Aly Energy Services, Inc. - Quarter Report: 2009 December (Form 10-Q)
United
States
Securities
and Exchange Commission
Washington,
D. C. 20549
Form
10-Q
x Quarterly
Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
for the
Period
Ended December 31, 2009
or
r Transition
Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the Transition Period From ___________to
__________
Commission File Number 33-92894
PREFERRED
VOICE, INC.
| Delaware | 75-2440201 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 6500 Greenville Avenue Suite 570 Dallas, TX | 75206 |
| (Address of Principal Executive Offices) | (Zip Code) |
(214)
265-9580
Registrant’s
Telephone Number, including area code.)
Not
Applicable
(Former
name, Former Address and Former Fiscal year, if changed since last
report.)
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
the filing requirements for at least the past 90 days. Yes ý No o
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 o No o
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
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o
(Do
not check if a smaller reporting company)
|
Smaller reporting company ý
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No ý
Applicable
Only to Corporate Issuers
Indicate
the number of shares outstanding of each of the issuer’s classes of Common
Stock, as of the latest practicable date.
Common
Stock, $ 0.001 Par Value – 6,130,184 shares as of February 8,
2010.
Preferred
Voice, Inc.
| Part I. | Financial Information | 3 |
| Item 1. | Financial Statements | 3 |
| Balance Sheets- December 31, 2009 and March 31, 2009. | 3 | |
| 5 | ||
| 6 | ||
| Item 2. | 14 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4T. | Controls and Procedures | 17 |
| Part II. | Other Information | 17 |
|
Item
1.
|
Legal Proceedings | 17 |
| Item 1A. | Risk Factors | 17 |
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 17 |
| Item 3. | Defaults upon Senior Securities | 18 |
| Item 4. | Submission of Matters to a Vote of Security Holders | 18 |
| Item 5. | Other Information | 18 |
| Item 6. | Exhibits and Reports on Form 8-K | 18 |
| Signatures | 19 |
DECEMBER
31, 2009 AND MARCH 31, 2009
|
December
31,
|
March
31,
|
|||||||
|
2009
|
2009
|
|||||||
|
(unaudited)
|
(audited)
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 511,286 | $ | 466,187 | ||||
|
Accounts
receivable, net of allowance for doubtful
|
||||||||
|
accounts
of $0 and $10,269, respectively
|
480,740 | 654,111 | ||||||
|
Inventory
|
69,257 | 37,641 | ||||||
|
Prepaid
expenses
|
- | 7,500 | ||||||
|
Current
portion deferred loan cost
|
- | 4,214 | ||||||
|
Total
current assets
|
$ | 1,061,283 | $ | 1,169,653 | ||||
|
Property
and equipment:
|
||||||||
|
Computer
equipment
|
$ | 387,471 | $ | 484,898 | ||||
|
Furniture
and fixtures
|
22,317 | 22,317 | ||||||
|
Office
equipment
|
19,271 | 19,271 | ||||||
| $ | 429,059 | $ | 526,486 | |||||
|
Less
accumulated depreciation
|
302,461 | 371,254 | ||||||
|
Net
property and equipment
|
$ | 126,598 | $ | 155,232 | ||||
|
Other
assets:
|
||||||||
|
Capitalized
software development costs, net of accumulated
|
||||||||
|
amortization
of $1,255,028 and $1,249,024, respectively
|
$ | 2,901 | $ | 8,904 | ||||
|
Deposits
|
4,485 | 29,485 | ||||||
|
Trademarks
and patents, net of accumulated
|
||||||||
|
amortization
of $45,932 and $39,915, respectively
|
65,524 | 67,566 | ||||||
|
Total
other assets
|
$ | 72,910 | $ | 105,955 | ||||
|
Total
assets
|
$ | 1,260,791 | $ | 1,430,840 | ||||
The
accompanying notes are an integral part of these financial
statements.
|
December
31,
|
March
31,
|
|||||||
|
2009
|
2009
|
|||||||
|
(unaudited)
|
(audited)
|
|||||||
|
Liabilities
and stockholders' equity (deficit)
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 333,545 | $ | 218,571 | ||||
|
Accrued
vacation
|
7,525 | 4,314 | ||||||
|
Accrued
payroll and payroll taxes
|
12,734 | 5,044 | ||||||
|
Accrued
interest
|
17,551 | 35,100 | ||||||
|
Accrued
operating expenses
|
12,500 | - | ||||||
|
Deferred
revenue
|
35,042 | 56,917 | ||||||
|
Current
portion debentures payable - net of discounts
|
1,276,250 | 2,000,504 | ||||||
|
Total
current liabilities
|
$ | 1,695,147 | $ | 2,320,450 | ||||
|
Commitments
and contingencies (Note E)
|
||||||||
|
Stockholders'
equity (deficit):
|
||||||||
|
Common
stock, $.001 par value;
|
||||||||
|
100,000,000
shares authorized; 6,130,184
|
||||||||
|
and
6,130,184 shares issued, respectively
|
$ | 6,130 | $ | 6,130 | ||||
|
Additional
paid-in capital
|
20,481,148 | 20,481,148 | ||||||
|
Accumulated
deficit
|
(20,920,128 | ) | (21,375,382 | ) | ||||
|
Treasury
stock - 4,500 shares at cost
|
(1,506 | ) | (1,506 | ) | ||||
|
Total
stockholders' equity (deficit)
|
$ | (434,356 | ) | $ | (889,610 | ) | ||
|
Total
liabilities and stockholders' equity (deficit)
|
$ | 1,260,791 | $ | 1,430,840 | ||||
The
accompanying notes are an integral part of these financial
statements.
PREFERRED
VOICE, INC.
FOR
THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2009 AND 2008
|
Three
months
|
Nine
months
|
Three
months
|
Nine
months
|
|||||||||||||
|
ended
|
ended
|
ended
|
ended
|
|||||||||||||
|
December
31,
|
December
31,
|
December
31,
|
December
31,
|
|||||||||||||
|
2009
|
2009
|
2008
|
2008
|
|||||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
|
Net
sales
|
$ | 1,211,201 | $ | 3,367,998 | $ | 985,072 | $ | 2,898,743 | ||||||||
|
Cost
of sales
|
680,314 | 1,784,735 | 477,291 | 1,502,646 | ||||||||||||
|
Gross
profit
|
$ | 530,887 | $ | 1,583,263 | $ | 507,781 | $ | 1,396,097 | ||||||||
|
General
and administrative expenses
|
$ | 329,287 | $ | 1,006,340 | $ | 419,414 | $ | 1,279,760 | ||||||||
|
Income
from operations
|
$ | 201,600 | $ | 576,923 | $ | 88,367 | $ | 116,337 | ||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Interest
expense
|
$ | (21,586 | ) | $ | (122,526 | ) | $ | (55,825 | ) | $ | (167,593 | ) | ||||
|
Gain
on sale of assets
|
857 | 857 | - | - | ||||||||||||
|
Total
other income (expense)
|
$ | (20,729 | ) | $ | (121,669 | ) | $ | (55,825 | ) | $ | (167,593 | ) | ||||
|
Income
(loss) from operations
|
||||||||||||||||
|
before
income taxes
|
$ | 180,871 | $ | 455,254 | $ | 32,542 | $ | (51,256 | ) | |||||||
|
Provision
for income taxes
|
- | - | - | - | ||||||||||||
|
Net
income (loss)
|
$ | 180,871 | $ | 455,254 | $ | 32,542 | $ | (51,256 | ) | |||||||
|
Per
share amounts:
|
||||||||||||||||
|
Income
(loss) from operations
|
$ | 0.030 | $ | 0.074 | $ | 0.005 | $ | (0.008 | ) | |||||||
|
Net
income (loss)
|
$ | 0.030 | $ | 0.074 | $ | 0.005 | $ | (0.008 | ) | |||||||
The
accompanying notes are an integral part of these financial
statements.
PREFERRED
VOICE, INC.
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2009 AND 2008
|
2009
|
2008
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Cash
received from customers
|
$ | 3,541,369 | $ | 2,921,276 | ||||
|
Cash
paid to suppliers and employees
|
(2,619,417 | ) | (2,727,947 | ) | ||||
|
Interest
paid
|
(93,079 | ) | (114,649 | ) | ||||
|
Net
cash provided by operating activities
|
$ | 828,873 | $ | 78,680 | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Capital
expenditures
|
$ | (13,432 | ) | $ | (21,003 | ) | ||
|
Proceeds
from sale of assets
|
908 | - | ||||||
|
Net
cash used by investing activities
|
$ | (12,524 | ) | $ | (21,003 | ) | ||
|
Cash
flows from financing activities:
|
||||||||
|
Repayment
of notes payable
|
$ | (771,250 | ) | $ | - | |||
|
Net
cash provided (used) by financing activities
|
$ | (771,250 | ) | $ | - | |||
|
Net
increase in cash and cash equivalents
|
$ | 45,099 | $ | 57,677 | ||||
|
Cash
and cash equivalents:
|
||||||||
|
Beginning
of period
|
466,187 | 283,220 | ||||||
|
End
of period
|
$ | 511,286 | $ | 340,897 | ||||
The
accompanying notes are an integral part of these financial
statements.
|
2009
|
2008
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Reconciliation
of net income (loss) to net cash provided (used)
|
||||||||
|
by
operating activities:
|
||||||||
|
Net
income (loss)
|
$ | 455,254 | $ | (51,256 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash provided
|
||||||||
|
by
operating activities:
|
||||||||
|
Depreciation
and amortization
|
$ | 54,274 | $ | 76,593 | ||||
|
Amortization
of debenture payable discount
|
46,996 | 70,494 | ||||||
|
Gain
on sale of assets
|
(857 | ) | - | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Decrease
in accounts receivable
|
173,371 | 22,533 | ||||||
|
Decrease
(increase) in inventory
|
(31,616 | ) | 50,799 | |||||
|
Decrease
in prepaid expenses
|
7,500 | - | ||||||
|
Decrease
in deposits
|
25,000 | 5,000 | ||||||
|
(Decrease)
increase in accounts payable
|
114,974 | (24,567 | ) | |||||
|
Decrease
in deferred revenue
|
(21,875 | ) | (43,125 | ) | ||||
|
(Decrease)
increase in accrued expenses
|
5,852 | (27,791 | ) | |||||
|
Total
adjustments
|
$ | 373,619 | $ | 129,936 | ||||
|
Net
cash provided by operating activities
|
$ | 828,873 | $ | 78,680 | ||||
The
accompanying notes are an integral part of these financial
statements.
PREFERRED
VOICE, INC.
Note A - General
organization:
Preferred
Voice, Inc. (the "Company") is a Delaware corporation incorporated in
1992. On February 25, 1997, the Company’s stockholders approved
changing the name of the Company to better reflect the nature of the Company’s
business. The Company commenced business on May 13, 1994, and was in the
development stage until August 1, 1995. The Company provides
enhanced services to the telecommunications industry throughout the United
States and maintains its principal offices in Dallas, Texas.
Note
B - Summary of significant accounting policies:
Basis of
presentation
The
accounting policies followed by Preferred Voice, Inc. are set forth in the
Company’s financial statements that are a part of its March 31, 2009, Form 10K
and should be read in conjunction with the financial statements for the three
and nine months ended December 31, 2009, contained herein.
The
financial information included herein as of December 31, 2009, and for the three
and nine month periods ended December 31, 2009 and 2008, has been presented
without an audit, pursuant to accounting principles for the interim financial
information generally accepted in the United States of America and the rules of
the Securities and Exchange Commission. The Company believes that the
disclosures are adequate to make the information presented not
misleading. The information presented reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
period.
Cash and cash
equivalents
For
purposes of reporting cash flows, cash and cash equivalents include all amounts
due from banks with original maturities of three months or less.
Inventory
Inventory
at December 31, 2009 consisting of ringback system components of $44,470 and
digital signage components of $24,787, and inventory at December 31, 2008
consisting of digital signage and their related components of $32,940, is stated
at the lower of cost or market. Cost is determined using the
first-in, first-out method.
Concentration of business,
market and credit risks
In the
normal course of business, the Company extends unsecured credit to its customers
with payment terms generally 30 days. Because of the credit risk
involved, management provides an allowance for doubtful accounts which reflects
its opinion of amounts which will eventually become uncollectible. In the event
of complete nonperformance by the Company’s customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance.
Receivables and credit
policies
Accounts
receivable are uncollateralized customer obligations due under normal trade
terms requiring payment within 30 days from the invoice
date. Unpaid accounts receivable with invoice dates over 30
days old bear no interest.
Accounts
receivable are stated at the amount billed to the customer. Customer account
balances with invoices dated over 90 days are considered
delinquent. Payments of accounts receivable are allocated to the
specific invoices identified on the customer’s remittance advice or, if
unspecified, are applied to the earliest unpaid invoice.
PREFERRED
VOICE, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note
B - Summary of significant accounting policies (continued):
The
carrying amount of accounts receivable is reduced by a valuation allowance that
reflects management’s best estimate of amounts that will not be
collected. Management individually reviews all accounts receivable
balances that exceed 90 days from invoice date and, based on an assessment of
current creditworthiness, estimates that portion, if any, of the balance that
will not be collected. Accounts receivable past 90 days due are
$1,851 and $18,870 as of December 31, 2009 and March 31, 2009,
respectively.
Capitalized software
development
The
Company is dependent on internally developed software to provide all of its
services. As required by the Software Topic of the FASB Accounting
Standards Codification, costs incurred prior to the product’s technological
feasibility are expensed as incurred. The capitalization of software
development costs begins when a product’s technological feasibility has been
established and ends when the product is available for use and released to
customers. Capitalized software development costs include direct
costs incurred subsequent to establishment of technological feasibility for
significant product enhancements. Amortization is computed on an
individual product basis using the straight-line method over the estimated
economic life of the product, generally three years.
Property and
equipment
The cost
of property and equipment is depreciated over the estimated useful lives of the
related assets. Depreciation is computed on the straight-line method
for financial reporting purposes and the double declining method for income tax
purposes.
Maintenance
and repairs are charged to operations when incurred. Betterments and
renewals are capitalized.
The
useful lives of property and equipment for purposes of computing depreciation
are as follows:
| Computer equipment | 5 years |
| Furniture and fixtures | 5 years |
| Office equipment | 5 years |
Fair value of financial
instruments
The
Company defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between willing
parties. Financial instruments included in the Company’s financial
statements include cash and cash equivalents, trade accounts receivable, other
receivables, other assets, notes payable and long-term debt. Unless
otherwise disclosed in the notes to the financial statements, the carrying value
of financial instruments is considered to approximate fair value due to the
short maturity and characteristics of those instruments. The carrying
value of long-term debt approximates fair value as terms approximate those
currently available for similar debt instruments.
Revenue
recognition
For
recognizing revenue, the Company applies the rules defined by the Revenue
Recognition Topic of the FASB Accounting Standards Codification. In most cases,
the services being performed do not require significant production, modification
or customization of the Company’s software or services; therefore, revenues are
recognized when evidence of a completed transaction exists, generally when
services have been rendered. In situations where the Company receives
an initial payment for future services, the Company defers recognition of
revenue, and recognizes the revenue over the life of the respective
contract.
PREFERRED
VOICE, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note
B - Summary of significant accounting policies (continued):
Income or loss per
share
The
Company adopted the provisions of the Earnings Per Share Topic of the FASB
Accounting Standards Codification. This standard replaces primary and
fully-diluted earnings per share (EPS) with basic and diluted
EPS. Basic EPS is calculated by dividing net income or loss
(available to common stockholders) by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. For 2009 and 2008,
potential dilutive securities had an anti-dilutive effect and were not included
in the calculation of diluted net loss per common share.
Income
per share for the three months and nine ended December 31, 2009 and 2008,
respectively, is based on the weighted average number of shares outstanding of
6,130,184 for all periods.
Income
taxes
For
income taxes, the Company applies the rules defined by the Income Taxes Topic of
the FASB Accounting Standards Codification. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates that will apply in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Trademarks and
patents
For
trademarks and patents, the Company applies the rules defined by the
Intangibles-Goodwill and Other Topic of the FASB Accounting Standards
Codification. Trademarks and patents are recorded at cost and
amortization is computed on the straight-line method over the identifiable lives
of the trademarks and patents. The statement addresses how intangible
assets that are acquired should be accounted for in financial statements upon
their acquisition, as well as how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. The statement requires intangible assets to be reviewed
for impairment whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable and that a loss shall be recognized if
the carrying amount of an intangible exceeds its fair value.
Use of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
these estimates.
Stock-based
compensation
For
stock-based compensation, the Company applies the rules defined by the
Compensation - Stock Compensation Topic of the FASB Accounting Standards
Codification. This statement requires the Company to recognize
compensation costs related to stock-based payment transactions (i.e. granting of
stock options and warrants to employees) in the financial
statements. With limited exceptions, the amount of compensation cost
will be measured based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be remeasured
each reporting period. Compensation cost will be recognized over the
period that an employee provides services in exchange for the
award. Compensation expense recognized during the three months
and nine months ended December 30, 2009 and 2008 was $-0- for all
periods.
PREFERRED
VOICE, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note
B - Summary of significant accounting policies (continued):
Subsequent
events
In
May 2009, the FASB issued new authoritative guidance for subsequent events.
Such authoritative guidance establishes general standards of accounting for, and
disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In
particular, this statement sets forth: (1) the period after the balance
sheet date during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure in the
financial statements, (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) the disclosures that an entity should make
about events or transactions that occurred after the balance sheet
date. This authoritative guidance is effective for the interim or
annual financial periods ending after June 15, 2009. On
June 30, 2009, the Company adopted the authoritative guidance for
subsequent events. Such adoption did not have a material impact on the Company’s
condensed consolidated financial statements. The Company evaluated
subsequent events through the date the accompanying financial statements were
issued, which was February 8, 2010.
Recent accounting
pronouncements
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued new
guidance concerning the organization of authoritative guidance under U.S. GAAP.
This new guidance created the FASB Accounting Standards Codification
(“Codification”). The Codification has become the source of authoritative U.S.
GAAP recognized by the FASB to be applied by nongovernmental entities. The
Codification became effective for the Company in the quarter ended
September 30, 2009. As the Codification is not intended to change or alter
existing U.S. GAAP, it did not have any impact on the Company’s condensed
consolidated financial statements. On its effective date, the Codification
superseded all then-existing non-SEC accounting and reporting
standards.
Note
C - Convertible debt and warrants:
On March
31, 2005, the Company closed a Securities Purchase Agreement and issued $975,000
in principal amount of 6% Convertible Debentures due March 31, 2008 and
subsequently extended to December 31, 2009, (the "Debentures"), to a group of
institutional and high net worth investors. The company repaid
$868,750 of the principal balance to the Debenture holders leaving an
outstanding balance of $106,250 on December 31, 2009. On January 31, 2010 the
debentures were paid in full. The Debentures paid an interest rate of
6% on an annual basis. The Company recorded the intrinsic value of
the beneficial conversion of $257,500 as interest expense as the shareholders
approved an increase in its authorized shares to 100,000,000 shares on April 27,
2006. The investors also received warrants to purchase an additional
975,000 shares of common stock with an exercise price of $0.60 per
share.
The
Company allocated the proceeds from the issuance of the Debentures to the
warrants and the Debentures based on their relative fair market values at the
date of issuance. The value assigned to the warrants of $427,416 was
recorded as an increase in additional paid in capital. The assignment
of a value to the warrants results in a loan discount being recorded for the
same amount. The discount was amortized over the original three-year
term of the Debentures as additional interest expense. The loan costs
incurred on the issuance of the Debentures amounted to $2,430.
On
September 29, 2006, the Company closed a Securities Purchase Agreement and
issued $1,170,000 in principal amount of 6% Convertible Debentures due September
29, 2009 and subsequently extended to September 29, 2010 (the "Debentures"), to
a group of institutional and high net worth investors. The Debentures
pay an interest rate of 6% on an annual basis and are convertible into 3,342,857
shares of the Company’s common stock at a price of $0.35 per
share. The investors also received warrants to purchase an
additional 1,671,429 shares of common stock with an exercise price of $0.50 per
share.
PREFERRED
VOICE, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note
C - Convertible debt and warrants (continued):
The
Company has allocated the proceeds from the issuance of the Debentures to the
warrants and the Debentures based on their relative fair market values at the
date of issuance. The value assigned to the warrants of $281,977 has
been recorded as an increase in additional paid-in capital. The
assignment of a value to the warrants results in a loan discount being recorded
for the same amount. The discount is being amortized over the
original three-year term of the Debentures as additional interest
expense. Amortization was $46,996 and, $70,494 for the
nine months ended December 31, 2009 and 2008, respectively, and $-0- and $23,498
for three months ended December 31, 2009 and 2008, respectively.
On
September 29, 2006, 167,143 warrants were issued in exchange for consulting
services provided for in the issuance of the Securities Purchase
Agreement. These warrants are exercisable at price of $0.50 per share
and were valued using the relative fair market value at the date of
issuance. The value assigned to the warrants of $25,285 has been
recorded as deferred loan cost and is being amortized over the original
three-year term of the debentures as financing cost. Amortization was
$4,214 and $6,321for the nine months ended December 31, 2009 and 2008,
respectively and $-0- and $2,107 for the three months ended December 31, 2009
and 2008, respectively.
Note
D - Common stock:
Stock purchase
warrants
At
December 31, 2009, the Company had outstanding warrants to purchase 5,275,072
shares of the Company's common stock at prices which ranged from $0.50 per share
to $0.85 per share. The warrants are exercisable at any time and
expire through September 29, 2011. At December 31, 2009, 5,275,072
shares of common stock were reserved for that purpose.
Common stock
reserved
At
December 31, 2009, shares of common stock were reserved for the following
purposes:
|
Exercise
of stock warrants and debt conversion
|
8,830,429 | |||
|
Exercise
of future grants of stock options and stock
|
||||
|
appreciation
rights under the 2000 stock option plan
|
819,133 | |||
| 9,649,562 |
PREFERRED
VOICE, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note
E - Commitments:
The
Company leases its office facilities and office equipment under operating leases
expiring through December 31, 2012. Following is a schedule of future
minimum lease payments required under the above operating leases as of December
31, 2009:
|
Year
ending
|
||||
|
March
31,
|
Amount
|
|||
|
2010
|
$ | 10,649 | ||
|
2011
|
43,446 | |||
|
2012
|
45,652 | |||
|
2013
|
35,595 | |||
|
2014
|
- | |||
| $ | 135,342 | |||
Total
rent expense charged to operations was $39,391 and $46,974 for the nine months
ended December 31, 2009 and 2008, respectively
, and $8,109 and $15,280 for the three
months ended December 31, 2009 and 2008.
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
This
report contains forward-looking statements within the meaning of 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”). These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or
anticipated results, including those set forth herein under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations" and
those set forth in the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section of the Form 10-K for the fiscal
year ended March 31, 2009. Notwithstanding the foregoing, the Company
is not entitled to rely on the safe harbor for forward looking statements under
27A of the Securities Act or 21E of the Exchange Act as long as the Company’s
stock is classified as a penny stock within the meaning of Rule 3a51-1 of the
Exchange Act. A penny stock is generally defined to be any equity
security that has a market price (as defined in Rule 3a51-1) of less than $5.00
per share, subject to certain exceptions.
Overview
We began
operations in May 1994 as a traditional 1+ long-distance
reseller. Recognizing the declines in telecommunications service
prices and the decreasing margins being experienced in long distance sales, we
decided to sell our long distance customer base and assets in early
1997. Originally we focused on the development, testing, and
deployment of voice activated telecommunications services that would allow any
consumer the ability to “dial” their calls using their voice. Even
though we believe voice activated products have viability in the
telecommunications arena, we have concentrated our last two years of development
efforts on the growing trend in mobile entertainment.
We first
contracted with a leading content provider to distribute their library of
downloadable wireless games, picture messages, graphics and
ring-tones. Our first content project was launched on June 18, 2004
with a full turnkey solution for the carrier that includes secure customer login
from the carrier website, viewing of content, download of content, and creation
of a billing record for the carriers billing system. This initial
introduction to mobile entertainment led us to research the viability of
additional personalized entertainment services that could be delivered through
our network. On October 22, 2004 we announced the first commercial launch of a
ringback service in the United States with the launch of our Rockin’ Ringback
service. Our personalized ringback service provides a network-based
personalized service that enables users to choose an audio file that callers
will listen to while the phone is ringing. We believe that since we
already have a relationship with the carrier and are integrated with these
carriers customer service departments and billing departments that we have an
opportunity to introduce new products with minimal integration
effort. We will continue to research and either develop or acquire
additional services that can be deployed through our platform. As of
February 8, 2010 we had five carrier customers providing ringback service
through our My Phone Services Suite platform with a possible 7 million
addressable customer base.
Our
system structure is a robust data base system which will allow for scalability
and the addition of new services to the platform in shorter development cycles
than were possible under our previous structure. On September 15,
2004 we announced the release of “My Phone Services Suite”, which incorporates
our network address book, network voice dialing, Push2Connect, and Rockin
Ringback services into one user-centric service that allows the subscriber to
personalize the look and feel of their communications service especially for
their personality. Revenue from these new products is expected to be slow with
no guarantees of market and/or customer acceptance. We also believe that we will
continue to see increased competition that along with many other factors may
have an impact on the company and its products.
The
implementation of our business plan is subject to risks inherent in the
establishment and deployment of technology. In order for us to
succeed, we must:
| ● | secure adequate financial and human resources to meet our requirements, including adequate numbers of technical support staff to provide service for our phone company customers; | |
| ● | establish and maintain relationships with phone companies; | |
| ● | make sure the GAP system works with the telephone switches of all of the major manufacturers; | |
| ● | achieve user acceptance for our services; | |
| ● | generate reasonable margins on our services; | |
| ● | continue to deploy and install GAP systems on a timely and acceptable schedule; | |
| ● | respond to competitive market developments; | |
| ● | mitigate risk associated with our technology by obtaining patents and copyrights and other protections of our intellectual property; and | |
| ● | continually update and add to our product offerings to meet the needs of consumers. |
Failure
to achieve these objectives could adversely affect our business, operating
results and financial condition. Increased competition from other providers of
similar services can and have impacted our business.
Results
of Operations
We
recorded net income of $455,254 or $.074 per share, for the nine-month period
ended December 31, 2009, compared to a net loss of $51,256 or $.008 per share,
for the nine-month period ended December 31, 2008. For the three-month period
ended December 31, 2009, we recorded net income of $180,871, or $.03 per share
compared to a net income of $32,542, or $.005 per share for the three-month
period ended December 31, 2008.
Total
Sales
Total
revenue for the nine-month period ended December 31, 2009, was $3,367,998
compared to $2,898,743 for the nine-month period ended December 31, 2008. Total
revenue for the three-month period ended December 31, 2009, was $1,211,201
compared to $985,072 for the three-month period ended December 31, 2008.
Revenues in both periods consisted of revenue sharing receipts from our customer
phone companies and billing our direct end-users for individual
services.
We
anticipate that revenues from the My Phone Services Suite to continue to build
gradually as new customers to the service integrate and market the product to
their subscriber base.
Cost
of Sales
Cost of
sales for the nine-month period ended December 31, 2009 was $1,784,735 compared
to $1,502,646 for the nine-month period ended December 31, 2008. Cost of sales
for the three-month period ended December 31, 2009 was $680,314 compared to
$477,291 for the three-month period ended December 31, 2008. Cost of sales
consisted of content licensing fees, costs for equipment sold to customers,
network infrastructure such as collocations, connectivity, system access and
long distance to end-users during both periods.
Selling,
General and Administrative
Selling,
general and administrative expenses for the nine-month period ended December 31,
2009 were $1,006,340 compared to $1,279,760 for the nine-month period ended
December 31, 2008. Selling, general and administrative expenses for the
three-month period ended December 31, 2009 were $329,287 compared to $419,414
for the three-month period ended December 31, 2008. We expect that
selling, general and administrative expenses will remain steady through fiscal
year 2010, such expenses to include costs related to the number of employees,
office space requirements and general overhead.
Core
Technology Enhancements Software Applications and Hardware
The
capitalization of software development costs begins when a product’s
technological feasibility has been established and ends when the product is
available for general release to customers. Capitalized software
development costs include direct costs incurred subsequent to establishment of
technological feasibility for significant product enhancements. There
were no software development costs capitalized for the periods ended December
31, 2009 or 2008. The amortization of
capitalized software development costs for the periods ended December 31, 2009
and 2008 was $6,004 and $18,648 respectively.
Other Income and Expense
During
the periods ended December 31, 2009 and 2008, the Company made a sale of excess
equipment that generated one-time net revenue of $857 and $-0-
respectively.
Interest
expenses for the nine-month period ended December 31, 2009 were $122,526
compared to $167,593 for the nine-month period ended December 31,
2008. Interest expenses for the three-month period ended December 31,
2009 were $21,586 compared to $55,825 for the three-month period ended December
31, 2008.
Income
Taxes
As of
December 31, 2009, we had cumulative federal net operating losses of
approximately $20.3 million, which can be used to offset future income subject
to federal income tax through the fiscal year 2029. Net operating
loss limitations may be imposed if changes in stock ownership of the company
create a change of control as provided in Section 382 of the Internal Revenue
Code of 1986.
Liquidity
and Capital Resources
Our cash
and cash equivalents at December 31, 2009 were approximately $511,286, an
increase of $45,099 from $466,187 at March 31, 2009. We have relied
primarily on the issuance of stock, convertible debentures and warrants to fund
our operations since January of 1997 when we sold our long-distance resale
operation.
On March
31, 2005, pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, we completed the sale of 97.5 units (“Units”) with each Unit
consisting of a 3-year, 6% Convertible Debenture in the principal amount of
$10,000, and 10,000 5-year warrants to purchase a share of Common Stock, $.001
par value per share, of the Company at an exercise price of $.60 for an
aggregate of $975,000. The balance of these debentures at December 31, 2009 was
$106,250.
On
September 29, 2006, pursuant to Section 4(2) of the Securities Act and
Regulation D thereunder, we completed the sale of 117 units (“Units”) with each
Unit consisting of a 3-year, 6% Convertible Debenture in the principal amount of
$10,000, and 14,286 5-year warrants to purchase a share of Common Stock, $.001
par value per share, of the Company at an exercise price of $.50 for an
aggregate of $1,170,000.
Due to
uncertainties regarding a number of new customer contracts that are in the
Company's sales pipeline, it is difficult for management to project the
Company's revenue performance, operating profits or loss, or cash requirements
beyond the next twelve months. Even though the Company has been able
to secure additional financing to provide current working capital, there is no
assurance that the Company will be able to generate the required revenues to
sustain its current working capital requirements or to raise additional debt or
equity capital that may be required to meet its objectives in the
future. The Company's challenging financial circumstances may make
the terms, conditions, and cost of any available capital relatively unfavorable.
If additional debt or equity capital is not readily available, the Company will
be forced to further scale back its operations, including its efforts to
complete new sales. The Company's short term needs for capital may force it to
consider and potentially pursue other strategic options sooner than it might
otherwise have desired. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability of and classification of assets, or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
Future
Obligations
Management projects working capital
needs to be approximately $1,440,000 over the next twelve months for corporate
overhead and equipment purchases to continue to deploy services to carrier
customers. Additionally, the Company has $1,276,250 of debentures due
on or before September 30, 2010. Management believes that
current cash and cash equivalents and cash that may be generated from operations
will not be sufficient to meet both the anticipated capital requirements and the
debenture repayment on their maturity date. Management believes that
it can negotiate extensions on the debentures which will allow them to meet
working capital needs from anticipated operating cash flows as well as
extinguish some portion of the debentures due. Such projections
have been based on revenue trends from current customers and customers which are
already under contract utilizing the revenue rates that have been experienced
over the past six months with currently installed customers and projected cash
requirements to support installation, sales and marketing, and general
overhead. If the Company cannot renegotiate extensions on the
debenture maturity dates or operating projections are not realized it may be
forced to raise additional capital through the issuance of new shares, the
exercise of outstanding warrants, or reduction of current
overhead.
Not
required by smaller reporting companies.
Item
4T. Controls and Procedures
Evaluation of disclosure controls
and procedures. The Chief Executive Officer, who also acts as
our Chief Financial Officer, of the Company has evaluated the effectiveness of
the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of the end of the quarter covered by this Quarterly Report
on Form 10-Q. Based on that evaluation, the Chief Executive Officer of the
Company has concluded that the Company’s disclosure controls and procedures as
of the end of the quarter covered by this Quarterly Report on Form 10-Q are
effective as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange
Act.
Due to
the limited number of Company employees engaged in the authorization, recording,
processing and reporting of transactions, there is inherently a lack of
segregation of duties. The Company periodically assesses the cost versus benefit
of adding the resources that would remedy or mitigate this situation and
currently, does not consider the benefits to merit the cost of these
resources.
Changes in internal
controls. There were no changes in our internal controls
over financial reporting identified in connection with our evaluation that
occurred during our last fiscal quarter ended December 31, 2009 that materially
affected, or was reasonably likely to materially affect our internal control
over financial reporting.
In
February, 2008, we were sued by Ring Plus, Inc. in the United States District
Court for the Central District of California alleging infringement of its U.S.
Patent No. 7,006,608 (the “608 Patent”) which pertains to ringback tone
replacement methods and algorithms. Ring Plus, Inc. is seeking declaratory
judgment that we have violated the 608 Patent, preliminary and permanent
injunctions, an order that we destroy all infringing items, and money damages in
a sum according to proof at trial. We do not believe that we infringe
the 608 Patent and we believe we have meritorious defenses to the
action.
On July
17, 2009, a Texas court issued a ruling that the 608 Patent was
unenforceable. Ring Plus may appeal the Texas ruling, and therefore
the parties in this action have agreed to stay the case against Preferred Voice
pending the outcome of the Texas case.
In
addition to the other information set forth in this report, including the
important information in “Forward-Looking Statements,” you should carefully
consider the “Risk Factors” discussed in the Company’s Annual Report on
Form 10-K for the year ended March 31, 2009. If any of those factors
were to occur, they could materially adversely affect the Company’s financial
condition or future results, and could cause its actual results to differ
materially from those expressed in its forward-looking statements in this
report. The Company is aware of no material changes to the Risk Factors
discussed in the Company’s Annual Report on Form 10-K for the year ended
March 31, 2009.
None.
None.
None
None
Item
6. Exhibits
a) Exhibits
Exhibit
Number Exhibit
Description
(b) Reports
of Form 8-K
None.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
| PREFERRED VOICE, INC. | |||
|
Date:
February 15, 2010
|
By:
|
/s/ Mary G. Merritt | |
| Mary G. Merritt | |||
| Chairman and Chief Executive Officer | |||
| (Principal Executive Officer) | |||