Texas
|
75-2785941
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
Form
10-QSB/A for the Quarter Ended June 30, 2005
|
|||
Table
of Contents
|
|||
Page
|
|||
Part
I - Financial Information
|
|||
Item
1
|
Financial
Statements
|
4
|
|
Item
2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
|
|
Item
3
|
Controls
and Procedures
|
24
|
|
Item
6
|
Exhibits
|
26
|
|
Signatures
|
27
|
June
30, 2005
|
|
December
31, 2004
|
||||||||
(Unaudited
and
Restated)
|
(As
Restated)
|
|||||||||
ASSETS
|
|
|||||||||
Current
assets
|
||||||||||
Cash
and cash equivalents
|
$
|
1,068,514
|
$
|
1,141,137
|
||||||
Accounts
receivable, net of allowance of
|
||||||||||
$99,047
and $136,795, respectively
|
932,575
|
166,239
|
||||||||
Due
from related parties
|
-
|
245,402
|
||||||||
Inventory
|
628,878
|
324,185
|
||||||||
Assets
from discontinued operations
|
192,000
|
412,419
|
||||||||
Other
current assets
|
209,884
|
-
|
||||||||
Total
current assets
|
3,031,851
|
2,289,382
|
||||||||
Property
and equipment, net
|
8,637,267
|
419,868
|
||||||||
Goodwill
and other intangibles
|
30,765,594
|
6,923,854
|
||||||||
Other
assets
|
294,884
|
23,580
|
||||||||
TOTAL
ASSETS
|
$
|
42,729,596
|
$
|
9,656,684
|
||||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||
Current
liabilities
|
||||||||||
Accounts
payable and accrued expenses
|
$
|
10,472,720
|
$
|
1,148,833
|
||||||
Loans
payable
|
5,130,818
|
200,000
|
||||||||
Convertible
notes payable
|
1,552,925
|
-
|
||||||||
Notes
payable to related parties
|
1,053,186
|
560,000
|
||||||||
Other
current liabilities
|
2,333,343
|
103,031
|
||||||||
Total
liabilities
|
20,542,992
|
2,011,864
|
||||||||
Shareholders'
equity
|
||||||||||
Common
stock - $0.001 par value;
|
||||||||||
100,000,000
shares authorized;
|
||||||||||
47,166,380
and 24,258,982 issued
|
||||||||||
and
outstanding, respectively
|
47,167
|
24,259
|
||||||||
Additional
paid in capital
|
33,717,706
|
14,107,328
|
||||||||
Accumulated
deficit
|
(11,578,269
|
)
|
(6,486,767
|
)
|
||||||
Total
shareholders' equity
|
22,186,604
|
7,644,820
|
||||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
42,729,596
|
$
|
9,656,684
|
Six
Months Ended June 30
|
|
Three
Months Ended June 30
|
|
||||||||||
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
||||
|
|
(As
Restated)
|
|
|
|
(As
Restated)
|
|
||||||
Revenues
|
$
|
3,312,242
|
$
|
85,298
|
$
|
1,909,773
|
$
|
85,298
|
|||||
Cost
of sales
|
2,605,006
|
58,923
|
1,303,911
|
58,923
|
|||||||||
Gross
profit
|
707,236
|
26,375
|
605,862
|
26,375
|
|||||||||
Operating
expenses:
|
|||||||||||||
Employee
compensation
|
1,734,750
|
97,700
|
822,078
|
97,700
|
|||||||||
General
and administrative expenses
|
4,063,988
|
359,656
|
3,319,888
|
337,333
|
|||||||||
Loss
from operations,
|
|||||||||||||
before
income taxes
|
(5,091,502
|
)
|
(430,981
|
)
|
(3,536,104
|
)
|
(408,658
|
)
|
|||||
Provision
for income taxes
|
-
|
-
|
-
|
-
|
|||||||||
Net
loss
|
$
|
(5,091,502
|
)
|
$
|
(430,981
|
)
|
$
|
(3,536,104
|
)
|
$
|
(408,658
|
)
|
|
Loss
per weighted average share of common stock outstanding - basic
and fully
diluted
|
$
|
(0.19
|
)
|
$
|
(0.05
|
)
|
$
|
(0.12
|
)
|
$
|
(0.03
|
)
|
|
Weighted
average number of shares of common stock outstanding - basic
and fully
diluted
|
26,940,458
|
8,255,570
|
30,012,632
|
16,233,813
|
Six
Months Ended June 30
|
|
||||||
|
|
2005
|
|
2004
|
|
||
|
|
(As
Restated)
|
|
||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(5,091,502
|
)
|
$
|
(430,981
|
)
|
|
Adjustments
to reconcile net loss to net
|
|||||||
cash
used in operating activities:
|
|||||||
Depreciation
and amortization
|
540,400
|
293
|
|||||
Provision
for bad debt
|
99,047
|
-
|
|||||
Provision
for assets of discontinued operations
|
200,000
|
-
|
|||||
Common
shares issued for services
|
748,325
|
143,000
|
|||||
Employee
stock option expense
|
127,238
|
-
|
|||||
Common
shares exchanged for warrants
|
239,500
|
-
|
|||||
Changes
in operating assets and liabilities
|
|||||||
net
of assets and liabilities acquired:
|
|||||||
Accounts
receivable
|
(735,772
|
)
|
-
|
||||
Due
from related parties
|
169,537
|
-
|
|||||
Inventory
|
(304,693
|
)
|
(2,460
|
)
|
|||
Other
current assets
|
298,764
|
(33,719
|
)
|
||||
Accounts
payable and accrued expenses
|
(58,315
|
)
|
83,455
|
||||
Other
current liabilities
|
(816,109
|
)
|
-
|
||||
Net
cash used in operating activities
|
(4,583,580
|
)
|
(240,412
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Cash
from acquisitions
|
-
|
(173,182
|
)
|
||||
Purchase
of property and equipment
|
(37,779
|
)
|
(20,231
|
)
|
|||
Purchase
of other assets
|
-
|
-
|
|||||
Net
cash used in investing activities
|
(37,779
|
)
|
(193,413
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from issuance of notes payable
|
2,615,339
|
-
|
|||||
Payments
of notes payable
|
(769,228
|
)
|
-
|
||||
Proceeds
from sales of common stock
|
2,702,625
|
591,400
|
|||||
Net
cash flow provided by financing activities
|
4,548,736
|
591,400
|
|||||
Net
increase in cash and cash equivalents
|
(72,623
|
)
|
157,575
|
||||
Cash
and cash equivalents at beginning of period
|
1,141,137
|
3,499
|
|||||
Cash
and cash equivalents at end of period
|
$
|
1,068,514
|
$
|
161,074
|
|||
Non-cash
investing and financing activities:
|
|||||||
Goodwill
and intangible assets recorded on acquisition
|
$
|
(24,101,000
|
)
|
$
|
-
|
||
Issuance
of common stock and warrants
|
|||||||
on
acquisition
|
$
|
13,819,119
|
$
|
-
|
|||
Issuance
of stock for debt conversion
|
$
|
1,996,478
|
$
|
-
|
|||
Net
liabilities assumed on acquisition, net of cash
|
$
|
8,285,403
|
$
|
-
|
|||
Balance
Sheet Data
|
As
of June 30, 2005
|
As
of December 31, 2004
|
|||||||||||
As
Previously Reported
|
As
Restated
|
As
Previously Reported
|
As
Restated
|
||||||||||
Accounts
receivable
|
$
|
1,023,226
|
$
|
932,575
|
$
|
818,071
|
$
|
166,239
|
|||||
Due
from related parties
|
169,537
|
-
|
245,402
|
245,402
|
|||||||||
Inventory
|
889,373
|
628,878
|
187,451
|
324,185
|
|||||||||
Other
current assets
|
209,884
|
209,884
|
43,702
|
-
|
|||||||||
Accounts
payable and accrued
expenses
|
10,472,720
|
10,472,720
|
1,224,974
|
1,148,833
|
|||||||||
Other
current liabilities
|
2,333,343
|
2,333,343
|
123,140
|
103,031
|
|||||||||
Additional
paid in capital
|
32,332,943
|
33,717,706
|
12,722,565
|
14,107,328
|
|||||||||
Accumulated
deficit
|
(9,672,823
|
)
|
(11,578,269
|
)
|
(4,639,386
|
)
|
(6,486,767
|
)
|
Statement
of Operations Data
|
Six
Months Ended
|
Three
Months Ended
|
|||||||||||
June
30, 2005
|
June
30, 2005
|
||||||||||||
As
Previously
Reported |
As
Restated
|
As
Previously Reported
|
As
Restated
|
||||||||||
Revenue
|
$
|
3,916,920
|
$
|
3,312,242
|
$
|
1,909,773
|
$
|
1,909,773
|
|||||
Cost
of goods sold
|
3,104,846
|
2,605,006
|
1,303,911
|
1,303,911
|
|||||||||
Operating
expenses
|
5,845,511
|
5,798,738
|
4,132,002
|
4,141,966
|
|||||||||
Loss
from operations
|
(5,033,437
|
)
|
(5,091,502
|
)
|
(3,526,140
|
)
|
(3,536,104
|
)
|
Fair
Value of
Assets
Acquired
|
||||
Cash
|
$
|
66,485
|
||
Accounts
receivable
|
285,578 | |||
Deposits
|
108,500
|
|||
Other
current assets
|
156,659
|
|||
Property
and equipment, net
|
8,451,763
|
|||
Other
assets
|
271,609
|
|||
Accounts
payable
|
(9,382,323
|
)
|
||
Note
payable
|
(6,960,818
|
)
|
||
Customer
deposits
|
(1,026,750
|
)
|
||
Other
current liabilities
|
(2,252,703
|
)
|
||
Sub
total
|
(10,282,000
|
)
|
||
Intangible
assets
|
13,800,000
|
|||
Goodwill
|
10,301,000
|
|||
Sub
total
|
24,101,000
|
|||
Purchase
price
|
$
|
13,819,000
|
Amount
|
||||
Acquisition
of Caerus
|
$
|
10,301,000
|
||
Acquisition
of DTNet
|
5,210,553
|
|||
Acquisition
of VoIP Americas
|
1,408,30
|
|||
Sub
total
|
16,919,854
|
Useful
Life Years
|
|
Amount
|
|||||
Technology
- Caerus
|
4.0
|
$
|
6,000,000
|
||||
Customer
relationships - Caerus
|
6.0
|
5,800,000
|
|||||
Trade
names - Caerus
|
9.0
|
1,300,000
|
|||||
Non-compete
agreements - Caerus
|
1.0
|
500,000
|
|||||
Carrier
licenses - Caerus
|
Unamortized
|
200,000
|
|||||
Sub
total
|
13,800,000
|
||||||
Less
accumulated amortization
|
(259,260
|
)
|
|||||
Sub
total
|
13,540,740
|
||||||
Ingangibles
with indefinite lives:
|
|||||||
Intellectual
property
|
305,000
|
||||||
Sub
total
|
13,840,740
|
||||||
Total
|
$
|
30,765,594
|
a)
all rights of the Company of record in the telephone numbers
1(800)TALKTIME, 1(888)TALKTIME, AND
1(877)TALKTIME.COM;
|
a.
Note Payable to Shareholder
|
$
|
1,053,196
|
||
b.
Note Payable - Convertible
|
1,427,925
|
|||
c.
Note Payable - Convertible
|
125,000
|
|||
d.
Note Payable to lending institution
|
5,130,818
|
|||
Notes
Payable Total
|
$
|
7,736,939
|
|
|
VoIP,
Inc.
|
Caerus,
Inc.
|
Adjustments
|
|
Consol
|
|||||||
Revenues
|
$
|
1,260,274
|
$
|
2,289,399
|
$
|
—
|
$
|
3,549,673
|
|||||
Cost
of Sales
|
638,369
|
2,785,740
|
—
|
3,424,109
|
|||||||||
Gross
Profit (Loss)
|
621,905
|
(496,341
|
)
|
—
|
125,564
|
||||||||
Operating
expenses
|
3,143,603 | 2,246,261 | 518,518 | 5,908,382 | |||||||||
Loss
from operations
|
(2,521,698
|
)
|
(2,742,602
|
)
|
(518,518
|
)
|
(5,782,818
|
)
|
|||||
Provision
for income taxes
|
—
|
—
|
—
|
—
|
|||||||||
Net
Loss
|
$ |
(2,521,698
|
)
|
$
|
(2,742,602
|
)
|
$
|
(518,518
|
)
|
$
|
(5,782,818
|
)
|
|
Basic
and diluted loss per share:
|
$
|
(0.19
|
)
|
||||||||||
Weighted
average number of shares outstanding
|
30,012,632
|
VoIP,
Inc.
|
|
Caerus,
Inc.
|
|
Adjustments
|
|
Consol
|
|||||||
Revenues
|
$
|
2,662,743
|
$
|
7,284,244
$
|
$ |
—
|
9,946,987
|
||||||
Cost
of Sales
|
1,939,464
|
9,143,457
|
—
|
11,082,921
|
|||||||||
Gross
Profit (Loss)
|
723,279
|
(1,859,213
|
)
|
—
|
(1,135,934
|
)
|
|||||||
Operating
expenses
|
4,800,375
|
4,098,918
|
1,296,295
|
10,195,588
|
|||||||||
Loss
from operations
|
(4,077,096
|
)
|
(5,958,131
|
)
|
(1,296,295
|
)
|
(11,331,522
|
)
|
|||||
Provision
for income taxes
|
—
|
—
|
—
|
—
|
|||||||||
Net
Loss
|
$
|
(4,077,096
|
)
|
$
|
(5,958,131
|
)
|
$
|
(1,296,295
|
)
|
$
|
(11,331,522
|
)
|
|
Basic
and diluted loss per share:
|
$
|
(0.42
|
)
|
||||||||||
Weighted
average number of shares outstanding
|
26,940,458
|
VoIP,
Inc.
|
|
Caerus,
Inc.
|
|
Adjustments
|
|
Consol
|
|||||||
Revenues
|
$
|
85,298
|
$
|
2,332,453
|
$
|
—
|
$
|
2,417,751
|
|||||
Cost
of Sales
|
58,923
|
2,700,914
|
—
|
2,759,837
|
|||||||||
Gross
Profit (Loss)
|
26,375
|
(368,461
|
)
|
—
|
(342,086
|
)
|
|||||||
Operating
expenses
|
435,033
|
1,793,909
|
777,777
|
3,006,719
|
|||||||||
Loss
from operations
|
(408,658
|
)
|
(2,162,370
|
)
|
(777,777
|
)
|
(3,348,805
|
)
|
|||||
Provision
for income taxes
|
—
|
—
|
—
|
—
|
|||||||||
Net
Loss
|
$
|
(408,658
|
)
|
$
|
(2,162,370
|
)
|
$
|
(777,777
|
)
|
$
|
(3,348,805
|
)
|
|
Basic
and diluted loss per share:
|
$
|
(0.10
|
)
|
||||||||||
Weighted
average number of shares outstanding
|
32,668,283
|
VoIP,
Inc.
|
Caerus,
Inc.
|
Adjustments
|
Consol
|
||||||||||
Revenues
|
$
|
85,298
|
$
|
5,369,624
|
$
|
—
|
$
|
5,454,922
|
|||||
Cost
of Sales
|
58,923
|
5,348,592
|
—
|
5,407,515
|
|||||||||
Gross
Profit (Loss)
|
26,375
|
21,032
|
—
|
47,407
|
|||||||||
Operating
expenses
|
457,356
|
2,746,438
|
1,555,554
|
4,759,348
|
|||||||||
Loss
from operations
|
(430,981
|
)
|
(2,725,406
|
)
|
(1,555,554
|
)
|
(4,711,941
|
)
|
|||||
Provision
for income taxes
|
—
|
—
|
—
|
—
|
|||||||||
Net
Loss
|
$
|
(430,981
|
)
|
$
|
(2,725,406
|
)
|
$
|
(1,555,554
|
)
|
$
|
(4,711,941
|
)
|
|
Basic
and diluted loss per share:
|
$
|
(0.19
|
)
|
||||||||||
Weighted
average number of shares outstanding
|
24,690,040
|
Balance
Sheet Data
|
As
of June 30, 2005
|
As
of December 31, 2004
|
|||||||||||
As
Previously Reported
|
As
Restated
|
As
Previously Reported
|
As
Restated
|
||||||||||
Accounts
receivable
|
$
|
1,023,226
|
$
|
932,575
|
$
|
818,071
|
$
|
166,239
|
|||||
Due
from related parties
|
169,537
|
-
|
245,402
|
245,402
|
|||||||||
Inventory
|
889,373
|
628,878
|
187,451
|
324,185
|
|||||||||
Other
current assets
|
209,884
|
209,884
|
43,702
|
-
|
|||||||||
Accounts
payable and accrued
expenses
|
10,472,720
|
10,472,720
|
1,224,974
|
1,148,833
|
|||||||||
Other
current liabilities
|
2,333,343
|
2,333,343
|
123,140
|
103,031
|
|||||||||
Additional
paid in capital
|
32,332,943
|
33,717,706
|
12,722,565
|
14,107,328
|
|||||||||
Accumulated
deficit
|
(9,672,823
|
)
|
(11,578,269
|
)
|
(4,639,386
|
)
|
(6,486,767
|
)
|
Statement
of Operations Data
|
Six
Months Ended
|
Three
Months Ended
|
|||||||||||
June
30, 2005
|
June
30, 2005
|
||||||||||||
As
Previously
Reported |
As
Restated
|
As
Previously Reported
|
As
Restated
|
||||||||||
Revenue
|
$
|
3,916,920
|
$
|
3,312,242
|
$
|
1,909,773
|
$
|
1,909,773
|
|||||
Cost
of goods sold
|
3,104,846
|
2,605,006
|
1,303,911
|
1,303,911
|
|||||||||
Operating
expenses
|
5,845,511
|
5,798,738
|
4,132,002
|
4,141,966
|
|||||||||
Loss
from operations
|
(5,033,437
|
)
|
(5,091,502
|
)
|
(3,526,140
|
)
|
(3,536,104
|
)
|
|||||
Net
loss
|
(5,033,437
|
)
|
(5,091,502
|
)
|
(3,526,140
|
)
|
(3,536,104
|
)
|
|||||
Net
loss per common share
|
(0.19
|
)
|
(0.19
|
)
|
(0.12
|
)
|
(0.12
|
)
|
Contractual
Obligations
|
|
Total
|
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
|||||||
Long-Term
Debt
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||
Notes
Payable
|
$
|
7,736,929
|
$
|
7,736,929
|
$
|
0
|
$
|
0
|
|||||
Operating
Leases
|
$
|
594,905
|
$
|
149,905
|
$
|
445,000
|
$
|
0
|
|||||
Purchase
Obligations
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||
Total
|
$
|
8,331,834
|
$
|
7,886,834
|
$
|
445,000
|
$
|
0
|
· |
pertain
to the maintenance of records that, in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets of
the
Company;
|
· |
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles and, that receipts and expenditures of the
Company
are being made only in accordance with authorization of management
and
directors of the Company; and
|
· |
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could
have
a material effect on the financial
statements.
|
(a) |
In
March 2006, during their review and analysis of 2005 results and
financial
condition in connection with the preparation of the Company’s 2005
consolidated financial statements and the 2005 Annual Report on Form
10-KSB, our senior financial management discovered certain overstatements
of the revenues, expenses and receivables reported, and understatement
of
net loss, for our consolidated subsidiary DTNet. Based upon an assessment
of the impact of the adjustments to our financial results arising
from
this matter, we have restated the financial information presented
in this
Form 10-QSB/A for the period ended June 30, 2005. Adjustments to
reduce
(i) the overstatement of receivables (including amounts due from
related
parties); (ii) the overstatement of inventory; (iii) the overstatement
of
revenues; and (iv) the understatement of net loss, aggregated $260,188,
$260,495, $604,678, and $58,065, respectively, for the six months
ended
June 30, 2005.
|
(b) |
During
the preparation of the financial statements for the period ended
September
30, 2005, we discovered that we did not recognize in our 2004 financial
statements the full amount of compensation expense that should have
been
recognized on warrants issued to employees, or the compensation expense
for the vested portion of approximately 4,000,000 stock options issued
to
employees during the three months ended September 30, 2004, in accordance
with SFAS No. 123. The compensation expense that was not recognized
relating to these options and warrants was $1,384,763 for the three
months
ended September 30, 2004. We therefore restated our consolidated
financial
statements for the year ended December 31, 2004 to correct these
misstatements.
|
(c) |
We
do not have sufficient personnel resources with appropriate accounting
expertise or experience in financial reporting for public companies.
Our
management with the participation of the Certifying Officers determined
that the potential magnitude of a misstatement arising from this
deficiency is more than inconsequential to the annual and/or interim
financial statements.
|
(a) |
In
March 2006, our Board retained counsel to conduct a thorough investigation
of the accounting misstatements of our DTNet subsidiary. Such counsel,
in
turn, retained an independent forensic accounting firm to assist
its
investigation. Based on this investigation, our Board and management
have
concluded that these intentional overstatements of revenues, expenses
and
receivables were limited to the unauthorized actions of two individuals.
One of these individuals was employed at corporate headquarters and
the
other was employed at DTNet’s headquarters. The individual employed at
corporate headquarters resigned shortly after the initiation of the
investigation, and we terminated the employment of the other individual
immediately following the receipt of the preliminary findings of
the
investigation in early April 2006. We changed the individual responsible
for the day-to-day management of DTNet, relocated its accounting
to our
corporate offices and increased our analysis of this subsidiary’s
transactions. In April 2006, the Company sold this subsidiary to
its
former Chief Operating Officer.
|
(b) |
We
continue to seek to improve our in-house accounting resources. During
the
fourth quarter of 2005 we hired a new CFO with significant accounting
and
public company experience. During the first quarter of 2006 we did
not
hire any new accounting personnel. However, we significantly supplemented
our internal accounting resources during these three months by using
independent accounting and financial consulting firms. We expect
to
continue to use such third parties until such time as we are able
to hire
sufficient in-house accounting expertise. In April 2006, we promoted
the
former Finance Director of one of our recently acquired subsidiaries
to
the position of Corporate Controller. This individual has significant
financial experience (including five years with the audit department
of
the accounting firm of KPMG Peat Marwick), has served as the CFO
and/or
controller of various companies (including a public registrant),
and is a
Certified Public Accountant. In May 2006, in conjunction with the
resignation of the Company’s Chief Financial Officer, the Corporate
Controller was elected Chief Accounting Officer, pending a search
to
replace the Chief Financial Officer
position.
|
31.1
|
Certification
by CEO under SEC Rule 15d-14(a) as adopted pursuant to Section
302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
by CFO under SEC Rule 15d-14(a) as adopted pursuant to Section
302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
by CEO pursuant to 18 USC Section 1350 as adopted by Section 906
of the
Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
by CFO pursuant to 18 USC Section 1350 as adopted by Section 906
of the
Sarbanes-Oxley Act of 2002.
|
VoIP,
INC.
|
||
|
|
|
Date: June 23, 2006 | /s/ Gary Post | |
Gary Post |
||
Chief Executive Officer |