UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| | [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | |
| | | For the fiscal year ended May 31, 2011 |
| | | |
| | [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
| | | |
| | | For the transition period from _________ to ________ |
| | | |
| | | Commission file number: 333-143901 |
| SupportSave Solutions, Inc. |
(Exact name of registrant as specified in its charter) |
| Nevada | 98-0534639 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
801 W. Big Beaver, Suite 650 Troy, Michigan | 48084 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: 248-430-4300 | |
Securities registered under Section 12(b) of the Exchange Act: |
| Title of each class | Name of each exchange on which registered |
| none | not applicable |
Securities registered pursuant to Section 12(g) of the Exchange Act: |
| Title of each class | |
| None | |
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 [X] No [ ]
Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ] No [X]
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 (§ 229.405 of this chapter) during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
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. Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 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. $2,414,695
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 26,232,280 as of June 3, 2011
PART I
Overview
Business Process Outsourcing
We provide offshore business process outsourcing, or “BPO,” services which we deliver primarily to U.S.-based clients from our facilities in the Philippines. BPO services involves contracting with an external organization to take primary responsibility for providing a business process or function, such as customer management, transcription and captioning, processing services, human resources, procurement, logistics support, finance and accounting, engineering, facilities management, information technology and training. These customer care services and solutions are provided by our skilled customer service representatives to small and mid-sized companies in the healthcare, communication, business services, financial services, publishing, and travel and entertainment industries.
Current Trends in Customer Management
The scope of customer management outsourcing will consist of complex and varied customer management services capable of duplicating and enhancing all of the functionality of a client's internal customer service team. The delivery platform is planned to be an advanced technology and require customized training programs tailored to each client’s needs, systems and technology. Companies are now focused on optimizing their brands through improved customer management and increasing the value of their customer relationships by encouraging the purchase of higher value, additional or complementary products and services. At the same time, global competition, pricing pressures and rapid changes in technology make it increasingly difficult for companies to cost-effectively maintain the in-house personnel and infrastructure necessary to handle all of their customer management needs. We believe these trends, combined with rapidly expanding consumer use of alternative communications, such as the Internet, e-mail, fiber optic telecom and Voice over Internet Protocol, or VoIP, have allowed providers of outsourced customer management services to satisfy clients’ needs in an efficient and cost-effective manner.
We believe that the majority of customer management services that could be outsourced are still performed in-house, representing a significant opportunity for us. In addition, we believe the following factors will continue to influence companies to outsource their business processes, including their customer management functions:
| § | significant cost benefits; |
| § | best practices in leveraging learned experiences across multiple clients in an efficient and effective manner, particularly within the client' s specific industries; |
| § | the importance of professionally managed customer communications to retain and grow customer relationships; |
| § | the ability to free available resources and management to focus on developing core products and services; |
| § | the use of highly skilled professionals by the outsourcing industry; |
| § | the extensive and ongoing staff training and associated costs required for maintaining in-house technical support and customer service solutions; and |
| § | the ability to avoid capital requirements for the sophisticated communications technology needed to provide timely, high quality customer service. |
Offshore Delivery of BPO Services
We believe that, to attain high quality BPO services at a lower cost, many companies are moving selected front-and back-office processes to providers with offshore delivery capabilities. In recent years, fiber optic telecommunications have become widely available at affordable rates. At the same time, we believe offshore providers have become more accepted by businesses in the U.S. and continue to grow in recognition and sophistication. As a result, a large number of BPO services companies have established offshore operations or operate exclusively offshore. Potential clients, in requests for proposals, frequently require significant detail about offshore delivery capabilities.
India currently accounts for the largest share of the offshore BPO market; however, the offshore industry is expanding beyond India to countries such as the Philippines, Costa Rica, China and Russia. We believe the Philippines has emerged as an attractive alternative to India as a destination for offshore outsourcing services, particularly BPO services that require complex, value-added voice interactions in English.
Competitive Strengths
We believe the following competitive strengths have allowed us to successfully create a sustainable and scalable position as a leading offshore BPO services provider.
Offshore Delivery Model
The Philippines, where our operations are located, is an attractive and growing market for offshore business process outsourcing services. The Philippines, with a large pool of skilled, college-educated professionals, has the third largest English-speaking population in the world, and English is used to teach mathematics, science and health beginning in the third grade and is the primary language of instruction in college. Many Filipinos are familiar with Western business practices and have an affinity for American culture, which we believe offers a substantial advantage in interacting with U.S. consumers and processing their business transactions. In addition, the Philippines has a well-developed telecommunications and utility infrastructure and is an attractive business environment for BPO companies. The Philippine government has encouraged foreign investment and provided significant assistance to the BPO industry through tax holidays, changes to the country's educational curriculum and relaxation of certain regulatory restrictions. We believe our English-speaking workforce will enable us to provide consistent high quality outsourcing services at costs generally comparable to other offshore locations and substantially lower than those in the United States.
Deep Industry Expertise with a Focus on Developing Collaborative Client Relationships
Our industry-focused sales and client structure allows our staff to focus on specific industries, and acquire a thorough understanding of our clients’ business issues and customer needs. As a result, we have developed substantial expertise in the key industries where we do business, which require complex customer management services. By collaborating with our clients on training programs and integrating our processes, IT and reporting systems, we develop long-term strategic relationships.
Sales and Service Delivery Effort Focused on Every Step of the Customer Interaction
We have focused on providing cost-effective solutions that maximize the quality of every customer interaction and generate incremental revenues for our clients by up-selling and cross-selling additional products and services. In addition, we focus on customer retention for our clients. Through emphasis on customer satisfaction and incremental revenue generation, we promote the sale of our clients' products and services, strengthen their relationships with their customers and increase the likelihood of repeat sales.
Attractive Employment Culture
We have corporate culture that enables us to attract and retain talented professionals. We will have an extensive recruiting network to attract high quality talent, primarily from universities, throughout the Philippines. We offer a broad range of programs for enhancing employee retention and encouraging career development, including creating rewards and recognition for performance, stressing professional development through continuing education, offering attractive compensation and comprehensive benefits packages and encouraging open communication between employees and management.
Services
Customer Management Services
We offer a wide range of customer management services to our clients. We have developed a consulting services group dedicated to designing and customizing services for each client. Our consulting services group collaborates with each client to ensure their solution is both successfully deployed and specific to their business needs and requirements. We partner with each client to design, deploy and maintain efficient, integrated services between our technology infrastructure and our clients’ systems. We address our clients’ service strategies, anticipated volume and service levels, reporting and analytical requirements, networking and security, back-end system integration, and training and staffing needs.
Our fee arrangements are customized for each client on a case-by-case basis and depend on a variety of factors, including the types and complexity of services we render for the client, service level requirements, the number of personnel assigned to provide the services, the complexity of training our personnel to provide the services and the information technology and telecommunications requirements necessary to render the services. Our customer management fees generally consists of a flat monthly rate per full-time dedicated employee and implementation fees, including charges for installing and integrating new clients into our telecommunications, information technology and client reporting structure.
We provide the following types of customer management services through multiple integrated communications channels:
| § | Customer service. Our customer service support services is initiated by inbound calls and e-mail from our clients’ customers and addresses a wide range of questions regarding their account billing, changes in services, reservation changes, delivery updates on goods or services, complaint and issue resolution and general product or service inquiries. |
| § | Inbound sales. We handle inbound calls from customers purchasing products and services from our clients, including travel reservations, telecommunications services, Internet services and consumer products and services. Our staff is trained to identify opportunities to sell other products and services offered by our clients. We believe for some clients, an important aspect of our sales activity includes seeking to retain customers who are at risk for cancellation or defection. |
| § | Technical support. Our technical support services includes handling troubleshooting calls, responding to software and hardware problems, providing support for Internet service problems, managing corporate help desks and providing warranty or post-warranty support. |
| § | Direct response sales services. Our direct response services is designed to involve handling inbound telephone orders or inquiries for clients in the direct marketing industry, including those calls received in response to print advertisements, infomercials and other electronic media. Our staff answers questions and processes orders for the purchase of our clients’ products or services and identifies opportunities to sell other products and services. |
| § | Accounts Receivable Management Services. We provide services to collect consumer receivables in the financial services, telecommunications and utilities industries. We manage receivables that have already been written off by the creditor and also manage receivables that are past due but have not yet been written off by our clients. |
Our reporting and analytical system plays an important role in the customer management services we provide. Our system captures and analyzes data received through multiple communications channels and generates client-specific interaction reports on an hourly, daily, weekly and monthly basis. These reports are accessible to our clients through our web-based and secure reporting portal that offers our clients access to data generated through customer management interactions and allows them to analyze the customer interaction database, which includes all e-mail and live web chat transcripts for feedback on the types of questions raised by customers. The system also provides historical trend information to help clients monitor the volume and effectiveness of our interactions with their customers, including revenue generation.
Other BPO Services
We also provide a broad range of additional BPO services, including credit application processing, mortgage processing, title searches and data verification, which consists of verifying an individual's credit, employment, identity or other borrower information. Additionally, we conduct product and fraud detection, manage refunds, warranties and applications, and conduct preparations for serving legal papers. These services are also offered during the Philippine daytime (U.S. night-time), which allows us to leverage an existing base of skilled professionals and infrastructure and should allow us to improve our return on invested capital.
Clients
We provide customer management services to companies in a variety of industries, and will continue developing long-term strategic outsourcing relationships with clients in these industries because of the volume of customer interactions, complexity of services, anticipated growth of their market segments and increasing need for high quality and cost-effective customer management services. We believe our clients benefit from our customer management experience, industry expertise, technical infrastructure and trained professionals. By outsourcing their customer management to us, our clients entrust us with an important aspect of their business, and can focus on their core competency.
Delivery Platform
We deploy a customized information technology infrastructure to efficiently and securely deliver our services. Our redundant systems reduce the risk of data loss and transmission failure and allow us to quickly scale to meet increased demand. Key components of our infrastructure include the following.
| § | Architecture. Our data center is located in the Philippines and is designed to facilitate rapid expansion and consistency in delivering services. This allows us to quickly and efficiently handle additional volume and services for our new and existing clients and to expand our outsourcing network. |
| § | Robust data security. We use several layers of information security protection, including applications and devices designed to prevent unauthorized access to data residing in our systems and aggressive monitoring of audit trails at application and network layers. All outside connections to our network pass through a sophisticated security system that is supported by multiple firewalls. Data access to client systems is protected by security measures. We constantly monitor the network for attacks by potential hackers. As required by our clients, we apply best practices to prevent our professionals from copying or transmitting customer data. |
| § | Dedicated telecommunications network. We design and deploy a dedicated telecommunications system which enables us to securely route multi-channel communications between the United States and the Philippines. Our system transmits communications traffic with minimal latency and high quality over a private network leased from major telecommunications providers. Our lease agreements with these providers generally provide for annual terms and fixed fees based on the levels of capacity dedicated to our usage. |
| § | Integrated customer communications channels. We provide customer management services through multiple communications channels, including inbound telephone calls, e-mail and webchats. Our customer staff is trained to offer services through each of these communications channels. Our customer interaction systems are integrated with our workforce management system, which is used to manage optimal staffing and service levels. These systems are all linked to a proprietary reporting system that is updated hourly for all interactions occurring in our outsourcing centers. This provides our clients with a single view of all interactions between our staff and customers. |
| § | 24/7 client helpdesk. We provide a helpdesk staffed 24/7, which offers our clients complete coverage in the event of any system issues. We established standardized procedures to identify, track, categorize and prioritize inquiries by order of importance to our clients. We also operate an information technology calling tree which allows us to escalate issues up the personnel chain of command as the situation warrants. |
| § | Quality assurance. We use quality management software to monitor service level compliance and randomly sample customer interactions. The system is configured for voice, data and computer screen capture to record the total customer experience and provide live monitoring and playback via a web browser from any location. |
Sales and Marketing
Our sales and marketing support group are responsible for increasing the awareness of our services in the marketplace and generating meetings with prospective clients through leads, sales calls, membership in industry associations, web-based marketing, public relations activity, attendance at trade shows and participation in industry conferences and events. We market our services through our website at www.SupportSave.com.
We have thus far marketed our services through our website, online advertising and direct contact via email. In the next 12 months, our plan is to continue to expand our indirect channels through resellers, partners and affiliates. This allows us to greatly reduce our sales and marketing expense while broadening our reach. Under our current model our resellers mark up our price and keep the difference, our margins are not impacted and our volume is increased through resellers.
We have also formulated a plan to reduce exposure to risk of currency fluctuations and weakness in the US dollar through non-deliverable forward contracts. We hope to implement this plan in the next nine months. During the fiscal year we executed Non-deliverable forward contracts between the USD and the Philippine Peso to protect our business and clients from further weakness in the US Dollar.
Employees
Currently we have approximately 290 employees, consisting primarily as dedicated agents working directly for clients. Of the 290 employees approximately 16 are considered admin or operational, which include payroll, HR and IT staff as well as supervisors and management. We count our employees using a FTE methodology (Full-time equivalent) which means 2 part-time employees would be counted as one, and an employee with a standard 60 hour work week would be counted as 1.5, approximately 90% of our employees work a U.S. standard 40 hour work week.
Hiring and Recruiting
We recognize that our staff will be critical to the success of our business as a majority of our support and service efforts involve direct interaction with customers. We believe the tenure and productivity of our staff will be directly related. Attracting, hiring, training and retaining our staff are major areas of focus. We believe that we pay our professionals competitive wages.
Competition
We will encounter aggressive competition in all areas of our business activities. We believe that the principal competitive factors in our business include the ability to:
| § | provide high quality professionals with strong customer interaction skills, including English language fluency with minimal accents; |
| § | offer cost-effective pricing of services; |
| § | deliver value-added and reliable solutions to clients; |
| § | provide industry specific knowledge and expertise; |
| § | generate revenues for clients; |
| § | secure our client's confidential data; and |
| § | provide a technology platform that offers a seamless customer experience. |
We believe that we can compete effectively on all of these factors. In providing outsourcing services to U.S.-based clients, we believe the location from which services are performed is also a competitive factor. U.S. companies may use domestic providers of outsourcing services or keep additional work in-house, despite the additional cost savings available through offshore providers of these services.
The global BPO services companies with whom we compete include both offshore and U.S.-based companies. These offshore companies may be based in locations such as India, the Philippines, South America, China, Latin America, the Caribbean, Africa or Eastern Europe. We have positioned ourselves as a Philippine-based outsourcing provider, with high quality service offerings and a college-educated workforce attuned to U.S. culture, and with an emphasis on lower cost structure and revenue generation for our clients.
In customer management services, our principal competitors will include publicly traded U.S. companies PeopleSupport, Inc., Sykes Enterprises, West Corp., Accenture Ltd., ExlService Holdings, Inc. and TeleTech Holdings. Privately held competitors include eTelecare International, ClientLogic, Qualfone and Innodata. In addition to our direct competitors, many companies choose to perform some or all of their customer service, technical support, collections and back-office processes internally. Their employees provide these services as part of their regular business operations. Some companies have moved portions of their in-house customer management functions offshore, including to offshore affiliates. We believe our key advantage over in-house business processes is that we will give companies the opportunity to focus on their core products and services while we focus on the specialized function of managing their customer relationships, transcriptions and captioning and additional back-office services.
Regulation
Federal, state and international laws and regulations impose a number of requirements and restrictions on our business. For example, our accounts receivable management services are subject to the Fair Debt Collection Practices Act, which imposes numerous restrictions and obligations on our debt collection practice. Additionally, many states require a debt collector to apply for, be granted and maintain a license to engage in debt collection activities within the state. There are state and federal consumer protection laws that apply to our customer management services business, such as laws limiting telephonic sales or mandating special disclosures, and laws that apply to information that may be captured, used, shared and/or retained when sales are made and/or collections are attempted. State and federal laws also impose limits on credit account interest rates and fees, and their disclosure, as well as the time frame in which judicial actions may be initiated to enforce the collection of consumer accounts. There are numerous other federal, state, local and even international laws and regulations related to, among other things, privacy, identity theft, telephonic and electronic communications, sharing and use of consumer information that apply to our business and to our employees' interactions and communications with others. For example, the Federal Trade Commission's Telemarketing Sales Rule applies a number of limitations and restrictions on our ability to make outbound calls on behalf of our clients and our ability to encourage customers to purchase higher value products and services on inbound calls. Similarly, the Telephone Consumer Protection Act of 1991, which among other things governs the use of certain automated calling technologies, applies to calls to customers. Many states also have telemarketing laws that may apply to our business, even if the call originates from outside the state. Additionally, some of the laws directed toward credit originators, such as the Truth in Lending Act and the Fair Credit Billing Act, can affect our operations because our receivables were originated through credit transactions. These laws, among others, may give consumers a legal cause of action against us or may limit our ability to recover amounts owed with respect to the receivables.
Federal and state regulators are empowered to examine and take enforcement actions for violations of these laws and regulations or for practices, policies or procedures they deem non-compliant, unfair, unsafe or unsound. Moreover, lawsuits may be brought by appropriate regulatory agencies, attorneys general and private parties for non-compliance with these laws and regulations. Accordingly, a failure to comply with the laws and regulations applicable to our business could have a material adverse effect on us.
New consumer protection and privacy protection laws or regulations are likely to impose additional requirements on the enforcement of and recovery on consumer credit card or installment accounts, telephonic sales, Internet communications and other portions of our business. We cannot ensure that some of the receivables were not established as a result of identity theft or unauthorized use of credit and, accordingly, we will not be able to recover the amount of these and other defaulted consumer receivables. As a purchaser of defaulted consumer receivables, we may acquire receivables subject to legitimate defenses on the part of the consumer. In general, our account purchase contracts allow us to return to the debt seller certain defaulted consumer receivables that may not be collectible, due to these and other circumstances. Upon return, the debt sellers are required to replace the receivables with similar receivables or repurchase the receivables. These provisions limit, to some extent, our potential losses on such accounts.
A smaller reporting company is not required to provide the information required by this Item.
Item 1B. Unresolved Staff Comments
A smaller reporting company is not required to provide the information required by this Item.
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We operate out of a leased facility in Cebu, Philippines. The lease began on December 1, 2007, and is for 5 years at the rate of approximately $3,500 per month. Additional space was added at an additional $1,720 per month. On August 15, 2010, we signed a lease in Los Angeles for approximately $1,200 per month for a term of twelve months. On May 18, 2011, the board voted unanimously in favor of closing the Los Angeles office and moving to a new location in Michigan. Effective May 18, 2011, the new corporate address is: 801 W. Big Beaver, Suite 650, Troy, Michigan, 48084. We do not have a lease agreement at this time. Our board member and communications director, Richard Halprin, is providing the office space free of charge at this time.
In March 2010, we signed a new lease for a facility in Cebu, Philippines. The lease begins on July 30, 2010, and is for 5 years at the rate of approximately $10,650 per month. The lease contains a rent-free fit-out period from March 30 to July 29, 2010. The lease also contains an option for additional 5 years upon mutual agreement of the parties.
Item 3. Legal Proceedings
Loomis Bankruptcy
On or about January 6, 2011, a complaint was filed against us in the United States Bankruptcy Court for the District of Arizona (Case No. 2:10-bk-01885) by Joseph Charles Loomis (the “Debtor”). The Debtor is the subject of a Chapter 11 bankruptcy case. The complaint alleges that on January 26, 2010, after the commencement of his bankruptcy case, the Debtor made a payment of $500,000 to us without prior bankruptcy court approval and that the entire payment is subject to being ordered immediately returned to the bankruptcy estate. The payment was made pursuant to a written Stock Subscription Agreement executed between us and the Debtor or about January 1, 2010 whereby the Debtor agreed to purchase 833,333 shares of our common stock (the “Stock Sale”).
On February 28, 2011, the United States Bankruptcy Court approved a settlement agreement (the “Settlement Agreement”) between us and the Debtor. Under the Settlement Agreement, we are required to pay the Debtor $200,000 within 48 hours of entry of the order by the Bankruptcy Court approving the Settlement Agreement. In exchange for the above-referenced payment, the Debtor will return to us 333,332 shares of our common stock purchased as part of the Stock Sale.
Further under the Settlement Agreement, the Debtor shall be permitted to sell his remaining shares of stock acquired in the Stock Sale for a price of not less than $0.35 per share. At the expiration of 180 days from the date of entry of an order by the Bankruptcy Court approving the Settlement Agreement, we will buy back all of the remaining shares of stock sold by means of the Stock Sale for an amount such that the Debtor is reimbursed in the total amount of $500,000 as a result of the above transactions. In exchange, the Debtor will return to us all remaining shares of our common stock in his possession acquired on account of the Stock Sale.
On September 9, 2011 we entered in to an Amendment to Settlement Agreement (“Amendment”) with the Debtor in which he agreed to forbear his right to submit the judgment to the court. In addition, commencing as of April 1, 2011, we agree to make forbearance payments to Debtor on a monthly basis in the amount of 8% of the sum of $300,000 or $2,000 per month with each forbearance payment due and payable on the first business day of each month. Under this Amendment and within 48 hours of approval of this Amendment by the Bankruptcy Court, we shall pay the Debtor the past due forbearance payments (for the months of April, May, June, July and August) in the total amount of $10,000.
The remaining principal balance in the amount of $300,000 is due and payable to the Debtor on or before April 1, 2012.
Duryea Action
On June 27, 2011, a complaint was filed against us in the United States District Court of the District of Nevada (Case No. 2:11-cv-01054-GMN-GWF) by Joseph Duryea (“Duryea”), our former President and member of the board of directors. The complaint alleges that Duryea is entitled to certain benefits provided under his employment contract with the company on account of his termination with our company for “Good Reason.” He claims, among other things, that certain of our officers engaged in multiple activities which constituted breaches of their fiduciary duty and his employment agreement. He also alleges that he took stock that was overvalued based on our incorrect financial reports. He seeks compensatory and punitive damages in excess of $75,000.
At the present time, the board of directors is considering options as to how to respond to Duryea’s complaint. More information will be provided in subsequent reports.
Item 4. (Removed and Reserved)
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is sponsored by FINRA. The OTCBB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current "bids" and "asks", as well as volume information. Our shares are quoted on the OTCBB under the symbol “SSVE.OB.”
The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| Fiscal Year Ending May 31, 2011 |
| Quarter Ended | | High $ | | Low $ |
| May 31, 2011 | | 0.38 | | 0 |
| August 31, 2010 | | 0.471 | | 0.20 |
| November 30, 2010 | | 0.551 | | 0.30 |
| February 28, 2010 | | 0.68 | | 0.20 |
| Fiscal Year Ending May 31, 2010 |
| Quarter Ended | | High $ | | Low $ |
| May 31, 2010 | | 1.27 | | 0.41 |
| August 31, 2009 | | 0.52 | | 0.25 |
| November 30, 2009 | | 0.60 | | 0.42 |
| February 28, 2009 | | 1.30 | | 0.45 |
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Holders of Our Common Stock
As of June 3, 2011, we had 26,232,280 shares of our common stock issued and outstanding, held by 338 shareholders of record.
Dividends
The Company has not declared, or paid, any cash dividends since inception and does not anticipate declaring or paying a cash dividend for the foreseeable future.
Nevada law prohibits our board from declaring or paying a dividend where, after giving effect to such a dividend, (i) we would not be able to pay our debts as they came due in the ordinary course of our business, or (ii) our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the rights of any creditors or preferred stockholders.
Recent Sales of Unregistered Securities
We have 100,000,000 shares of $0.00001 par value common stock authorized.
On April 12, 2011, we sold 3,000,000 shares of our common stock in a private offering at $0.05 per share for a total cash value of $150,000. We collected $94,700 and recorded the balance of $55,300 as a stock subscription receivable. We determined the balance of $55,300 to be uncollectable at May 31, 2011 and wrote off the balance against additional paid-in capital.
On May 26, 2011, we sold 650,000 shares of our common stock in a private offering at $0.10 per share for a total cash value of $65,000.
We issued shares at various times to employees for services rendered. During the years ended May 31, 2011 and 2010, 1,682,499 and 373,333 shares were issued to employees for total value of $758,246 and $280,000, respectively. The shares were valued at the market price on the grant date.
In April and May 2011, we issued 6,396,250 anti-dilution shares of common stock to two officers under the terms of their employment agreements. The share issuances were recorded at par value.
During the year ended May 31, 2011, we entered into two agreements to purchase back stock into treasury.
We agreed to purchase back 833,333 shares of common stock for a total cost of $500,000 in accordance with a settlement agreement with a shareholder. We paid $200,000 and recorded the remaining $300,000 as a payable as of May 31, 2011.
We also agreed to purchase back 6,835,425 shares of common stock for a total cost of $500,000 in accordance with a settlement agreement with a departing officer of the Company. We paid $100,000 and recorded the remaining $400,000 as a payable as of May 31, 2011.
The sale of the above securities was exempt under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), and/or Rule 506 promulgated under the Act.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have any equity compensation plans.
Item 6. Selected Financial Data
A smaller reporting company is not required to provide the information required by this Item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Results of Operations for the years ended May 31, 2011 and 2010
To become more profitable and competitive, we have to attract more clients, sell our services and generate more revenues.
Our revenue reported for the year ended May 31, 2011 was $2,845,159, compared with $2,866,222 for the year ended May 31, 2010. Our revenue generated for both periods was attributable to the sale of our BPO services and was comparable for both periods.
Returns and allowances are refunds for services not provided. Returns and allowances for the year ended May 31, 2011 amounted to $38,613, compared with $54,333 for the same period ended May 31, 2010. We experienced less returns and allowances in the year ended May 31, 2011 compared with the same period 2010 as a result of improved service delivery.
Our revenue less returns and allowances is our net revenue. Net revenue for the year ended May 31, 2011 was $2,806,546, compared with $2,812,489 for the same period ended May 31, 2010.
Our operating expenses for the year ended May 31, 2011 were $4,080,805, compared with $2,620,990 for the same period ended May 31, 2010. The increase in our operating expenses for the year ended May 31, 2011 compared with May 31, 2010 is mainly attributable to: increased wages and benefits, which increased by $1,307,819; severance payments, which were non-existent in 2010 but accounted for $149,000 in 2011;and rent, which increased by $107,790 in 2011. This year we experienced a decrease in commission, advertising, and selling, general and administrative expenses. Below is a breakdown of our operating expenses for the years ended May 31, 2011 and 2010.
| Wages and benefits | $ | 2,963,906 | | $ | 1,656,087 |
| Rent | | 211,767 | | | 103,977 |
| Advertising | | 87,050 | | | 104,390 |
| Telephone, internet and utilities | | 149,972 | | | 145,679 |
| Commissions | | 165,889 | | | 283,526 |
| Severance | | 149,000 | | | 0 |
| Legal and accounting | | 94,673 | | | 62,472 |
| Depreciation | | 74,240 | | | 58,318 |
| Selling, general and administrative | | 184,308 | | | 206,541 |
| TOTAL OPERATING EXPENSES | $ | 4,080,805 | | $ | 2,620,990 |
We had other expenses of $110,816 for the year ended May 31, 2011. Other expenses for this period consisted mainly of an $110,000 write off of a note receivable. We had other income in 2010 by comparison, mainly consisting of a gain on the sale of assets in the amount of $149,540 and a gain from currency hedging transactions in the amount of $54,964.
We had a net loss of $900,075 for the year ended May 31, 2011, compared with net income of $274,055 for the year ended May 31, 2010.
Liquidity and Capital Resources
As at May 31, 2011, we had $775,226 in current assets and $1,042,789 in current liabilities. On May 31, 2010, we had working capital of $267,563.
Operating activities used $556,620 in cash for year ended May 31, 2011. Our net loss of $900,075, along with deferred income tax liabilities of $485,000, and trade accounts receivable of $220,175 were the primary components of our negative operating cash flow. These were offset mainly by $758,249 in stock based compensation, settlement accounts payable of $131,550 and $110,000 for the write off of a note receivable.
Cash flows used by investing activities during the year ended May 31, 2011 were $576,063 mainly as a result of $666,063 for the purchase of property and equipment.
Cash flows used by financing activities during the year ended May 31, 2011 was $140,300 primarily as a result of $300,000 for the purchase of treasury stock, offset mainly by $$159,700 from the issuance of our common stock.
Currently, our primary source of liquidity is cash flows provided by our operations. We will not require additional capital to execute our plan, unless we expand into additional facilities or grow through the acquisition of complementary businesses. Our current cash flows from operations are sufficient to meet our working capital requirements over the next 12 months.
Research and Development
We will not be conducting any product research or development during the next 12 months.
Off Balance Sheet Arrangements
As May 31, 2011, there were no off balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
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