SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2012
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File No.: 000-51882
VOICESERVE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | | 98-0597288 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S Employer Identification Number) |
Grosvenor House, 1 High Street
Middlesex HA8 7TA
England
(Address of principal executive offices)(Zip Code)
(44) 208-136-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered |
| None | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, September 30, 2011: $4,023,126.
Number of the issuer’s common stock outstanding as of July 9, 2012: 47,585,198
Documents incorporated by reference: None
TABLE OF CONTENTS
| PART I | | Page |
| Item 1. | Business | 1 |
| Item 1A. | Risk Factors | 10 |
| Item 1B. | Unresolved Staff Comments | 10 |
| Item 2. | Properties | 10 |
| Item 3. | Legal Proceedings | 10 |
| Item 4. | Mine Safety Disclosures | 11 |
| | | |
| PART II | | |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities | 11 |
| Item 6. | Selected Financial Data | 12 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 20 |
| Item 8. | Financial Statements And Supplementary Data | F-1 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 21 |
| Item 9A. | Controls and Procedures | 21 |
| Item 9B. | Other Information | 22 |
| | | |
| PART III | | |
| Item 10. | Directors, Executive Officers and Corporate Governance | 22 |
| Item 11. | Executive Compensation | 26 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 29 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 29 |
| Item 14. | Principal Accountant Fees and Services | 30 |
| | | |
| PART IV | | |
| Item 15. | Exhibits, Financial Statement Schedules | 31 |
| | | |
| SIGNATURES | |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
CERTAIN TERMS USED IN THIS REPORT
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to VoiceServe, Inc. and its consolidated subsidiaries. “SEC” refers to the Securities and Exchange Commission.
PART I
VoiceServe, Inc. is a holding company whose mission, through its subsidiaries, is to enable voice over internet protocol (“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 principle 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. Our wholly-owned subsidiary VoIPSwitch, Inc.’s (“VoIPSwitch”) software enables communications providers, businesses, enterprises, hotels and cruise liners VoIP and TDM communication. Time-division multiplexing (TDM) is a method of putting multiple data streams in a single signal by separating the signal into many segments, each having a very short duration. Each individual data stream is reassembled at the receiving end based on the timing. 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 of 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. Session Initiation Protocol (SIP) is an IETF-defined signaling protocol widely used for controlling communication sessions such as voice and video calls over Internet Protocol (IP). The protocol can be used for creating, modifying and terminating two-party (unicast) or multiparty (multicast) sessions. Sessions may consist of one or several media streams. 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 PBX standard features. A private branch exchange (PBX) is a telephone exchange that serves a particular business or office, as opposed to one that a common carrier or telephone company operates for many businesses. 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 (“Voiceserve Limited”) whose principal place of business at the time of purchase was located at Cavendish House, 369 Burnt Oak Broadway, Edgware, Middlesex HA8 5AW 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 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).
Payment of the monthly installments of the $600,000 notes payable is 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. If and when the contingency is resolved and payments of the $600,000 notes payable are made, such paid amounts will be added to goodwill.
Overview
Our wholly owned subsidiary, VoIPSwitch 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. Automatic number identification (ANI) is a feature of telephony intelligent network services that permits subscribers to display or capture the billing telephone number of a calling party. PIN is a code each client has for making a phone number. DID refers to the client’s virtual phone number. 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.
Our Products
We have categorized our products into three divisions:
| · | VoipSwitch (www.voipswitch.com); |
| · | Video On Demand; and |
| · | Call-to-PBX (www.calltopbx.com) |
VoipSwitch
VoipSwitch is an award-winning software platform enabling rapid roll-out of VoIP services. It has all the elements to implement a full range of VoIP services. Customers can profit from a variety of services from wholesale voice and SMS termination, calling cards (phone to phone) and a variety of callback options, as well as benefit from Class 5 services (voicemail and own phone numbers).
The system includes the following feature set:
Billing System
Various authentication methods include prepaid/postpaid accounts with a robust engine, fully integrated with the softswitch. It is in cooperation with MySQL advanced billing features, and includes support for monthly calling plans.
PBX hosted platform module includes:
| · | A multi-tenant hosted PBX platform; |
| · | Voice, video, SMS, IM support; |
| · | Video conference from web; |
| · | Enhanced company structure and user accounts management; |
| · | Ring/Hunt groups; and |
| · | IVR scenarios. |
IP IVR (Phone to Phone calling cards module) includes:
| · | Customizable IVR scenarios (XML), ready to use templates, Caller ID recognition, and |
| · | One or two stage calling procedures, support for DIDs as access numbers. |
Callback includes:
| · | Authentication by caller ID or PIN, various methods of realizing Callback; |
| · | Support for DIDs as Callback service numbers, SMS and Web triggered Callback; and |
Regular Callback.
| · | Call back is initiated by making a phone call to a provider’s service number. The service number can be implemented by DID from a DID provider, PSTN or GSM gateway or a mobile phone connected to a PC (not necessarily server) with a special application (which is part of the module) that communicates with the mobile and forwards the requests to VoipSwitch. |
| · | Authorization methods: |
· | By PIN – the system calls back to the caller ID that has come with the call. After the call is connected the IVR prompts for a PIN; after successful authorization the two stage dialing scenario is processed. |
| · | By Caller ID (ANI) – the system tries to authorize the Caller ID received with the triggering call. If authorization is successful (the caller ID is associated with a user account in the system), the system makes a call to the caller ID or to a default phone number assigned to the user account (defined by the user e.g. from the web). |
| · | By DID – Each user has a unique DID (virtual phone number) associated with his/her account. After dialing this DID the system initiates a call to a predefined phone number associated with the account (not the caller ID). This service is mainly for users requesting callback that use phone services with blocked caller ID. |
SMS Callback.
| · | Users trigger the callback by sending an SMS to a provider’s service number via a mobile phone connected to a PC (not necessarily server) with a special application (which is part of the module).Thereafter the call communicates with the mobile and forwards the requests to the VoipSwitch. An alternative method is renting the SMS number from an SMS provider which will forward incoming text messages to a specified VoipSwitch URL. Authorization method: by Caller ID of the phone from which SMS has been sent or by user/password (or PIN) sent in SMS. |
Web Callback.
| · | Sometimes called Connect Two, this feature creates a conference between two parties initiated from the web interface level or from a special desktop application, Callback Dialer. |
Softphones – Vippie and SIPLink includes:
| · | Based on SIP protocol, proprietary VoIP tunnel technology – Making/Receiving calls even behind VoIP blockades; |
| · | Full integration with the web interface, quick access to Voicemail; |
| · | Sending SMS, Instant Messaging – Chat, presence, file transfer; |
| · | Address book shared with the Web Portal interface; and |
| · | G729, G722, G711 and other codecs. |
Resellers system (VSR) includes:
| · | Multilevel structure, Web-based comprehensive interface; |
| · | Support for multi-currency; and |
| · | Customizable web interface for end-users, integration with the E-Shop. |
Callshop includes:
| · | Real-time monitoring and billing, booths visualization; and |
| · | Standalone and web based versions invoicing |
Authorization of logon data and accounting features are fully integrated within the softswitch engine in one application. This makes the platform exceptionally efficient as it utilizes internal billing procedures without having to connect to external systems. A uniform interface is created that extends the platform functionality by linking account billing details with routing and switching settings.
Main characteristics include:
| · | Pre-paid and post-paid accounts; |
| · | Support for monthly plans with free or promotional minutes to certain destinations; |
| · | Recurring payments: Monthly, daily or others e.g. monthly payment for DID number, subscription plan, Voicemail to text; |
| · | transcription, E911 etc; |
| · | Managing user accounts, blocking, setting limits; |
| · | Automatic accounts (PIN) generator; |
| · | Creating and managing rates sheets, attributing rates sheets to individual accounts; |
| · | Advanced rating system, defining special rating properties per destination/globally per sheet; |
| · | Payments reports; |
| · | Alerting procedures on low account balance, alerts sent to customers via email; |
| · | Billing for terminators (cost control); |
| · | Profit reports; |
| · | Invoicing – Automatic invoices generation, invoices available to customers through the web interface or sent by email (PDF format); |
| · | Detailed calls history reports, available for customers from the web interface (Excel or TXT format), also can be sent along with invoice in PDF format; |
| · | Import/Export accounts from/to Excel or TXT file; |
| · | Import/Export rates sheets from/to Excel or TXT file; and |
| · | All accounts and billing information stored in SQL database. |
Provisioning
Provisioning includes graphical interfaces for managing the whole system within the main package. An administrator or user with restricted rights can perform various tasks, from creating new accounts to debugging traffic.
VoipSwitch Real-time monitor includes:
| · | Real-time monitoring, live call information, statistics at a glance (number of connections, connected calls, registered users, ASR/ACD/ PDD and others); |
| · | Registered users details, gatekeepers/Sip registrars status, system logs; and |
| · | Debug functionality for selected connections. |
Main functionality includes:
| · | Managing user accounts – divided by type, that limits users to particular services (callback, calling cards, wholesale, broadband calling clients, callshops), also support for one account for all services; |
| · | Managing rates sheets; |
| · | Dialing plan; |
| · | Managing resellers accounts; |
| · | Protocol settings; |
| · | Alerts, system services, recurring payments, special tasks, watchdog; |
| · | Advanced reporting, detailed information on the traffic, CDRs, export to various formats, filters (per route, destination, client, date/time, duration, cost etc.); |
| · | Statistics – ASR, ACD, PDD and other parameters; |
| · | Balance reports; |
| · | Payments management; |
| · | Invoicing; and |
| · | PIN generator. |
Softphones
Softphones are applications that allow users to make phone calls from computers using computer speakers and microphone. VoIPSwitch has developed unrivalled softphones for all kinds of smartphones.
VoIPSwitch’s softphone for mobile solution works both with the VoIPSwitch platform and third party SIP servers. It supports high rate compression codecs, SMS, anti-blockage solution and more.
VoIPSwitch softphone comes in two versions:
Retail version: One license connected to one handset (by IMEI); and
Wholesale version: for VoIP providers with unlimited licence for end-users.
Vippie is a softphone dialer that is downloaded onto mobile “smart phones.” VoipSwitch Vippie softphones are multifunctional VoIP applications for PCs and all mobile platforms. The software is an ideal solution for established telecom providers planning to extend their offering, as well as for those who just enter the VoIP business. The softphones can be seamlessly integrated with any Class 5 or IMS platform including VoipSwitch. With the assistance of VoipSwitch engineers the implementation of mobile and PC softphones becomes extremely easy and time-efficient. VoipSwitch softphones are equipped with excellent video and voice quality, a multitude of functions, clear design and ease of use for end-customers. The applications are constantly developed, enriched with the latest features, which makes them the competitive products in the VoIP market. Our softphones solution is white-labeled, ready to be branded with provider’s logo and design. We currently offer softphone solutions for the following devices:
| · | Vippie softphone for Symbian; |
| · | Vippie softphone for iPhone/iPod/iPad; |
| · | Vippie softphone for BlackBerry; |
| · | Vippie softphone for Windows Mobile; and |
| · | Vippie softphone for Android. |
Purchasing the license for any softphone means one can distribute it to an unlimited number of users registered with the same SIP server. The IP/Domain for the SIP server is hard coded in the application. Each application is linked to one handset. Vippie softphone is for regular users to make VoIP calls from their mobiles and also for IP PBX users to communicate with each other (by extensions). Calls can be forwarded to mobiles when one is out of the office, and one can listen to voicemails. Vippie softphones offer multiple features. Vippie softphone works with the VoIPSwitch platform allowing users to send SMSs for free to other Vippie users on the same network and very cheap SMSs to any other destination.
Reseller Module
The module architecture allows resellers to have their own, unique Web Portal module, Online Shop and branded softphone. They can become virtual VoIP providers based on one, central VoipSwitch, with the possibility to manage the Web Portal (under their own domain name) and integrate with their own online payment processors (e.g. PayPal accounts). The billing system behind the reseller structure is based on separate rate sheets associated with each reseller account. Resellers can create their own rate sheets for their users or sub-resellers.
Main characteristics of the Resellers module include:
| · | Multi-level structure; |
| · | Web-based management interface; |
| · | Active calls monitoring; |
| · | Advanced reporting; |
| · | Multi-currency; |
| · | Multi-lingual; |
| · | Own, branded Web Portals for resellers; |
| · | Own E-Shop account; and |
| · | Branded softphone (Vippie) |
Callshop Module
The Callshop module is an additional module intended for Callshop facilities whereby a customer can walk into a shop and make international phone calls. Phones are usually installed in cabins (booths). After making a call or calls, the customer receives a bill for connections made at the cash desk. In this scenario, regular phones are replaced by VoIP clients which can, for example, be multiple lines FXS gateways, SIP/H323 IP phones (adapters) or even softphones installed on personal computers (e.g. in internet cafes).
The Callshop module consists of two parts:
| · | A Server side Callshop software integrated into VoipSwitch’s main application; and |
| · | Web flash interface; calls status as shown in real time |
VoipSwitch Pricing
The price of the VoipSwitch system consists of the main package price and separate prices for the additional modules. There are two price options of the basic version of the system: the limited license at the price of $3,500, and the unlimited license at the price of $5,000.
The limited license permits only a maximum of 30 simultaneous connections. This version is recommended for start-ups since it keeps the initial investment minimal. As traffic increases the software can easily be upgraded to the next level. The subsequent upgrade to the unlimited license does not require any troublesome modifications. The limited version may run only on one IP address.
With the unlimited version, there is no limit on the number of simultaneous calls. The only limitation is related to the hardware specifications of the server on which the VoipSwitch operates. The unlimited license supports up to three VoipSwitch’s running simultaneously on independent servers attributed to the same company. There are no restrictions regarding geographical locations.
Both licensed versions have the capacity to implement the following:
| · | PC to Phone services(g723.1softphoneincluded); |
| · | Device to phone services; |
| · | DID mapping; |
| · | Wholesale termination; |
| · | Customers billing; |
| · | Web interface for end users; and |
| · | Web interface for administrator. |
Beyond the main package, there are additional modules that extend VoipSwitch’s features. The costs of these additional modules are listed below:
| Callback module - SMS, ANI, PIN, DID, WEB | | $ | 2,000 | |
| IP IVR (Calling cards) module | | $ | 2,000 | |
| Resellers module | | $ | 2,000 | |
| Call Shop module | | $ | 2,000 | |
| Online Shop module | | $ | 2,000 | |
| Softphone custom made design | | $ | 1,500 | |
| Vippie Soft Phone | | $ | 2,000 | |
| IP PBX | | $ | 5,000 | |
| VoipSwitch Mobile Softphone (Windows) | | $ | 15,900 | |
| VoipSwitch Mobile Softphone (Symbian) | | $ | 15,900 | |
| Mobile Softphone Custom (logo) | | $ | 150 | |
| VoipSwitch Mobile Softphone (Blackberry) | | $ | 16,900 | |
| VoipSwitch Mobile Softphone (iPhone) | | $ | 16,900 | |
| VoipSwitch Mobile Softphone (Android) | | $ | 16,900 | |
| VoipSwitch Mobile Blackberry Call Back | | $ | 750 | |
| Vippie Softphone with IM & SMS | | $ | 1,500 | |
Video On Demand (“VOD”)
A Complete VOD Platform
Videoswitch is a platform for delivering online content to a broad segment of screens ranging from smartphones and PCs to high definition home theatres. The module enhances the functionality of VoipSwitch. It utilizes the same user accounts and billing features used for voice services.
Triple play services approach
VOD functionality can be offered together with VoIP products, thus allowing Internet Telephony Providers to quickly expand their offer and enter the rapidly growing VOD market. The recent progress in media delivery technologies now makes it possible to enhance the IP services by adding video on demand and TV program delivery. VoipSwitch enables ISP and telecoms to seamlessly roll-out the feature-rich services via the public internet. An important element of the system is an integrated billing system enabling sharing the same account for all the services. Registered users can order movies, make calls, watch paid TV programs and be charged from the same account.
Platform Architecture
The system architecture is designed in such a way that a provider can start with limited investment and then scale it up when the number of subscribers grows.
Content protection
In the VOD business model it is crucial to have proper content security. This is implemented to prevent the content from being intercepted and copied. The VoipSwitch system offers protection on different levels:
Set Top Boxes
The Android based Set-top-boxes running our custom Media Center are superior end-user devices for the customers willing to watch VOD/IPTV on a TV screen at home. Intuitive Media Center makes it easy to browse movies catalogue, order videos or buy IPTV access and watch the on-demand content using just a few clicks on the remote controller.
XBMC application with VOD plugin
XBMC Media Center is a popular application for watching videos and playing music, both from offline and online sources. Its interface is designed for TV screens with emphasis on easy navigation using remote controls. The application can run on a wide selection of net top devices such as DLink Dbox, Zotac and others. It also works on Windows 7, XP and VISTA.
Our implementation of XBMC comes with an embedded SIP client, which is responsible for establishing the connection with Videoswitch and decrypting the content. The XMBC extension for Videoswitch is also offered as a plugin for other distributions of this application. The XBMC application supports live streaming over secure RTP with trick play functionality. Users, after logging in, can browse the movies catalogue and place orders.
VoIPSwitch offers the XBMC plugin which is addressed to users with existing XBMC installations. The plugin can be easily installed directly from the XBMC level from the plugins repository.
The other option is the custom made XBMC version which is downloaded and installed on the user’s device or a PC. It supports both Windows and Linux operating systems.
XBMC interface
The custom made version does not require any additional configuration by the user. The look of the interface can be branded for a particular VOD provider.
One of the most popular versions of the XBMC is the Boxee, which, in cooperation with DLink, offers the Boxee box – a set top box type device supporting HD streaming and many other attractive features.
Roku player channel
Roku player is an extremely popular set top box offering HD quality for online streaming. The VoIPSwitch VOD platform delivers ready to use scripts for publishing Roku channels which enable Roku users to enjoy the content. A provider can publish the channel on the Roku Channel Store which requires permission from Roku. Once the channel is approved it will appear in the official Channel Store and become visible to all the Roku users. This method has a tremendous marketing impact.
VOD Mobile
The VoIPSwitch solution for VOD on smartphones includes the custom client for iPhone/iPad, Android based smartphones and tablets. For Apple mobile devices VoIPSwitch offers a custom client which utilizes http live streaming technology for watching the content. The application supports trick play, browsing the movie catalogue and ordering procedures. In addition, it can be connected to the In Apple Purchase system allowing users to pay for the content using their iTunes accounts. The Android client uses direct RTP h264 streaming.
VOD Portal
The Video Portal is a flash-based web application responsible for browsing the movie catalogue, ordering movies and watching the content. The streaming technology is real time messaging protocol (“RTMP”) which is a secure (encrypted) version of flash live streaming. The player supports trick play functionality. The portal can be seamlessly embedded into an existing website.
In addition VoIPSwitch offers web-based components for signing up (creating new accounts directly from the web) and also for recharging existing accounts. The system can be connected to multiple electronic payment systems. At the moment more than 30 payment providers are supported, such as Paypal, authorize.net, cybersource and many more.
Video On Demand Pricing
Video Calls Manager
| · | Price: $22,000 for primary license |
| · | Additional licenses are $15,000 each |
| · | Softswitch with integrated billing system - responsible for clients authentication, rating and billing |
| · | Web Admin Portal for managing the content |
| · | Offline transcoding module: an application responsible for converting uploaded content to required streaming formats. |
Streaming Server
| · | Price: $15,000 for primary license |
| · | Additional licenses are $10,000 each |
| · | Live and VOD streaming |
| · | Support for http live streaming, RTMP, RTMPe, RSTP, Silverlight |
| · | Trick play for VOD |
| · | Capacity 500 HD concurrent streams per server |
PC Web Portal
| · | Price: $10,000 |
| · | Web portal for browsing content, ordering and instant watching |
| · | Customizable user interface (css) |
| · | Sign up component allowing for electronic payments |
| · | Flash or Silverlight custom players |
Mobile Web Portal
| · | Price: $10,000 |
| · | Web portal designed for mobile browsers |
| · | Customizable user interface (css) |
| · | Support for iPhone/iPad http live streaming, |
| · | Support for RTSP interleaving (blackberry handsets) |
Mobile AIR application for Android and Blackberry Play book
| · | Price: $15,000 |
| · | Unlimited number of users |
| · | Custom application for the devices supporting Adobe Air for mobiles. Works on devices with Android 2.1 and above and on Blackberry Playbook. |
Roku Player Channel
| · | Price: $8,000 |
| · | Custom channel for Roku devices which can be used as a private or public channel available on Roku store (requires the Roku company approval). |
Plugin for the Boxee
| · | Box Price: $6,000 |
| · | A plugin which can be downloaded from private repository or submitted to the Boxee main repository. |
Call-to-PBX
Call-to-PBX, offers voice, video and mobile IP communications solutions for small-to-medium size businesses and residential customers. A private branch exchange (PBX) is a telephone exchange that serves a particular business or office. These solutions, based on internally developed technologies, leverage existing broadband Internet connections and cellular networks, deliver a high quality phone service at a fraction of the cost of alternative solutions. The Call-to-PBX solution eliminates the need for costly, on-premises phone systems by delivering all telephony services over managed or unmanaged Internet connections. This economical, easy-to-use alternative to traditional PBX systems or Centrex class services allows high-speed Internet users anywhere in the world to be part of a virtual PBX that includes automated attendants, conference bridges, extension-to-extension dialing and ring groups, in addition to a rich variety of other features normally found on dedicated PBX equipment. Virtual Office extensions do not require a dedicated communications infrastructure. The service is received through an existing Internet connection, thus eliminating the need for additional phone lines or digital subscriber lines for extensions, in contrast to traditional Centrex or PBX products.
In addition to the Hosted PBX service, we offer Hosted Key System service for companies whose size or structure dictates the sharing of multiple phone lines along with IP Trunking services for larger enterprises who wish to reap the cost benefits of VoIP phone service while retaining previously acquired on-premise equipment. For mobile phone users, Call-to-PBX offers Vippie Mobile -a softphone easily downloaded that seamlessly connects to the Call-to-PBX via WiFi or GPRS networks. This innovative service enables cell phone users to significantly reduce their international phone bills and maintain high digital voice quality, while still enjoying the convenience and flexibility of mobile calling.
Financing and Revenue Sources
We are headquartered in London. To support our growth and in recognition of global opportunity, our revenue stream is from the VoipSwitch sales of software and support. Revenues are generated from sales of licenses and their ongoing monthly service charges to resellers. Resellers range from small to medium VoIP business’s globally offering telephony via the Internet enabling registered users to call overseas at reduced rates and between users for free. Purchasing the VoIPSwitch license creates a virtual telecom supplier facility.
Manufacturing
All the Company’s development and manufacturing is done on a consultancy basis in Poland. Once a principle idea for software is developed engineers are commissioned on a consultancy basis to implement these principles into the current Voipswitch infrastructure. The Company has many divisions within the software parameters. There are mobile dialers, which need constant updating due to new phone apparatus circulating on the market, and customers’ demands for added features. In addition the Company is working on releasing its Video on Demand portal, software which will enable end users to watch videos from smartphones and tablets.
Sales and Marketing
Our marketing objective is to grow Voipswitch users and revenue by cost-effectively acquiring and retaining customers. We employ an integrated multi-channel approach to marketing, whereby we evaluate and focus our efforts on efficient marketing vehicles to accomplish our goals. To do this, we make use of both broad-reaching and highly-targeted media channels in the general, direct mail, online, alternative media, telemarketing, partner marketing, and international exhibition programs. We make use of marketing research to gain consumer insights into brand, product, and service performance, and utilize those learning’s to improve our messaging and media plans. Market research is also leveraged in the areas of testing, retention marketing, and product marketing to ensure we bring compelling products and services to market for our customers.
Customers
The company exhibits at many shows globally, including in the United States, Europe, Asia and the Middle East. These shows attract local customers from these regions. Advertising through forums and on the web internationally is another source for gaining customer interest. Our sales to customers are wide spread globally and cover most continents.
Competition
We face continued competition from alternative communication providers. Our success is dependent upon our ability to attract customers away from more expensive softswitch manufactures. We believe that the principal competitive factors affecting our ability to attract and retain customers are price, call quality, customer service, and enhanced services and features.
Patent and Trademarks
We currently do not own any patents or licenses of any kind and therefore we have no protected rights with respect to our services. However the VoIPSwitch logo and name has been trademarked in the United Kingdom and Ireland as of June 18, 2010. Applications have been submitted to expand the trade mark across the European continent.
Governmental Regulations
There are no governmental approvals necessary to conduct our current business. Although this permits us to provide our services without the time and expense of governmental supervision it also allows competitors to more easily enter this business market.
Employees
Currently, we have no full-time or part-time employees. All those who perform services for the Company do so as consultants and independent contractors. We have retained 75 consultants that are spread globally in five countries, including Poland, the United Kingdom, Switzerland, Belgium and Israel.
Smaller reporting companies are not required to provide the information required by this item.
| Item 1B. | Unresolved Staff Comments. |
None.
Our registered offices are located at Grosvenor House 1 High Street, Middlesex HA8 7TA. We house our equipment at the above address. There is a lease agreement between us and the landlord with a rent of approximately £710 (or $1,136 translated at the March 31, 2012 exchange rate) per month. We believe that this space is sufficient and adequate to operate our current business.
| Item 3. | Legal Proceedings. |
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
| Item 4. | Mine Safety Disclosure. |
Not Applicable.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Information
Our common stock has traded on the OTC Bulletin Board (“OTCBB”) system under the symbol “VSRV” since July 24, 2007. There is a limited trading market for our common stock. The following table sets forth the range of high and low bid quotations for each quarter within the last fiscal year. These quotations as reported by the OTCBB reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The high and low prices listed have been rounded up to the next highest two decimal places.
| | | High | | | Low | |
| January 1, 2011 to March 31, 2012 | | $ | 0.50 | | | | 0.24 | |
| October 1, 2011 to December 31, 2011 | | $ | 0.31 | | | | 0.19 | |
| July 1, 2011 to September 30, 2011 | | $ | 0.50 | | | | 0.14 | |
| April 1, 2011 to June 30, 2011 | | $ | 0.38 | | | | 0.24 | |
| January 1, 2011 to March 31, 2011 | | $ | 0.25 | | | | 0.12 | |
| October 1, 2010 to December 31, 2010 | | $ | 0.33 | | | | 0.18 | |
| July 1, 2010 to September 30, 2010 | | $ | 0.35 | | | | 0.20 | |
| April 1, 2010 to June 30, 2010 | | $ | 0.48 | | | | 0.15 | |
The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
Holders
As of July 9, 2012 we had approximately 50 record holders of our common stock, holding 47,585,198 shares of common stock. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.
Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Certificate of Incorporation.
Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.
Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
At March 31, 2012, Voiceserve, Inc. 2009 Equity Incentive Plan was in effect. There were no other equity compensation plans in effect. The following information concerning this plan is as of March 31, 2012:
| Equity Compensation Plan Information | |
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(c) | |
| Equity compensation plans approved by security holders | | | - | | | | - | | | | - | |
| Equity compensation plans not approved by security holders | | | 0 | | | | - | | | | 2,000,000 | |
| Total | | | 0 | | | | 0 | | | | 2,000,000 | |
| Item 6. | Selected Financial Data. |
Smaller reporting companies are not required to provide the information required by this item.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following 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. 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 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.
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.
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:
VoipSwitch Softswitch 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.
Results of Operations
Year Ended March 31, 2012 Compared to the Year Ended March 31, 2011
The following table presents the statement of operations for the year ended March 31, 2012 as compared to the year ended March 31, 2011. The discussion following the table is based on these results.
| | | Year Ended March 31, | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| Operating revenues: | | | | | | |
| Software license fees | | $ | 4,553,595 | | | $ | 4,140,211 | |
| Revenues from communications air time | | | 527 | | | | 255,117 | |
| Total operating revenues | | | 4,554,122 | | | | 4,395,328 | |
| | | | | | | | | |
| Cost of operating revenues: | | | | | | | | |
| Software license fees | | | 2,636,587 | | | | 2,076,685 | |
| Communications air time | | | (4,390 | ) | | | 228,778 | |
| Total cost of operating revenues | | | 2,632,197 | | | | 2,305,463 | |
| | | | | | | | | |
| Gross profit (loss) | | | 1,921,925 | | | | 2,089,865 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Selling, general and administrative expenses, including | | | | | | | | |
| stock-based compensation of $592,664 and | | | | | | | | |
| $330,552, respectively | | | 3,103,182 | | | | 3,166,134 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total operating expenses | | | 3,103,182 | | | | 3,166,134 | |
| | | | | | | | | |
| Loss from operations | | | (1,181,257 | ) | | | (1,076,269 | ) |
| Income (loss) from revaluation of liability for common stock purchase warrants | | | (700,472 | ) | | | 305,394 | |
| Interest income | | | 82 | | | | 29 | |
| Interest expense | | | (899 | ) | | | (1,211 | ) |
| | | | | | | | | |
| Loss before income taxes | | | (1,882,546 | ) | | | (772,057 | ) |
| | | | | | | | | |
| Income taxes (benefit) | | | 4,669 | | | | --- | |
| | | | | | | | | |
| Net Loss | | $ | (1,887,215 | ) | | | (772,057 | ) |
| | | | | | | | | |
| Net Loss per share - basic and diluted | | $ | (0.04 | ) | | | (0.02 | ) |
| | | | | | | | | |
| Weighted average number of shares | | | | | | | | |
| outstanding - basic and diluted | | | 43,592,574 | | | | 36,352,342 | |
Total Revenues
Revenues were $4,554,122 for the year ended March 31, 2012 and $4,395,328 for the year ended March 31, 2011. The increase in sales is primarily attributed to increased marketing at industry shows and conferences, the addition of softswitch modules and increased sales to existing clients. The company has been exhibiting globally at prominent and significant IT and VoIP exhibitions. Presence at shows increases awareness to the company’s broad spectrum of its software products and modules. Furthermore, we have added three additional types of mobile dialers: Windows, Android and the Apple dialers. This allows connectivity to the VoipSwitch softphone not only from a PC, but even from a mobile phone while in WiFi, 3G or Edge environment. The Company’s client base is spread globally. For the year ended March 31, 2012, the revenues were generated 26% from Europe, 29% from North America, 26% from Asia, and 19% from other regions. It should be noted that Deferred Revenue decreased to $181,503 at March 31, 2012 as compared with $188,197 at March 31, 2011. In most cases, Deferred Revenue will be recognized over the subsequent twelve month period.
Cost of Revenues
Cost of revenues for fiscal year 2011 was $2,632,197 compared to $2,305,463 for fiscal year 2011. The increase in cost of revenues in 2012 reflects higher configuration and support labor costs as a result of the increase in customers and prospective customers. Also included in cost of revenues is amortization of intangible assets of $200,000 in both fiscal years 2012 and 2011. Gross margin averaged 42% in fiscal year 2012 compared to 48% for fiscal 2011.
Operating Expenses
Selling, General and Administrative Costs
SG&A for fiscal 2012 was $3,103,182 a decrease of $62,952 over the prior year level of $3,166,134. The decrease results primarily from the $451,288 decrease in advertising and sales promotion expenses (from $805,598 in 2011 to $354,310 in 2012), offset partially by the $262,112 increase in stock-based compensation (from $330,552 in 2011 for $592,664 in 2012). Also included in SG&A is amortization of intangible assets of $30,000 in both fiscal years 2012 and 2011.
Net Income (Loss)
The Company incurred a net loss for the year ended March 31, 2012 of $1,887,215 compared to a net loss of $772,057 for the year ended March 31, 2011. The $1,115,158 increase in net loss was primarily due to the $1,005,866 change in income (loss) from revaluation of liability for common stock purchase warrants from income of $305,394 in fiscal 2011 to a loss of $700,472 in fiscal 2012 (which was due to a higher stock price of our common stock at March 31, 2012). Excluding income (loss) from revaluation of liability for common stock purchase warrants, the net loss for the years ended March 31, 2012 and 2011 was $1,186,743 and $1,077,451, respectively.
Year Ended March 31, 2011 Compared to the Year Ended March 31, 2010
The following table presents the statement of operations for the year ended March 31, 2011 as compared to the year ended March 31, 2010. The discussion following the table is based on these results.
| | | Year Ended March 31, | |
| | | 2011 | | | 2010 | |
| | | | | | | |
| Operating revenues: | | | | | | |
| Software license fees | | $ | 4,140,211 | | | $ | 3,168,876 | |
| Revenues from communications air time | | | 255,117 | | | | 141,189 | |
| Total operating revenues | | | 4,395,328 | | | | 3,310,065 | |
| | | | | | | | | |
| Cost of operating revenues: | | | | | | | | |
| Software license fees | | | 2,076,685 | | | | 1,038,671 | |
| Communications air time | | | 228,778 | | | | 124,422 | |
| Total cost of operating revenues | | | 2,305,463 | | | | 1,163,093 | |
| | | | | | | | | |
| Gross profit (loss) | | | 2,089,865 | | | | 2,146,972 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Selling, general and administrative expenses, including | | | | | | | | |
| stock-based compensation of $330,552 and | | | | | | | | |
| $405,772, respectively | | | 3,166,134 | | | | 2,812,453 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total operating expenses | | | 3,166,134 | | | | 2,812,453 | |
| | | | | | | | | |
| Loss from operations | | | (1,076,269 | ) | | | (665,481 | ) |
| Income from revaluation of liability for common stock purchase warrants | | | 305,394 | | | | - | |
| Interest income | | | 29 | | | | 39 | |
| Interest expense | | | (1,211 | ) | | | - | |
| | | | | | | | | |
| Loss before income taxes | | | (772,057 | ) | | | (665,442 | ) |
| | | | | | | | | |
| Income taxes (benefit) | | | --- | | | | --- | |
| | | | | | | | | |
| Net Loss | | $ | (772,057 | ) | | | (665,442 | ) |
| | | | | | | | | |
| Net Loss per share - basic and diluted | | $ | (0.02 | ) | | | (0.02 | ) |
| | | | | | | | | |
| Weighted average number of shares | | | | | | | | |
| outstanding - basic and diluted | | | 36,352,342 | | | | 31,990,848 | |
Revenues were $4,395,328 for the year ended March 31, 2011 and $3,310,065 for the year ended March 31, 2010. The increase in sales is primarily attributed to increased marketing at industry shows and conferences, the addition of softswitch modules and increased sales to existing clients. The company has been exhibiting globally at prominent and significant IT and VoIP exhibitions. Presence at shows increases awareness to the company’s broad spectrum of its software products and modules. Furthermore, we have added three additional types of mobile dialers: Windows, Android and the Apple dialers. This allows connectivity to the VoipSwitch softphone not only from a PC, but even from a mobile phone while in WiFi, 3G or Edge environment. The Company’s client base is spread globally. The revenues were generated from 40% of sales in Asia, 33% of sales in North America, 20% of sales in Europe and 7% across other regions. It should be noted that Deferred Revenue decreased to $188,197 at March 31, 2011 as compared with $245,666 at March 31, 2010. In most cases, Deferred Revenue will be recognized over the subsequent twelve month period.
Cost of revenues for fiscal year 2011 was $2,305,463 compared to $1,163,093- for fiscal year 2010. The increase in cost of revenues in 2011 reflects higher configuration and support labor costs as a result of the increase in customers and prospective customers. Also included in costs of revenues is amortization of intangible assets of $200,000 in both fiscal years 2011 and 2010. Gross margin averaged 48% in fiscal year 2011 compared to 65% for fiscal 2010.
Operating Expenses
Sales, General and Administrative Costs
SG&A for fiscal 2011 was $3,166,134, an increase of $353,681 over the prior year level of $2,812,453. The increase results primarily from the $368,697 increase in advertising (from $436,901 in 2010 to $805,598 in 2011) and higher consulting fees, offset partially by the $75,220 decrease in stock based compensation (from $405,772 in 2010 to $330,552 in 2011). Also included in SG&A is amortization of intangible assets of $30,000 in both fiscal years 2011 and 2010.
The Company incurred a loss from operations for the year ended March 31, 2011 of $1,076,269 compared to a loss of $665,481 for the year ended March 31, 2010. Our increase in our loss from operations for the year ended March 31, 2011 was due to our investment in a larger support facility, which was required due to our developing VOD as well as our increased data base through our increase in sales.
Liquidity and Capital Resources
As of March 31, 2012 we had $315,774 in cash and cash equivalents. On May 26, 2010, we 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. Each warrant entitles the holder to purchase one share of common stock at a price of $0.50 per share and is exercisable for a period of five years.
Additionally, on May 6, 2011 and June 6, 2011 we raised a total of $498,000 through the sale of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share and is exercisable for a period of three years. In connection with the sale, the Company and the investors executed a securities purchase agreement and a registration rights agreement. The Company has not yet filed a registration statement covering the resale of the shares of common stock issued in the offering and the shares of common stock underlying the warrants. The Company is liable to 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.
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. We believe 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, enhanced capital will be required in order to expand our marketing prospects we plan to introduce in 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.
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.
Critical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, finite lived intangible assets, accrued liabilities and certain expenses. We base our estimate on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Our significant accounting policies are summarized in Note 2 of our audited financial statements for the year ended March 31, 2012. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:
Revenue Recognition
Revenues 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 collectability 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.
Sales of communications devices are recorded when title passes to the customer which is generally at time of shipment to the customer. Substantially all sales are prepaid by the customer by credit card.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using an accelerated declining balance method over the estimated useful lives of the respective assets.
Intangible Assets
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.
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.
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.
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.
Recently Adopted Accounting Pronouncements
The FASB has issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU reflects the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity that enters into business combinations that are material on an individual or aggregate basis.
The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.
The amendments were effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this amendment did not have a material impact on the Company’s financial statements.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Smaller reporting companies are not required to provide the information required by this item.
