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[November 19, 2012]
VOICE ASSIST, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. References in the following discussion and throughout this quarterly report to "we", "our", "us", "Voice Assist", "the Company", and similar terms refer to Voice Assist, Inc.
unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. Voice Assist's actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in our Annual Report on Form 10-K.
OVERVIEW Voice Assist is a cloud-based speech recognition technology service company focused on communication, information and transaction processing.
Our technology allows consumers to use simple voice commands to dial, email, text or post to social networks such as Twitter and Facebook.
Our technology also allows business clients to use a cost effective virtual receptionist to answer incoming calls, determine who's calling, place callers on hold, and play music and promotions for callers waiting on hold while finding key staff members, regardless of their current location. Incoming callers simply say the name of the person or department with whom they wish to speak and the virtual receptionist will transfer their calls immediately. Our virtual receptionist eliminates the need for callers to listen to long menus or navigate using touch tones to choose a department or spell the name of an employee using a telephone keypad. Callers say what or whom they want and are connected.
Mobile salespeople also use our technology to interface with cloud based databases such as www.salesforce.com Salespeople can use voice commands to make sales calls, report sales results after each call, forecast sales or even schedule follow up calls or meetings.
Voice Assist builds features using a proprietary rapid application development environment called SpeechScript™. SpeechScript is an extension of Java Script and provides developers with a simple, fast yet powerful way to build more features or voice enable any cloud based database or mobile app.
The Company generates revenue by building speech apps for the mass market such as our hands-free safe driving app, our virtual receptionist app and our CRM app. The Company then charges consumers or business clients to use these apps on a monthly subscription basis. The Company also private labels these apps for 3rd party resellers who buy these services on a wholesale basis, and then resell the services under their brand names. Additionally, the Company generates revenue from non-recurring engineering services for software development when business clients require these services for their particular applications.
3 TRENDS, EVENTS AND UNCERTAINTIES Loss of Reseller One of the Company's resellers sold its business. The acquirer changed the business of the reseller from marketing and promoting the Company's voice activated services to selling nutraceutical products. This change of ownership resulted in a reduction in revenue for the three and nine months ended September 30, 2012. Effective October 1, 2012, the Company reached an agreement to settle a dispute with the reseller, wherein the parties agreed to an amount to be paid to the Company under the previous contract terms and a payment schedule was established for the amounts due. The settlement amount agreed to by the parties is included in the revenue for the current quarter, because it relates to services for which we previously provided, but had not recorded revenue forsuch services.
Change in Marketing Strategy and Product Line The Company recently changed its marketing strategy and product line to align itself with the mobile advertising industry and to follow a Freemium (ad-driven) business model similar to companies like Pandora, that give away free service which includes in-app advertisements with an option for subscribers to pay a monthly subscription fee to obtain the service without the advertisements. The Company believes it will be successful at upgrading Freemium accounts to paid subscribers during 2013.
In order to affect the new strategy, The Company will seek to form strategic alliances with mobile advertising companies to drive revenue from the Freemium applications. The eventual inclusion of such advertisements will allow Voice Assist to generate revenue from mobile advertisers each time a mobile ad is played or displayed and for each response by voice or touch. The company anticipates that it may receive a premium ad fee for each talking mobile ad with verbal responses to connect drivers to advertisers or when sending mobile coupons to nearby drivers. This will allow Voice Assist to provide a free version of its safe driving app that can be used for free but will still generate revenue from mobile advertisers. The Company believes this strategy will cause Freemium users who do not wish to see or hear the ads to sign up for the Company's monthly subscription service and bolster the Company's revenues from existing services.
The Company is also building a hands-free music application that will voice enable music content to allow consumers driving an automobile to "say what they want to listen to." As consumers listen to music content or internet radio, the app will insert audio advertisements that are actionable by voice. After hearing such an ad, drivers can speak various voice commands such as "like it, love it, hate it, buy it, connect me or send a coupon to my mobile phone." This will create a new category of talking mobile ads that are actionable and trackable by voice. The Company plans to charge advertisers for display ads, audio ads and for each voice response or action such as a live call transfer or coupon sent via SMS.
To effect these strategies, the Company will need to raise additional capital, complete additional development and attract additional Freemium subscribers.
4 The Company has also determined that many clients felt it was too difficult to sign up and/or subscribe to its service via our website at www.voiceassist.com In order to solve this problem, the Company began building mobile applications to allow potential new clients to sign up by downloading the app from the Apple iTunes store and the Google Android store. In September 2012, the Company released its new application for the Android operating system. The new app is available as a free download from Google Play. Voice Assist for Android provides a safe driving application that lets drivers use voice commands to call, text and post to social networks like Twitter or Facebook with no typing required.
New customers who subscribe through the app can use Voice Assist for free through a new ad supported plan. Other paid versions of the service with premium features and no advertising are available through the website. The Company is currently working through the approval process with Apple to provide similar service that works on all versions of iOS as well. The Company believes that the ease of getting the app from the Apple store and/or the Google store along with the ease of use to set up and begin using the service will help attract and retain consumers seeking a hands-free safe driving app to comply with new local driving laws.
Results of Operations Comparison of Three and Nine Months Ended September 30, 2012 and September 30, 2011 Revenues. Our revenues decreased 16%, or $30,480, to $160,877 for the three months ended September 30, 2012 compared to $191,357 for the same three month period in the prior year. Revenue decreased 42%, or $301,995 to $423,500 for the nine months ended September 30, 2012 from $725,495 for the nine months ended September 30, 2011. The decrease in the three months ended September 30, 2012 and the nine month period was a result of the loss of the business of one of our primary resellers as previously noted.
Total Cost of Services. Our total cost of services increased $1,500, or 2%, to $82,141 for the three months ended September 30, 2012 from $80,641 for the three months ended September 30, 2011. Total cost of services decreased $99,852, or 30%, to $233,938 for the nine months ended September 30, 2012 from $333,790 for the same period in 2011. The increase in our total cost of services in the three months ended September 30, 2012 was due to an increase in the rate of wholesale telecom service fees during the three months ended September 30, 2012 and the decrease in the nine months ended September 30, 2012 is a result of reduced wholesale telecom services required because of the loss of the primary reseller noted in the revenue section above.
Legal and Professional. Our legal and professional expenses decreased $65,937, or 29% to $159,899 for the three months ended September 30, 2012 from $225,836 for the three months ended September 30, 2011 and $72,508, or 10%, to $663,256 for the nine months ended September 30, 2012 from $735,764 for the same period in 2011. The three and nine month period decreases were the result of reduced consulting services and accounting fees, offset by higher director fees inthe current year to year period.
Selling, General and Administrative. Our selling, general and administrative expenses decreased $755,741 or 65% to $413,736 for the three months ended September 30, 2012 from $1,169,477 for the three months ended September 30, 2011 and decreased $7,404,115 or 84%, to $1,396,373 for the nine months ended September 30, 2012 from $8,800,488 for the same period in 2011. The decrease for both the three month and the nine month periods was primarily due to a reduction in non-cash stock option compensation expense as well as decreased payroll related expenses as the Company reduced its executive personnel by five.
5 Selling, General and Administrative - Related Parties. Our selling, general and administrative - related parties' expenses were $7,333 for the three months ended September 30, 2012 and $37,171 for the nine months ended September 30, 2012 as a result of engaging related party professional staffing. There were no similar expenditures in the three and nine month periods in 2011.
Depreciation and Amortization. Our depreciation and amortization expenses increased $1,407, or 4% to $40,269 for the three months ended September 30, 2012 from $38,862 for the three months ended September 30, 2011, and increased $9,555, or 8%, to $124,239 for the nine months ended September 30, 2012 from $114,684 for the same period in 2011. The increase for both the three month and nine month period was the result of increases in the amortization of software development costs.
Net Loss from Operations. We had a $542,501 net loss from operations for the three months ended September 30, 2012, as compared to a net loss from operations of $1,323,459 for the three months ended September 30, 2011 and a $2,031,477 net loss from operations for the nine months ended September 30, 2012, as compared to a net loss from operations of $9,259,231 during the same period in 2011. The decreased in losses for both the three month and the nine month period was primarily the result of a reduction in non-cash stock option compensation expense and a decrease in executive personnel.
Interest Expense. Our interest expense decreased $242, or 42% to $337 for the three months ended September 30, 2012 from $579 for the three months ended September 30, 2011, and decreased $686, or 40%, to $1,019 for the nine months ended September 30, 2012 from $1,705 in the same period in 2011. The decrease for both the three month and nine month period was the result of paying accounts payable timely.
Other Income(Expense). Our other income (expense) increased $660 and $2,362 for the three and nine month periods ended September 30, 2012 when compared to an expense of $348 and $348 in the similar periods in 2011. The increase in income for both periods was the result of subleasing unused office space.
Net Loss. For the three months ended September 30, 2012, we generated a loss of $542,526, or $.01 per share, a decrease of $781,860, or 59%, from a net loss of $1,324,386, or $.05 per share, for the same period in 2011. For the nine months ended September 30, 2012, we generated a net loss of $2,030,482, or $.06 per share, a decrease of $7,231,134, or 78%, from the net loss of $9,261,616, or $.33 per share, for the same period in 2011. This decrease was primarily attributable to a reduction in non-cash stock option compensation expense and the decrease in executive personnel.
6 Liquidity and Capital Resources The following table summarizes total current assets, total current liabilities and working capital at September 30, 2012 compared to December 31, 2011.
Increase / (Decrease) September 30, 2012 December 31, 2011 $ % Current Assets $ 213,130 $ 281,106 $ (67,97 6) (24%) Current Liabilities $ 795,265 $ 2,923,726 $ (2,128,461) 73% Working Capital (deficit) $ (582,135 ) $ (2,642,620 ) $ (2,060,485) (78%) Liquidity is a measure of a company's ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock and by borrowings. In the future, we anticipate we will be able to provide the necessary liquidity needed from the revenues generated from operations but there is no assurance that this will happen.
Since inception, we have financed our cash flow requirements through the issuance of common stock and related party notes payable. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending additional revenues. We anticipate obtaining additional financing to fund operations through common stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from hosted speech services, licensing fees and/or software development fees in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan. If we cannot raise the funds necessary to execute on our business plan we may be required to severely curtail, or even to cease, our operations.
During the nine months ended September 30, 2012, the current assets decreased by $67,976 when compared to December 31, 2011, primarily due to a decrease in prepaid expenses.
During the nine months ended September 30, 2012, the current liabilities decreased by $2,128,461 when compared to December 31, 2011 current liabilities of $2,923,726. The decrease is primarily due to a decrease in accounts payable to a related party and accounts payable, the majority of which was settledin exchange for common stock.
We anticipate that we may incur operating losses during the next twelve months.
The Company's minimal operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks include, but are not limited to, an evolving business strategy and unpredictable revenue sources. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, increase our customer base, implement and successfully execute our business and marketing strategy continually, develop and upgrade our website and/or mobile apps and respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
7 Going Concern The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of Voice Assist as a going concern. Voice Assist may not have a sufficient amount of cash required to pay all of the costs associated with operating and marketing of its services. Management intends to use revenues and the sale of its securities to mitigate the effects of cash flow deficits; however no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should Voice Assist be unable to continue existence.
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 or operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates The preparation of our condensed financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.
Revenue Recognition For recognizing revenue, the Company applies the provisions of the Revenue Recognition Topic of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). Revenues are generated from telephony services including activation fees, hardware fees and monthly usage fees. In most cases, except as noted below, the services performed do not require significant production, modification or customization of the Company's software or services; therefore, revenues for the hardware fees and monthly usage fees are recognized when evidence of a completed transaction exists, generally when services have been rendered.
The activation fees generated from new accounts are recorded as deferred revenue and are amortized over the estimated average customer relationship period. The net unamortized activation fees were $28,226 at September 30, 2012. The costs associated with these activation fees are recorded as deferred costs and are similarly amortized over the estimated average customer relationship period. The net unamortized costs are $7,057 at September 30, 2012. For both the activation fees and costs associated therewith, the estimated average customer relationship period was 24 months for the three months ended September 30, 2012. These fees and costs have continued to decline in amount as the revenue from our primary reseller has declined.
8 Stock-Based Compensation The Company accounts for stock-based awards to employees in accordance with Financial Accounting Standards Board's Accounting Standard Codification (ASC) 718 "Stock Compensation." Options granted to consultants, independent representatives and other non-employees are accounted for using the fair value method as prescribed by ASC 718.
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