4. Mergers and Acquisitions

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Mergers and Acquisitions

Stock Purchase Acquisition – Telecorp Products, Inc., February 28, 2014

On February 28, 2014, the Company entered into a Stock Purchase Agreement (the “Telecorp Purchase Agreement”) with Troy Holdings International, Inc., an Ontario Canada corporation (“Troy Holdings”), Telecorp Products, Inc. a Michigan corporation and Troy, Inc., a shareholder and the sole stockholder of Telecorp. Pursuant to the Telecorp Purchase Agreement, the Company purchased 100% of the outstanding shares of Telecorp from Troy Holdings, for an aggregate purchase price of $302,000 (the “Purchase Price”). The Purchase Price was payable as follows:

(a)

The Company paid Troy Holdings $200,000 at the Closing (the “Cash Consideration”) of the Telecorp Purchase Agreement; and

(b)

The Company provided Troy Holdings with a Promissory Note in the amount of $102,000 (the “Telecorp Note”), as adjusted from an original $120,000 by $18,000 of liabilities acquired in excess of the agreed upon limit of $50,000 of liabilities, which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

Additionally, the Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note. As a result of the Closing, Telecorp became a wholly-owned subsidiary of the Company.

Telecorp developed and sells software to effectively operate contact centers. Telecorp’s solutions work with equipment from the giants of the computer telephony industry, such as Avaya, Cisco and Nortel Networks. In connection with the Stock Purchase Agreement, the shareholders of Telecorp and the Company entered into a Non-Disclosure/Non-Compete Agreement, pursuant to which the shareholders of Telecorp and the Company, each agreed to not for a period of one (1) year, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, any information in any way relating to the Proprietary Property, in competition with the business of the Company, and pursuant to the agreement, the shareholders of Telecorp agreed not to compete against the Company for one (1) year from the closing of the acquisition.

This acquisition was accounted for as a business combination under the purchase method of accounting, given that substantially all of the Company’s assets and ongoing operations were acquired. The purchase resulted in $428,577 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:

	February 28,
	2014
Consideration:
Cash paid at, and prior to, closing	$	200,000
Seller financed note payable(1)(2)		120,000
Excess liability adjustment to seller financed note payable(3)		(18,000	)
		302,000
Fair value of identifiable liabilities acquired:
Accounts payable and accrued expenses		43,500
Deferred revenue		162,016
Line of credit		24,500
Fair value of total consideration exchanged	$	532,016
Fair value of identifiable assets acquired assumed:
Cash	$	736
Other current assets		823
Technology-based intangible assets		72,490
Trade name		29,390
Total fair value of assets assumed		117,189
Consideration paid in excess of fair value (Goodwill)(4)	$	428,577

______________

⁽¹⁾Consideration included an unsecured $120,000 seller financed note payable (“Telecorp Note”), which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

⁽²⁾The fair value of the seller financed note in excess of the $102,000 principal balance attributable to the deferred payment terms will be amortized to interest expense over the deferred financing period.

⁽³⁾The Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note.

⁽⁴⁾The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.

Management believes the product line of Telecorp, customer base and other assets acquired will enable the Company to enhance their business model and strengthen its future cash flows to fund operations and take advantage of additional growth opportunities.

The unaudited supplemental pro forma results of operations of the combined entities had the dates of the acquisitions been January 1, 2014 or January 1, 2013 are as follows:

	Combined Pro Forma:
		For the three months ended March 31,
		2014			2013
Revenue:		$	341,255		$	358,741
Expenses:
Operating expenses			2,757,750			590,650
Net operating income (loss)			(2,416,495	)		(231,909	)
Other income (expense)			(1,309,466	)		(201,577	)
Net income (loss)		$	(3,725,961	)	$	(433,486	)
Weighted average number of common shares
Outstanding – basic and fully diluted			3,615,727,230			1,283,603,738
Net income (loss) per share – basic and fully diluted		$	(0.00	)	$	(0.00	)