UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
OR
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ____________to____________
Commission file number 000-28985
VOIP, INC.
(Name of small business issuer in its charter)
Texas 75-2785941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12330 SW 53rd Street, Suite 712 33330
Ft. Lauderdale, Florida (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (954) 434-2000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.001.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES |X| NO |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and none will 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-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $2,619,393.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer, based on the average bid and asked price of such stock, was
$98,248,877 at December 31, 2004.
At March 18, 2005, the registrant had outstanding 26,378,132 shares of par value
$.001 common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
TABLE OF CONTENTS
PART II........................................................................1
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........1
ITEM 7. FINANCIAL STATEMENTS................................................4
ITEM 8A. CONTROLS AND PROCEDURES - EVALUATION OF DISCLOSURE CONTROLS........4
PART III.......................................................................4
ITEM 13. EXHIBITS...........................................................5
i
Explanatory Note
VoIP, Inc. (the "Company") is filing this Amendment No. 1 to its Annual Report
on Form 10-KSB for the year ended December 31, 2004 (the "2004 10-KSB"), which
was originally filed on March 30, 2005. This Amendment is being filed to restate
the Company's 2004 financial statements to include approximately $1.4 million in
compensation expense relating to warrants and options issued to employees during
2004. This Amendment No. 1 amends (i) Part II, Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations and Plan of
Operation to reflect the restated results of operations for 2004; (ii) Part II,
Item 8 - Financial Statements to provide the restated financial statements and
notes thereto for 2004; (iii) Part II Item 8A - Controls and Procedures -
Evaluation of Disclosure Controls and Procedures to report management's
assessment of the Company's disclosure controls as of the date of the filing of
this Amendment No. 1; and (iv) the certifications required under Rules 13a-15
and 15d-15(e) of the Securities Exchange Act, as amended, (the "Exchange Act")
so that they be dated as of a current date as required by Rule 12b-15 of the
Exchange Act.
This Amendment No. 1 does not reflect events occurring after the filing of the
2004 10-KSB, and does not update or modify the disclosures therein in any way
other than as required to reflect the amendments described above.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND PLAN OF OPERATION
-----------------------------------
The information presented in this section should be read in conjunction
with the information contained in the financial statements, including the notes
thereto, and the other financial statements appearing elsewhere in this
report.
General
-------
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and the other financial
information appearing elsewhere in this Prospectus. Certain statements contained
in this Prospectus and other written material and oral statements made from time
to time by us do not relate strictly to historical or current facts. As such,
they are considered "forward-looking statements" that provide current
expectations or forecasts of future events. Such statements are typically
characterized by terminology such as "believe," "anticipate," "should,"
"intend," "plan," "will," "expect," "estimate," "project," "strategy" and
similar expressions. Our forward-looking statements generally relate to the
prospects for future sales of our products, the success of our marketing
activities, and the success of our strategic corporate relationships. These
statements are based upon assumptions and assessments made by our management in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors our management
believes to be appropriate. These forward-looking statements are subject to a
number of risks and uncertainties, including the following: our ability to
achieve profitable operations and to maintain sufficient cash to operate its
business and meet its liquidity requirements; our ability to obtain financing,
if required, on terms acceptable to it, if at all; the success of our research
and development activities; competitive developments affecting our current
products; our ability to successfully attract strategic partners and to market
both new and existing products; exposure to lawsuits and regulatory proceedings;
our ability to protect our intellectual property; governmental laws and
regulations affecting operations; our ability to identify and complete
diversification opportunities; and the impact of acquisitions, divestitures,
restructurings, product withdrawals and other unusual items. A further list and
description of these risks, uncertainties and other matters can be found
elsewhere in this Prospectus. Except as required by applicable law, we undertake
no obligation to update any forward-looking statements, whether as a result of
new information, future events or otherwise.
Restatement of 2004 Financial Statements
----------------------------------------
We account for options and warrants issued to employees in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." During the preparation of the financial statements
for the quarterly 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 in 2004
or the compensation expense for the 4,000,000 stock options issued to employees
in 2004. The compensation expense that was not recognized relating to these
options and warrants was $ 1,384,763. We therefore decided it appropriate to
restate our 2004 financial statements to include this compensation expense. The
following table sets forth the impact of the restatements on certain amounts
previously reported in our 2004 financial statements.
Consolidated Balance Sheet As Previously As Restated
Reported
------------ ------------
Additional paid-in capital $ 12,722,565 $ 14,107,328
Accumulated deficit $ (4,639,386) $ (6,024,149)
Consolidated Statement of Operations for the nine months ended September 30,
2004:
Compensation and benefits $ 2,721,296 $ 4,106,059
Total operating expense $ 4,909,174 $ 6,293,937
Loss from operations $ (4,160,050) $ (5,544,813)
Net loss $ (4,014,739) $ (5,399,502)
Loss per share $ (0.27) $ (0.37)
Comparision of 2004 to 2003
Balance Sheet Data: December 31, 2004
-----------------
Total assets $10,215,552
Long-term liabilities, net $ 0
Total liabilities $ 2,108,114
Shareholders' equity $ 8,107,438
Year Ended
December 31,
--------------------------
Statements of Operations Data: 2004 2003
----------- -----------
Revenue $ 2,619,393 $ --
Operating (loss) $(5,544,813) $ (352,968)
Net loss $(5,399,502) $ (352,968)
Net loss per share $ (0.37) $ (0.20)
1
Net revenue totaled $3,028,006 ($2,619,393 from continuing operations),
for the year ended December 31, 2004 as compared to $8,678 for the year ended
December 31, 2003. The $3,019,328 increase in total net revenue was primarily
attributable entry into the new "VoIP" (Voice over IP) business segment and the
acquisition of Voipamericas, Inc. and DTNet Technologies, Inc. in 2004.
Revenue from the sale of tea in the segment business that we have
discontinued was $ 408,613, or 13.5%, of total net revenue for the year ended
December 31, 2004, versus $8,678, or 100%, of total net revenue for the prior
year.
As mentioned in Note A to the financial statements, the Company
acquired DTNet in June 2004 and Voipamericas in September 2004. DTNet provides
customer premises equipment to cable and DSL Internet providers throughout North
America. DTNet sales were approximately $4.7 million in 2003. Voipamericas
revenues for the first nine months of 2004 were $1.4 million. Management
believes that the acquisitions of DTNet and Voipamericas will provide proven
distribution channels and leadership in sales throughout the Americas. DTNet and
Voipamericas complement the Company's strategy to deliver Voice over Internet
Protocol over a wireless local loop and deliver service provider solutions to
cable operators.
Net losses for the respective years ended December 31, 2004 and 2003
were $5,399,502 and $352,968. Net loss per share was $0.37 and $0.20
respectively for each period.
Operating expenses consist of salaries and related personnel costs,
outside legal and professional fees, directors and officers insurance, bad debt
expenses and general corporate overhead costs. Operating expenses were $6.3
million for the year ended December 31, 2004. Operating expenses for 2003 have
been reclassified and included in the loss from discontinued operations for 2003
of $352,968. Compensation and related expenses for 2004 include approximately
$2.2 million in compensation costs for warrants issued to employees and
approximately $1.1 million in compensation costs for stock options issued to
employees and also reflect increases in headcount and related personnel
expenses. The general and administrative expenses for 2004 reflect the Company's
new line of business, VoIP telephony services.
The comparison of operations for the years ended December 31, 2004 and
2003 is not indicative of the Company's current business model. Whereas, during
2003 the Company was in the business of importing and selling a line of fine
teas. The Company has, since discontinued the tea business, to focus solely on
VoIP and emerging technologies.
2
(b) Liquidity and Capital Resources
As of December 31, 2004, we had cash and cash equivalents approximating
$1,141,000. We currently have two borrowing arrangements, one for $200,000 with
a local bank and one for $560,000 with a note payable to a shareholder. Cash
used in operating activities of $2.9 million in fiscal year 2004 was primarily
attributable to the net loss of $5.5 million, which included non cash items for
warrants and options issued to Company employees amounting to approxumately $3.3
million recorded as compensation in the Consolidated Statement of Operations.
Cash provided by financing activities in fiscal 2004 consisted primarily of $3.6
million of proceeds resulting from the sale of common stock to investors in
private placement transactions during the whole year and, as above-mentioned,
proceeds from issuance of note payable of $560,000.
Liquidity for the period from inception through December 31, 2004 has
been mainly provided by sales of common stocks through private placements and
borrowing from affiliates. Management has taken actions directly related to the
generation of product sales during calendar 2004 and anticipates that these
efforts will be sufficient to provide reasonable resources to sustain its
operations during 2005.
The Company anticipates that all working capital requirements for the
current annual period will be satisfied from the operation of the newly acquired
business and the sales of additional common shares through private placements.
(c) Payments Due by Period
The following table illustrates our outstanding debts and the terms of
that debt as of December 31, 2004:
Less than 1
Contractual Obligations Total Year
---------------------------------------------------------
Long-Term Debt $ 0.00 $ 0.00
Notes Payable to shareholders 560,000 $ 560,000
Operating Leases 35,572 $ 35,572
Purchase Obligations 0.00 $ 0.00
-------------------------
Total $ 595,572 $ 595,572
=========================
(d) Market Risk
We own market investment securities issued by various securities
issuers. The issuers of these products retain all interest rate and default
risk.
Available Information
We maintain a corporate Internet website with the address
www.voipincorporated.com. The contents of this website are not incorporated in
or otherwise to be regarded as part of this report. We file reports with the
Securities and Exchange Commission, or SEC, which are available on our website
free of charge. These reports include annual reports on Form 10-KSB, quarterly
reports on Form 10-QSB, current reports on Form 8-K and amendments to such
reports, each of which is provided on our website as soon as reasonably
practicable after we electronically file such materials with or furnish them to
the SEC. You can also read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. In
addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC, including us.
3
ITEM 7. FINANCIAL STATEMENTS
--------------------
The financial statements required by this item begin at Page F-1
hereof.
ITEM 8A. CONTROLS AND PROCEDURES
-----------------------
Evaluation of Disclosure Controls and Procedures
In connection with the filing of our 2004 10-KSB on March 31, 2005 the
Company's management, with the participation of our chief executive officer and
chief financial officer at that time, evaluated the effectiveness of our
Disclosure Controls and Procedures as of December 31, 2004.
We hired a new chief executive officer and new chief financial officer
in October 2005. The Company's management, with the participation of our new
chief executive officer and new chief financial officer, evaluated the
effectiveness of our controls and procedures in connection with the filing of
our quarterly report on Form 10-QSB for the quarterly period ended September 30,
2005. In connection with this evaluation and a review of the financial
information reported for current and prior periods, we noted the errors
resulting in the amended information and restated 2004 financial statements
reported in this Amendment No. 1 to our 2004 10-KSB. We have concluded these
errors occurred because we did not possess sufficient personnel experienced with
the implementation of Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" and with U. S. generally accepted
accounting principles. Based upon the control deficiency and restatement
discussed above, our present chief executive officer and chief financial officer
have concluded that our disclosure controls and procedures at September 30, 2005
were not effective in gathering, analyzing and disclosing information needed to
satisfy our Company's disclosure obligations under the Exchange Act. We expect
to begin to implement measures to improve our disclosure controls beginning with
the quarterly period ending December 31, 2005.
4
PART III
ITEM 13. EXHIBITS
---------
(a) The following documents are filed as part of this Annual Report on Form
10-KSB/A:
1. Financial Statements: The financial statements filed as part
of this report are listed in the "Index to Financial
Statements" on Page F-1 hereof.
2. Exhibits required to be filed by Item 601 of Regulation 10-KSB
Other Material Contracts
23.1 Consent of Tschopp, Whitcomb & Orr, P.A.
31.1 Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer under 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer under 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
5
VoIP INC.
TABLE OF CONTENTS
Financial Statements of VoIP, Inc.
Page
Reports of Independent Registered Public Accounting Firms F-2,3
Financial Statements:
Consolidated Balance Sheets - December 31, 2004 and 2003 F-4
Consolidated Statements of Operations - Years Ended F-5
December 31, 2004 and 2003
Consolidated Statements of Cash Flows - Years Ended
December 31, 2004 and 2003 F-6
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 2004 and 2003 F-7
Notes To Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors
VoIP, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheet of VoIP, Inc. and
Subsidiaries ("the Company") as of December 31, 2004, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we do not express such an opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the consolidated financial position of VoIP,
Inc. and its subsidiaries, as of December 31, 2004, and the results of
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note B to the consolidated financial statements, the
accompanying consolidated balance sheet and related statements of operations,
shareholders' equity and cash flows have been restated to reflect the accounting
for certain stock warrants and options awarded to employees during 2004.
/s/ Berkovits, Lago & Company, LLP
Fort Lauderdale, Florida
March 16, 2005 except for Note B as to which the date is November 23, 2005
F-2
TSCHOPP, WHITCOMB & ORR, P.A.
2600 Maitland Center Parkway, Suite 330
Maitland, FL 32751
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholder
Millennia Tea Masters, Inc.
We have audited the accompanying balance sheet of Millennia Tea Masters, Inc. as
of December 31, 2003 and the related statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Millennia Tea Masters, Inc. as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced limited
sales and incurred cumulative operating losses since its inception through
December 31, 2003. The Company has been dependent upon the proceeds from the
sales of common stock and advances from related parties to provide working
capital. This situation raises a substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Tschopp, Whitcomb & Orr, P.A.
January 30, 2004
Maitland, Florida
F-3
VoIP Inc.
Consolidated Balance Sheets
December 31, 2004 and 2003
Dec. 31, 2004 Dec. 31, 2003
------------- -------------
(As Restated)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,141,205 $ --
Accounts receivable, net of allowance of $136,795 818,071 --
Due from related parties 245,402 --
Inventory 187,451 --
Assets from discontinued operations 412,419 259,459
Other current assets 43,702 --
------------- -------------
Total Current Assets 2,848,250 259,459
------------- -------------
Property and equipment, net 419,868 --
Intangibles 6,923,854 --
Other assets 23,580 --
------------- -------------
TOTAL ASSETS $ 10,215,552 $ 259,459
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,224,974 $ --
Bank loans and note payable 760,000 --
Liabilities from discontinued operations -- 151,167
Other current liabilities 123,140 --
------------- -------------
Total Liabilities 2,108,114 151,167
------------- -------------
Shareholders' equity:
Common stock - $0.001 par value
100,000,000 shares authorized
24,258,982 and 1,730,939 issued
and outstanding respectively 24,259 1,731
Additional paid-in capital 14,107,328 731,208
Accumulated deficit (6,024,149) (624,647)
------------- -------------
Total shareholders' equity 8,107,438 108,292
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,215,552 $ 259,459
============= =============
The accompanying notes are an integral part of these financial statements.
F-4
VoIP Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2004 and 2003
Year ended Year ended
December 31, 2004 December 31, 2003
----------------- -----------------
(As Restated)
Revenues $ 2,619,393 $ --
Cost of Sales 1,870,269 --
----------------- -----------------
Gross Profit 749,124 --
Operating expenses
Compensation and related expenses 4,106,059 --
General and administrative expenses 2,187,878 --
----------------- -----------------
Loss from continuing operations before income
taxes and discontinued operations (5,544,813) --
Provision for income taxes -- --
----------------- -----------------
Net loss before discontinued operations (5,544,813) --
Income (Loss) from discontinued operations,
net of income taxes 145,311 (352,968)
----------------- -----------------
Net Loss $ (5,399,502) $ (352,968)
================= =================
Basic and diluted loss per share:
Loss before discontinued operations $ (0.38) $ --
Income (loss) from discontinued operations,
net of income taxes $ 0.01 $ (0.20)
----------------- -----------------
Total $ (0.37) $ (0.20)
================= =================
Weighted average number of shares outstanding 14,597,312 1,730,939
================= =================
The accompanying notes are an integral part of these financial statements.
F-5
VoIP Inc.
Consolidated Statements of Cash Flows
Years ended December 31, 2004 and 2003
Year ended Year ended
December 31, December 31,
2004 2003
------------ ------------
(As Restated)
Cash flows from operating activities:
Continuing operations:
Net loss $ (5,544,813) $ --
Adjustments to reconcile net loss to net
cash used in operating activities -- --
Depreciation 82,832 --
Provision for bad debt 136,795 --
Common shares issued for services 494,166 --
Warrants issued to employees and stock option
compensation 3,320,763 --
Shares issued for intellectual property 105,000 --
Changes in operating assets and liabilities
net of assets and liabilities acquired:
Accounts receivable (555,007) --
Due from related parties (245,402) --
Inventory 144,913 --
Other current assets 8,531 --
Accounts payable (296,305) --
Other current liabilities (315,587) --
------------ ------------
Net cash used in continuing operating activities (2,664,114) --
------------ ------------
Discontinued operations:
Income (loss) from discontinued operations 145,311 (352,968)
Changes in assets, liabilities, and net results (408,000) 274,262
------------ ------------
Net cash used in discontinued operating activities (262,689) (78,706)
------------ ------------
Net used in operating activities (2,926,803) (78,706)
------------ ------------
Cash flows from investing activities - continuing operations:
Cash from acquisitions 104,872 --
Purchase of property and equipment (157,881) --
Cash for intellectual property (50,000) --
Purchase of other assets (21,100) --
------------ ------------
Net cash used in continuing investing activities (124,109) --
------------ ------------
Discontinued operations:
Cash from affiliates -- 82,196
------------ ------------
Net cash provided by discontinued investing activities -- 82,196
------------ ------------
Net cash provided by (used in) investing activities (124,109) 82,196
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 560,000 --
Proceeds from sales of common stock 3,628,618 --
------------ ------------
Net cash provided by investing activities 4,188,618 --
Net increase in cash 1,137,706 3,490
Cash at beginning of year 3,499 9
------------ ------------
Cash at end of year $ 1,141,205 $ 3,499
============ ============
Non-cash investing and financing activities:
Common stock issued for services $ 494,166 $ --
============ ============
Warrants issued to employees $ 3,320,763 $ --
============ ============
Shares issued for intellectual property $ 105,000 $ --
============ ============
The accompanying notes are an integral part of these financial statements.
F-6
VoIP, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 2004 and 2003
(As Restated for 2004)
Additional
Common Stock Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2002 1,730,939 $ 1,731 $ 731,208 $ (271,679) $ 461,260
Loss for the for the year -- -- -- (352,968) (352,968)
------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2003 1,730,939 1,731 731,208 (624,647) 108,292
------------ ------------ ------------ ------------ ------------
Common stock issued 12,500,000 12,500 -- -- 12,500
Common Stock issued for services received 568,235 568 342,432 -- 343,000
Common stock issued to investors for cash received 5,520,566 5,521 3,610,598 -- 3,616,119
Common stock issued for services 339,242 339 150,827 -- 151,166
Common Stock issued for acquisition of DTNet Tech 2,500,000 2,500 4,747,500 -- 4,750,000
Common Stock issued for acquisition of VoipAmericas 1,000,000 1,000 1,099,000 -- 1,100,000
Warrants issued to two company officers and stock
option compensation -- -- 3,320,763 -- 3,320,763
Stock issued for intellectual property 100,000 100 105,000 -- 105,100
Loss for the year -- -- -- (5,399,502) (5,399,502)
------------ ------------ ------------ ------------ ------------
Balance December 31, 2004 24,258,982 $ 24,259 $ 14,107,328 $ (6,024,149) $ 8,107,438
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-7
Note A - Organization and Description of Business
The Company was incorporated on August 3, 1998 under its original name of
Millennia Tea Masters, Inc. under the laws of the State of Texas.
The Company began operations in October 1998 with its initial order of imported
teas from Sri Lanka.
On February 27, 2004 the Company entered into a stock purchase agreement that
provided for the sale of 12,500,000 shares of its common stock in exchange for
$12,500 and a commitment by the purchaser to contribute the assets of two
start-up companies in the telecommunications business, eGlobalphone, Inc. and
VOIP Solutions, Inc. into the Company.
On April 13, 2004 the Company changed its name to VoIP, Inc. and began to
develop and manufacture innovative IP telephony customer premise equipment,
provide premium voice over the internet subscriber based telephony services and
state of the art long range WiFi technology solutions, for residential and
enterprise customers, including multimedia applications.
During December 2004 the Company decided to exit the tea import business in
order to focus its efforts and resources in the "Voice over Internet Protocol"
(VoIP) telecommunications industry. In connection with the decision, the Company
sold its imported tea inventory and began to wind down its tea import
operations. The assets, liabilities, and results of operations of the imported
tea business has been classified as discontinued operations on the accompanying
consolidated financial statements.
The Company offers quality Voice over IP (VoIP) based solutions offering
residential and business customers more user friendly and affordable ways to
communicate. VoIP, Inc. also manufactures products and provides services to
Internet Service Providers, Telecommunication Service Providers and Cable
Operators in strategic countries around the world. VoIP, Inc., through its
subsidiaries, provides a comprehensive portfolio of IP multimedia-based
solutions ranging from subscriber based voice services, to SIP based
infrastructure design and deployment, to broadband customer premise equipment
design and implementation services, as well as engineering design, manufacturing
and distribution of wireless broadband technology.
The Company's operations consist of one segment.
NOTE B - RESTATEMENT OF FINANCIAL STATEMENTS
The Company accounts for options and warrants issued to employees in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." During the preparation of the financial statements
for the quarterly period ended September 30, 2005 the Company discovered that it
did not recognize in its 2004 financial statements the full amount of
compensation expense that should have been recognized on warrants issued to
employees in 2004 or the compensation expense for the vested portion of
approximately 4,000,000 stock options issued to employees during the year ended
December 31, 2004. The compensation expense that was not recognized relating to
these options and warrants was $1,384,763 (see Notes I, L and O). The Company
therefore, decided that it would be appropriate to restate its financial
statements for the year ended December 31, 2004. The following table sets forth
the impact of the restatement on certain amounts previously reported in the
consolidated 2004 financial statements.
Consolidated Balance Sheet at December 31, 2004: As Previously As Restated
Reported
------------ ------------
Additional paid-in capital $ 12,722,565 $ 14,107,328
Accumulated deficit $ (4,639,386) $ (6,024,149)
Consolidated Statement of Operations for the year ended December 31, 2004:
Compensation and related expense $ 2,721,296 $ 4,106,059
Total operating expense $ 4,909,174 $ 6,293,937
Loss from operations $ (4,160,050) $ (5,544,813)
Net loss $ (4,014,739) $ (5,399,502)
Loss per share $ (0.27) $ (0.37)
Note C - Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, eGlobalphone, Inc. ("eGlobal") , VoIP Solutions,
Inc., VCG Technologies d/b/a DTNet Technologies ("DTNet"), Inc., and
VoxConsulting d/b/a/VoIP Americas, Inc. ("VoIP Americas") from their respective
dates of acquisition. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities; disclosure of contingent
assets and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses. Actual results could differ from those
estimates.
Cash and cash equivalents
-------------------------
For purposes of reporting cash flows, the Company considers all cash on hand, in
banks, including amounts in book overdraft positions, certificates of deposit
and other highly liquid debt instruments with a maturity of three months or less
at the date of purchase to be cash and cash equivalents. Cash overdraft
positions may occur from time to time due to the timing of making bank deposits
and releasing checks, in accordance with the Company's cash management policies.
F-8
Accounts Receivable
-------------------
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
using the reserve method based on its assessment of the current status of the
individual receivables and after using reasonable collection efforts. As of
December 31, 2004 the balance of the allowance for uncollectible accounts
amounted to $136,795. There was no allowance as of December 31, 2003.
Inventory
---------
Inventory consists of finished goods and is valued at the lower of cost or
market using the first-in, first-out method.
Advertising expenses
--------------------
Advertising and marketing expenses are charged to operations as incurred.
Income Taxes
------------
Income taxes - The Company and its subsidiaries file consolidated federal and
state income tax returns. The Company has adopted Statement of Financial
Accounting Standards No. 109 in the accompanying consolidated financial
statements. The only temporary differences included therein are attributable to
differing methods of reflecting depreciation for financial statement and income
tax purposes.
Earnings (loss) per share
-------------------------
Basic earnings (loss) per share is computed by dividing the net income (loss)
for the year by the weighted-average number of shares of common stock
outstanding. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of issuance,
whichever is later. Common stock equivalents represent the dilutive effect of
the assumed exercise of the outstanding stock options and warrants, using the
treasury stock method.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Revenue Recognition
-------------------
Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, delivery to customer has occurred, the sales price is fixed
and determinable, and collectibility of the related receivable is probable.
The recognition of revenues from Internet telephony services are deferred for
new subscribers of eGlobalphone and Voipsolutions until it deems that the
customer has accepted the service. Subsequent revenues are recognized at the
beginning of each customer's month.
Property, plant, and equipment
------------------------------
Property, plant, and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the related assets using the straight line method.
The useful life of assets ranges from three to five years. The leasehold
improvements are amortized over the life of the related lease.
Business combinations
---------------------
The Company accounts for business combinations in accordance with Statement of
Financial Accounting Standard No. 141 Business Combinations ("SFAS No. 141").
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations. SFAS No. 141 requires that goodwill and intangible assets
F-9
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually by comparing carrying value to the respective fair
value in accordance with the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). This
pronouncement also requires that the intangible assets with estimated useful
lives be amortized over their respective estimated useful lives.
Impairment of long-lived assets
-------------------------------
VoIP, Inc. reviews the recoverability of its long-lived assets, such as plant,
equipment and intangibles when events or changes in circumstances occur that
indicate that the carrying value of the asset group may not be recoverable. The
assessment of possible impairment is based on the Company's ability to recover
the carrying value of the asset or asset group from the expected future pre-tax
cash flows (undiscounted and without interest charges) of the related
operations. If these cash flows are less than the carrying value of such asset,
an impairment loss is recognized for the difference between estimated fair value
and carrying value. The measurement of impairment requires management to
estimate future cash flows and the fair value of long-lived assets.
Recent accounting pronouncements
--------------------------------
In November 2004, FASB issued Statement No. 151, "Inventory Costs - an amendment
of ARB No. 43, Chapter 4." Statement No. 151 requires that abnormal amounts of
costs, including idle facility expense, freight, handling costs and spoilage,
should be recognized as current period charges. The provisions of this Statement
are effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company does not expect the adoption of this Statement to
have a material impact on its financial statements.
In December 2004, FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets - an amendment of Accounting Principles Board ("APB") Opinion No. 29."
Statement No. 153 amends APB Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have a
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of this Statement are effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company
does not expect the adoption of this Statement to have a material impact on its
financial statements.
In December 2004, FASB issued Statement No. 123R, "Share-Based Payment."
Statement No. 123R revises Statement No. 123, supersedes APB Opinion No. 25 and
amends Statement No. 95. Statement No. 123R requires the cost of employee
services received in exchange for an award of equity instruments be recognized
over the period during which an employee is required to provide service in
exchange for the award. The provisions of this Statement are effective for
public entities that do not file as small business issuers as of the beginning
of the first interim period or annual reporting period that begins after
December 15, 2005. The Company does not expect the adoption of this Statement to
have a material impact on its financial statements.
Stock Based Compensation
------------------------
The Company applies the fair value method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123") in accounting for its stock options. This standard states that
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
The fair value for each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model. The fair value of all vested
options granted has been charged to salaries, wages, and benefits in accordance
with SFAS No. 123.
F-10
Note D - Property and Equipment, net
As of December 31, 2004 property and equipment consists of the following:
Office Equipment $ 519,810
Furniture & Fixtures 56,748
Vehicles 4,769
Leasehold Improvements 4,562
---------
Total 585,889
Less accumulated depreciation (166,021)
---------
Total $ 419,868
=========
Depreciation expense for 2004 amounted to $82,832. There was no depreciation
expense for 2003.
Note E - Intangibles
As of December 31, 2004 intangibles consist of the following:
Goodwill-acquisition of DTNet Technologies, Inc. $5,210,553
Goodwill-acquisition of Voipamericas, Inc. 1,408,301
Intellectual property 305,000
----------
Total $6,923,854
==========
The goodwill on the acquisition of DTNet Technologies, Inc. ("DTNet") represents
the fair market value of DTNet liabilities as of the date of the acquisition
plus $4,750,000 which represents the market value of 2,500,000 shares of Company
stock issued pursuant to this acquisition.
The goodwill on the acquisition of VoIPAmericas, Inc. (VoIP Americas) represents
the fair market value of VoIPAmericas liabilities as of the date of the
acquisition plus $1,100,000 which represents the market value of 1,000,000
shares of the Company's stock issued pursuant to this acquisition.
Intellectual property is carried at cost which is comprised of $50,000 paid in
cash in 2004, $150,000 due in the first quarter of 2005, and the value assigned
to 100,000 Company common shares and 400,000 warrants issued pursuant to this
transaction. The valuation of the shares was $1.05 while the value was $105,000.
The value of the warrants was determined using the Black-Scholes model
calculated as of October 14, 2004. As these warrants were not "in the money"
these warrants have been assigned a value of zero. This model uses the
annualized deviation calculation and utilizes industry averages as a comparison
for adequate statistical results in the valuation. This is a standard financial
model that considers the statistical annual volatility of the market changes in
a stock price. (See Note H)
Intellectual property consists of the following:
a) all rights of the Company of Record in the telephone numbers
1(800)TALKTIME, 1(888)TALKTIME, and 1(877)TALKTIME.COM
b) all rights to the URL's (domain names) 800TALKTIME.COM, 1800TALKTIME.COM,
and 1-800-TALKTIME.COM
c) all rights to U.S. Trademark Registration No. 2,209,316 directed to the
mark 1-800-TALKTIME and the goodwill associated therewith.
F-11
Note F - Accounts Payables and Accrued Expenses
As of December 31, 2004 accounts payables and accrued expenses consist of the
following:
Account Payables Trade $ 988,815
Accrued Expenses 233,711
Other 2,448
----------
Total $1,224,974
==========
Note G - Bank Loans and Note Payable
As of December 31, 2004 bank loans and note payable consists of the following:
a) Bank Loan:
Revolving Line of Credit $ 187,000
Promissory Note 13,000
----------
200,000
b) Note Payable 560,000
----------
Total $ 760,000
==========
a) The revolving line of credit with the Bank of Tampa is interest only
payable at prime plus 1.0% monthly. The promissory note is payable in
monthly installments of approximately $6,200 including interest at a
rate of 7.5%. The loans are collateralized by receivables, inventory
and equipment. Both balances were fully paid in January 2005.
b) In December 2004 the Company issued a note payable to a shareholder in
the amount of $560,000 at an interest rate of 3.75% with a maturity
date of December 2005. As mentioned in Note K on January 6, 2005, the
Company issued another note payable amounting to $1,040,000 to the
same shareholder under the same terms and conditions as the previous
one.
Note H - Acquisitions
On May 25, 2004 (but effective for all purposes as of April 15, 2004), the
Company completed the acquisition of two Florida-based entities, (eGlobalphone,
Inc. and VoIP Solutions, Inc.). Contribution of these start-up companies was the
basis for the original decision to issue a controlling block of shares of common
stock to Mr. Ivester. eGlobalphone, Inc. and VoIP Solutions Inc. are both
Florida corporations.
In June 2004, the Company acquired DTNet Technologies, Inc. a Florida
Corporation. The acquisition was financed through the issuance of 2,500,000
shares of the Company's common stock with a value of $4,750,000 in exchange for
all issued and outstanding shares of DTNet common stock.
In September 2004, the Company closed the acquisition of VoIP Americas, a
Florida corporation. The acquisition was financed through the issuance of
1,000,000 shares of the Company's restricted common stock with the value of
$1,100,000 in exchange for all issues and outstanding shares of VoIP Americas.
Note I - Warrants
On August 4th, 2004, the Company issued 4,400,000 warrants to two executives to
acquire 2,200,000 Company common shares at $1.00 each. The compensation expense
of $2,217,600, is in the accompanying Consolidated Statement of Operations.
F-12
A summary of the Company's warrants as of December 31, 2004 is presented below:
2004
------------------------------
Weighted
average
Warrants exercise price
------------- --------------
Warrants outstanding at beginning of year --
Granted to two Company officers 4,400,000 $ 1.00
Granted to third parties 2,400,000 $ 2.58
Expired --
Exercised --
------------- --------------
Warrants outstanding at end of year 6,800,000 $ 1.59
============= ==============
Note J - Commitments
The Company is obligated under non-cancelable operating leases for its office
facilities and two apartments used by its employees. Future minimum lease
payments under the Company's non-cancelable operating lease as of December 31,
2004 are as follows:
Year ending Dec 31
------------------
2005 $ 52,772
2006 15,155
---------
$ 67,927
=========
Note K - Due From Related Parties
As of December 31, 2004 the due from related parties consists of the following:
DTNet, Inc. (*) $ 134,317
DTNet International (*) 119,974
Mozart Communication 21,794
Com Laser 5,850
Due to related parties (36,533)
----------
$ 245,402
==========
* The above entities are related to a shareholder of the Company. These advances
are unsecured, due upon demand and are non-interest bearing.
F-13
Note L - Income Taxes
The components of the Company's consolidated income tax provision are as
follows:
Year ended December 31,
2004 2003
----------- -----------
(As Restated)
Current Benefits $(1,836,000) (119,000)
Valuation allowance 1,836,000 119,000
----------- -----------
Total -- --
=========== ===========
2004 2003
----------- -----------
Long-term deferred tax assets arising from
net operatiing loss carry forward $(1,956,000) $ (119,000)
Valuation allowance 1,956,000 119,000
----------- -----------
Total -- --
=========== ===========
The reconciliation of income tax provision at statutory rate to the reported
income tax expense is as follows:
Year ended December 31
2004 2003
--------- ---------
Computed at statutory rate 34% 34%
State tax net of federal benefits -- --
Valuation allowance (34%) (34%)
--------- ---------
Total -- --
========= =========
At December 31, 2004 and December 31, 2003 deferred tax assets are related
solely to the Company's net operating loss carry forward of approximately
$4,486,000 and $303,000, respectively, which have been reduced by a valuation
allowance. If these carry forwards are not utilized, they will begin to expire
in 2018.
Note M - Stockholders' Equity
On February 27, 2004, the Company issued and sold 12,500,000 shares of common
stock to Steven Ivester in exchange for cash of $12,500 and his agreement to
contribute the intellectual property rights and related assets of two start-up
companies formed to engage in the telecommunications industry. The shares issued
represented approximately 88% of the shares outstanding after the exchange, as a
result of which Mr. Ivester became the controlling shareholder of the Company.
On April 1, 2004, the Company issued 142,902 shares to two accredited investors
in satisfaction of accounts payable totaling $71,421.
In May 2004, the Company issued 1,143,250 shares to twenty-two individual
accredited investors.
In May 2004, the Company issued 168,235 shares to one individual accredited
investor in exchange for services.
In May, 2004, the Company issued 67,300 shares to fourteen individual accredited
investors at a price of $3.00 per share.
On May 19, 2004, the Company issued 196,340 shares to two accredited investors
in satisfaction of accounts payable totaling $79,745.
On June 25, 2004, the Company closed the acquisition of DTNet Technologies, Inc.
("DTNet") a Florida corporation. The acquisition was effective through the
issuance of 2,500,000 shares of VoIP, Inc. restricted common stock in exchange
for all issued and outstanding shares of DTNet common stock.
In July 2004, the Company issued 668,688 shares to six individual existing
accredited investors. Also effective July 2004, registrant issued 41,688 shares
to four accredited individual investors.
On August 4, 2004, the Company issued 4,400,000 warrants to two executives to
acquire 4,400,000 shares at $1.00 per share. As explained in Note P, subsequent
events, in February 2005, 2,200,000 of warrants were exchanged for restricted
shares.
F-14
In August 2004, the Company issued 50,000 shares to one individual accredited
investor in satisfaction of accounts payable totaling $50,000.
In August 2004, the Company issued 653,319 shares to forty-six individual
accredited investors.
In September 2004, the Company issued 38,461 shares to one accredited investor.
On September 1st, 2004, the Company closed the acquisition of VoIP Americas, a
Florida corporation. The acquisition took the form of an exchange of 1,000,000
shares of VoIP restricted common stock in exchange the all issued and
outstanding shares of VoIP Americas common stock.
In October 2004, the Company issued 251,831 shares to twelve accredited
investors.
In October 2004, the Company issued 100,000 shares to one individual accredited
investors.
In November 2004, the Company issued of 2,249,500 to five accredited investors.
In November 2004, the Company issued 318,500 shares to twelve accredited
investors.
In December 2004, the Company issued 79,659 shares to five accredited investors.
In December 2004, the Company issued 400,000 shares to sixteen accredited
investors.
Note N - Discontinued Operations
In December 2004, the Company decided to exit the tea business and sold all its
tea inventory, Therefore, those transactions have been presented as discontinued
operations for the years ended December 31, 2004 and 2003.
Assets, liabilities, and results of the discontinued tea operations of the
Millennia Tea Master division are as follows:
Assets from discontinued operation:
2004 2003
--------- ---------
Cash $ 4,419 $ 3,499
Notes receivable from purchaser of tea
(non-interest bearing due in four equal 408,000 --
installments through December 31, 2005)
Tea inventory at net realizable value -- 251,534
Other assets -- 4,426
--------- ---------
Total $ 412,419 $ 259,459
========= =========
Liabilities from discontinued operations:
Due to related parties $ -- $ 151,167
--------- ---------
Total $ -- $ 151,167
========= =========
F-15
Results from discontinued operations:
Revenues $ 408,613 $ 8,678
Cost of sales 263,302 11,213
--------- ---------
Gross profit 145,311 (2,535)
Other expenses -- 350,433
--------- ---------
Income (loss) from discontinued operations: $ 145,311 $(352,968)
========= =========
NOTE O - Stock Options
A total of 4,000,000 shares of common stock has been reserved for issuance under
the Company's 2004 Employee Stock Option Plan. The Company accounts for the fair
value of its grants under its 2004 Stock Option Plan in accordance with SFAS No.
123. The compensation cost that has been charged against income for the 2004
Option Plan was approximately $1,117,000 in 2004.The activity in this 2004
Option Plan for the year ended December 31, 2004 is as follows:
Exercise Weighted Average
Number Price Range Exercise Price
Options outstanding at December 31, 2003 --
Options granted 4,000,000 $0.85 - $1.56 $1.14
Options returned to the plan
due to terminations (350,000) $1.10 $1.10
--------------- ------------------- -----------------
Options outstanding at December 31, 2004 3,650,000 $0.85 - $1.56 $1.14
=============== =================== =================
Options exercisable at year-end 903,750
=================
Weighted-average fair value of options
granted during the year $0.82
=================
Note P - Subsequent Events
On January 6, 2005, the Company issued a Note Payable to its controlling
shareholder in the amount of $1,040,000 at an interest rate of 3.75%, maturing
in December 2005.
On January 26, 2005, the Company filed a Form S-8 registration statement in
connection with the Company's 2004 Stock Option Plan. The plan provides for the
grant to eligible employees and directors of options for the purchase of Common
Stock. The Option Plan covers, in the aggregate, a maximum of 4,000,000 shares
of Common Stock and provides for the granting of both incentive stock options
(as defined in Section 422 of the Internal Revenue Code of 1986) and
nonqualified stock options (options which do not meet the requirements of
Section 422). Under the Option Plan, the exercise price may not be less than the
fair market value of the Common Stock on the date of the grant of the option.
On February 14, 2005, an officer exercised a Stock Purchase Warrant to purchase
2,200,000 shares of VoIP, Inc. common stock by surrendering such Warrant, and,
based upon an agreement with the Company, receiving in return 750,000 shares of
restricted common stock in a net exercise.
On February 23, 2005, VoIP, Inc. and its subsidiary eGlobalPhone, Inc. executed
an Asset Purchase Agreement for the purchase of certain intellectual property
rights associated with the trade names TALKTIME and TALKTIME.COM. In exchange
for the rights, the Registrant issued 100,000 shares of restricted common stock,
warrants to purchase 400,000 shares at $1.70 per share, and agreed to pay
$200,000 cash. Negotiations started during the last quarter of 2004, therefore
all the cash disbursements, liabilities, shares issued, and commitments were
recorded in that period.
F-16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons in the
capacities and on the dates indicated.
Name Office Date
/s/ B. Michael Adler Chairman, Chief Executive 11/23/05
------------------------ Officer and Director
B. Michael Adler (Principal Executive Officer)
/s/ David Sasnett Vice President and Chief 11/23/05
------------------------ Financial Officer
David Sasnett (Principal Financial and
Accounting Officer)