. When customers respond to infomercials or choose to place an order from a catalog, for example, they typically call a toll-free 800 number, which gets forwarded to a call center to be answered and processed. A separate company, on the other hand, handles various Accounts from different clients and/ or companies which, typically, does not have the time nor finances to set-up their own call center facility. Another reason for hiring a call center is cost savings which translates, we believe, to at least 25-35% costs on manpower and facility. Jobs in call centers are typically classified as "Customer Support Representative Inbound" or "Customer Sales Representative Outbound." An Inbound Telemarketing position is a low-pressure job because it usually does not involve selling. Generally, this type of job entails: · Answering incoming calls · Providing information · Customer support · Order taking; setting up appointments · Processing requests for more information The job title often associated with this type of work is Customer Service Representative. Job responsibilities often include processing orders, preparing correspondence, and fulfilling customer needs to ensure customer satisfaction. An Outbound Telemarketing position involves: · Calling prospects · Selling products/ services over the telephone · Making collection calls · Setting up appointments for a salesperson to make an in person sales call This type of job has a wide salary range, because people are often compensated in a variety of ways (through salary, commission, and / or bonuses). Chatterbox Call Center will concentrate most of its resources in this area of business which has dramatically larger margins. 18 -------------------------------------------------------------------------------- Using the latest technology, companies are now creating virtual call centers. In essence, dozens or even hundreds of people work from their homes. Calls to a company (responding to an 800 number, for example) get forwarded to the telesales professionals at remote locations. A virtual call center links the telesales professionals who are working from different locations together with their employer using computers and the Internet. Offshore Call Center Outsourcing in the Philippines Cutting costs typically add to profitability, but not if quality of service falls as a result. Offshore call center outsourcing offers as a solution. The Philippines delivers, we believe, service levels, results comparable to any UK or US domestic center at less cost. The call center industry is an emerging industry in the Philippines and business process outsourcing (or BPO) is regarded as one of the fastest growing industries in the world. We believe that the demand has grown significantly over the years, and we contend, but have not verified, that there over 200,000 local call center agents and industry growth of at least 100% annually due to less expensive labor costs and English proficient agents. While the Philippine government is hoping to attract capital to fund infrastructure projects, it is also aiming to bring in more investment in the business process outsourcing (BPO) sector, one of the most dynamic industries in the world. With a significant global market share, the Philippines has emerged as a strong rival to India and Canada, both countries with a material presence in this market. Our management contends that due to the strong language skills and high literacy rate of the Philippines population and the country's youthful demographics, the BPO in the Philippines will increase significantly. The Philippine business process outsourcing industry is growing by, we believe, as much as 46% annually and may soon overtake India as the industry leader. We have started to see an influx of BPOs and call centers from India registering businesses in the Philippines and setting up operations. The Chatter Box Call Center group's objectives is to become one of the most viable call center/ business process outsourcing companies in the Philippines, if not globally. LIQUIDITY AND CAPITAL RESOURCES Operating Activities Gross Revenue will be supported by the continued expansion of the number of seats operating in the call center, which is slated to commence with 500 seats, increasing 500 seats per year to reach 2,500 seats by the 5th year of operation Since the last two quarters, a comprehensive CRM - Customer Relationship Management Software has been implemented to help better streamline operations and contact management. Additionally, new aspects of management have been fulfilled, adding to upper management and advisory roles as Chief Operating Officer, Corporate Finance and Marketing. Further, there has been progress made in the area of offering mobile application marketing services to our list of BPO services. We have begun marketing and advertising for new business as of January 1, 2011. Lastly, we are engaged in later stage discussions involving merger/acquisition EBITDA positive candidates that have synergistic value to over BPO business plan objectives. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and reported amount of revenues and expenses during the reporting period. 19 -------------------------------------------------------------------------------- Consolidation The consolidated financial statements include the accounts of Sound Worldwide Holdings, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal. Revenue Recognition The Company recognized revenue when the following fundamental criteria are met: (i) persuasive evidence that an arrangement exists, (ii) delivery has occurred, (iii) our price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. These criteria are usually met at the time of product shipment. The Company does not recognize revenue until all customer acceptance requirements have been met and no significant obligations remain, when applicable. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses the collectability of the accounts receivable based primarily upon the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer's payment history. Sales of Goods represent the invoiced values of goods, net of sales returns, trade discounts and allowances. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns, analysis of credit memo data, and other factors known at the time. Trade Accounts Receivable Accounts receivable are stated at original amount less allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the year end. An allowance is also made when there is objective evidence that the Group will not be able to collect all amounts due according to original terms of receivables. Bad debts are written off when identified. The Group extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible. The Group does not accrue interest on trade accounts receivable. Inventory Inventories, which primarily consist of yarns, denim fabrics, garments and other textile materials and products, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Write down of potentially obsolete or slow-moving inventory is recorded based on management's assumptions about future demand and market conditions. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the 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 carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 20 -------------------------------------------------------------------------------- Share-based Compensation Effective January 1, 2006, the Group adopted Statements of Financial Accounting Standards ("SFAS") No. 123R, Share-Based Payment ("SFAS No. 123R"). Under SFAS No. 123R, the Group measures the cost of employee and consultant services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the costs over the period the employee or consultant is required to provide service in exchange for the award, which generally is the vesting period. WHERE YOU CAN FIND MORE INFORMATION You are advised to read this Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC's Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov. |