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VOICESERVE INC - 10-Q/A - 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."
Overview
We were founded December 9, 2005 as 4306, Inc. On February 20, 2007, pursuant to
a share exchange agreement (the "Share Exchange"), Voiceserve Limited became our
wholly owned subsidiary. Following the Share Exchange, we adopted Voiceserve
Limited's business plan and began conducting business as a global Internet
communications company. We are now a global Internet communications company that
makes it possible for anyone with an Internet connection to make low cost, high
quality voice calls over the Internet. Immediately following the Share Exchange,
we changed our name to VoiceServe, Inc., to better reflect our new business
plan.
Voiceserve Limited was founded in March 2002 by Michael Bibelman, Alexander
Ellinson and Mike Ottie. The founders each have over 15 years of experience in
the telecommunications industry.
We generate revenue by developing, manufacturing, licensing, and supporting a
wide range of VoIP software products and services for many different types of
devices, including a wide range of cellular telephones. Our founders began their
careers in 1991 with Econophone Inc. ("Econophone") a marketer of international
"call-back" and "calling cards". The founders worked as independent resellers of
calling cards creating markets in Europe and third world countries transmitting
the calls via universal 0800 numbers. While working at Econophone, the founders
discovered a huge potential in the market for pre-paid calling cards and were
one of the first groups in the industry to market such a product in Europe. Our
founders introduced, among the many famous European distributors to market such
a product, the Audax Group ("Audax"), based in Holland with an annual turnover
in excess of $850 million. Our founders were also instrumental in aiding
Econophone LLC in its transformation from a privately held company to one listed
on the New York Stock Exchange, known thereafter as Viatel. Once Viatel was
listed on the New York Stock Exchange, our founders independently set up their
own ISDN and VoIP platforms with the intention of developing and marketing a
comprehensive VoIP solution.
Our marketing efforts are focused on VoIP wholesalers termination carriers,
retail VoIP providers, Internet providers, including WiFi and WiMax operators,
Cable TV networks, GSM providers, telecom resellers, prepaid serve companies,
and small-to-medium size companies (businesses, hotels, hospitals, etc.).
On January 15, 2008, we acquired all of the issued and outstanding ordinary
shares of VoIPSwitch as well as all of VoipSwitch's assets, including customer
orders and intangible assets, for total consideration of $3,000,000 consisting
of $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. 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.
On December 7, 2010, pursuant to a verbal agreement on October 19, 2010,
Voiceserve issued a total of 2,250,000 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.
VoipSwitch
VoipSwitch is a complete IP telephony system offering a variety of services
including device to phone technology, PC to phone/web to phone features, calling
cards, SMS/ANI/PIN/DID/WEB callback, DIDs' mapping, call shops and more. Unlike
competitive VoIP systems composed of many different parts, the VoipSwitch
platform is fully integrated into one application, which makes it easy to
manage. All elements that are necessary for VoIP implementation are already
built in. All the features are integrated in one multiple server based
application. To date, we have installed over 16,000 VoipSwitch systems around
the world.
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The "VoipSwitch Brand" has gained recognition and popularity especially in
countries where land-line telecommunication infrastructure are less
developed. Since increasing our participation in telecom conferences and
exhibitions over the last year, awareness of our comprehensive VoIP software
offering has significantly increased.
To further the breadth of VoipSwitch's system, we added VoIP dialers for
cellular phones. Over the last twelve months, we have enhanced its dialers for
Blackberry and Apple's iPhone, in addition to its existing dialers for Symbian
(Nokia, Motorola, Samsung, Sony, etc.), Android and Windows® cellular phones. We
have also introduced video conferencing for Apple, iPads and iPods, enabling the
end-users to conduct economical VoIP video conference calls, worldwide via the
internet.
The Company cultivates long-term growth of its businesses through technological
innovation, engineering excellence, advanced functionality and security, and a
commitment to delivering high-quality products and services. Our goal is to
deliver products that provide the best platform with the lowest total cost of
ownership.
We will continue to invest in research and development in existing and new lines
of business, including Video On Demand. We will also invest in research and
development of advanced technologies for future products. We believe that
delivering innovative and high-value solutions through our integrated platform
is the key to meeting customer needs and to our future growth.
We believe that we have laid a foundation for long-term growth by delivering
innovative products, creating opportunities for wholesale and retail partners,
and offering a comprehensive VoIP software platform with a low cost of ownership
for service providers as well as end users. Our focus in fiscal year 2013 is to
build on this foundation, and expand our marketing efforts into North, Central
and South America and Asia.
Key market opportunities:
VoipSwitchSoftswitch Technology. We are focused on delivering consumers
softswitch products that we believe are compelling in terms of design, features,
and functionality. We also are working to define the next era of VoIP telephony
through the development of innovative software that runs on a wide range of
devices and connects people quickly and easily to the information, experiences,
and communities they care about.
Mobile phone VoIP connectivity. The ability to combine the power of VoIP and
mobile technology via the Internet represents an opportunity across all our
businesses lines. We believe our approach will enable us to deliver new
experiences to end users and new value to businesses.
Expanding our presence. Through our ability to deliver additional value in VoIP
telephony, we believe we are well-positioned to build on our strength. In
addition to wholesalers and retailers, we intend to market our VoIP software to
small-to-medium size business, hotels, cruise lines, hospitals and
schools/universities.
Plan of Operation
During the next twelve months, we expect to take the following steps in
connection with the development of our business and the implementation of our
plan of operations:
Maintain a strong presence at key telecommunications
exhibitions across the world.
Further develop our Video On Demand capabilities with additional
full-time programmers hired during the quarter. We expect to
introduce a Video On Demand solution for Hoteliers during our
second or third quarter of the current fiscal year. We believe
providing VOD to our customers will have a material impact on our
ability to penetrate market opportunities.
Market our VoIP software capabilities to the transportation
industry (commercial and leisure), hotel industry, small-to-medium
size business and larger commercial enterprises, as well as
wholesalers and resellers.
Amass a large subscription base for our Vippie retail service via
Internet advertising and direct marketing.
Expand our distribution partnership network throughout Asia.
Private Placements
On May 6, 2011, we entered into definitive agreements with investors to sell in
a private placement an aggregate of 2,623,077 shares of our common stock and
warrants to purchase 1,311,539 shares of our common stock at a purchase price of
$0.13 per unit, resulting in gross proceeds to us of $341,000, before deducting
placement agent fees and other offering expenses. The warrants are exercisable
at an exercise price of $0.30 per share and expire three years from the closing
date.
On June 6, 2011, we entered into definitive agreements with investors to sell in
a private placement an aggregate of 1,207,692 shares of our common stock and
warrants to purchase 603,846 shares of our common stock at a purchase price of
$0.13 per unit, resulting in gross proceeds to us of $157,000, before deducting
placement agent fees and other offering expenses. The warrants are exercisable
at an exercise price of $0.30 per share and expire three years from the initial
closing date.
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Results of Operations for the three months ended June 30, 2012 compared to June
30, 2011
The following table presents the statement of operations for the three month
periods ended June 30, 2012 and June 30, 2011. The discussion following the
table is based on these results.
Three Months Ended June 30,
2012 2011
Operating revenues:
Software license fees $ 1,381,118 $ 1,172,654
Revenues from communications airtime and devices - 2
Total operating revenues 1,381,118 1,172,656
Cost of operating revenues:
Software license fees 776,868 736,766
Communications air time - -
Total cost of operating revenues 776,868 736,766
Gross profit 604,250 435,890
Operating expenses:
Selling, general and administrative expenses
(including stock-based compensation of $1,245,745
and $999,645, respectively) 1,811,227 1,550,526
Total operating expenses 1,811,227 1,550,526
Loss from operations (1,206,977 ) (1,114,636 )
Income/(expense) from revaluation of liability for common
stock purchase warrants
388,625 (450,954 )
Interest income 67 20
Interest expense - (10 )
Income (loss) before income taxes (818,285) (1,565,580 )
Income taxes (benefit) - -
Net income (loss) $ (818,285) $ (1,565,580 )
Net income (loss) per share - basic and diluted $ (0.02 ) $ (0.03 )
Weighted average number of shares
outstanding - basic and diluted 49,385,198 40,289,425
Total Revenue. For the three months ended June 30, 2012 and 2011 we generated
revenues of $1,381,118, and $1,172,654 respectively. The change represents an
increase of $208,462 or 17.7% for the three months ended June 30, 2012. The
revenue increase is attributed to the exposure of the company's products through
exhibitions as well as the reputational success the products are having in the
market place.
Cost of Revenues. For the three months ended June 30, 2012 and 2011 the cost of
revenues were $776,868, and $736,766 respectively. The change represents an
increase in cost of revenues of $40,102 or 5.4% for the three months ended June
30, 2012. The cost of revenue increase is attributed to the increase in clients
that require servicing. Gross margin averaged 44% during the first quarter of
fiscal year 2012 (ended June 30, 2012) compared to 37% during the first quarter
of fiscal 2011. The increase in gross margins is due to an increase in
productivity.
Sales, General and Administrative Costs. For the three months ended June 30,
2012 and 2011 the SG&A were $1,811,227,and $1,550,526, respectively. The change
represents anincrease of $260,701 or 16.8% for the three months ended June 30,
2012. The increase in SG&A was due to higher stock-based compensation in the
quarter June 30, 2012 versus the quarter June 30, 2011. The group has not
materially increased its overhead despite its customer base and revenues
increasing over the quarter.
Net Income (Loss). The Company generated net loss for the three period ending
June 30, 2012 of $818,285 and compared to net loss of $1,565,580 for the three
month period ended June 30, 2011. The net gain is due to the reasons described
above as well as a gain of $388,625 on the revaluation of the common stock
warrants. In the quarter ended June, 30 2011 there was a loss on the revaluation
of the common stock warrants of $450,954. A difference of $839,579 between the
two periods.
Liquidity and Capital Resources. As of June 30, 2012 we had $316,691 in cash and
cash equivalents. At June 30, 2012 the Company had liabilities of $1,245,109
comprised of accounts payable of $300,594 deferred software license fees and
support of $228,550, loans payable to related parties totaling $37,782, as well
as liability for common stock purchase warrants totaling $678,183. Comparatively
at June 30, 2011, we had $1,717,154 in liabilities comprised accounts payable of
$430,535, deferred software license fees and support of $181,503, loans payable
to related parties totaling $38,308, as well as liability for common stock
purchase warrants totaling $181,503.
Net cash used in operating activities during the three months ended June 30,
2012 was $16,627 compared to $139,067 in the comparable period in 2011. Net cash
used by financing activities during the three months ended June 30, 2012 was
($526) compared to net cash provided of $456,093 in the comparable period in
2011. In the quarter ended June 30, 2011 the Company raised $456,070 from the
sale of Common Stock.
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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.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
On April 20, 2012, 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.
On April 20, 2012, the Company's Board of Directors renewed the director
agreements with Michael Taylor and Andrew Millet and approved the issuance of a
total of 600,000 restricted shares of Company common stock (300,000 shares
each).
On April 26, 2012 the company's Board of Directors authorized the issuance of a
total of 600,000 shares of common stock to Chris Ogalga, a director of the
company for services received.
On April 26, 2012 the company's Board of Directors authorized the issuance of a
total of 1,200,000(600,000 each) of common stock to Michal Kosloski and Lucas
Nowalk, contractors and shareholders for services received.
On June 4, 2012, pursuant to employment agreements with its (1) President and
Chairman and (2) Chief Executive Officer, 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
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.
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.
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