EX-99 2 dex99116.htm Exhibit 99

Exhibit 99.1

 

 

Revisions to Quarterly Report for the quarter ended March 31, 2006

1. In our consolidated balance sheets, we revised the following numeric values:

Description

Period

Corrected Value

     

Additional paid-in capital

March 31, 2006

$ 25,940,941

Accumulated (deficit) during development stage

December 31, 2005

34,010,063

Accumulated (deficit) during development stage

March 31, 2006

(34,661,173)

     
     

In addition, we changed the following section of the consolidated balance sheets, with the corrected values shown in bold:

STOCKHOLDERS' EQUITY (DEFICIT):

 

December 31, 2005

 

 

March 31, 2006

Preferred stock, $0.0001 par value; none and 10,000,000 shares authorized;

 

 

none issued or outstanding at December 31, 2005 and March 31,

 

 

 

 

 

2006 respectively

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.0001 par value; 493,000,000 shares authorized and

 

 

330,458,313 shares issued and outstanding at December 31, 2005; $.0001 par value, 493,000,000 shares authorized at

 

 

 

 

 

March 31, 2005 and 340,813,359 shares issued and outstanding at March 31, 2006

$ 33,047

$ 34,081

 

 

 

 

 

2. In our statements of operations, we revised the following numeric values:

Description

Period

Corrected Value

     

Hardware and software sales

Cumulative from inception

$ 94,100

Maintenance and support fees

Three months ended March 31, 2005

2,837

Maintenance and support fees

Cumulative from inception

18,791

Total Revenue

Three months ended March 31, 2005

2,837

Total Revenue

Cumulative from inception

117,641

Cost of Revenues

Three months ended March 31, 2005

2,140

Cost of Revenues

Cumulative from inception

76,837

Gross Profit

Cumulative from inception

40,804

General and administrative

Cumulative from inception

23,053,820

Selling and marketing

Cumulative from inception

2,304,589

Research and development

Cumulative from inception

6,210,393

Total operating expenses

Cumulative from inception

31,568,802

Loss from operations

Cumulative from inception

(31,527,998)

Interest expense

Cumulative from inception

(2,976,258)

Total other income (expenses)

Cumulative from inception

(3,379,389)

Loss before benefit for income taxes and minority interest

Cumulative from inception

(34,907,387)

Loss before minority interest

Cumulative from inception

(34,907,387)

Net Loss

Cumulative from inception

$ (34,661,173)

Weighted average number of common shares outstanding

Three months ended March 31, 2006

338,795,677

Weighted average number of common shares outstanding

Cumulative from inception

144,912,102

3. In our statements of cash flows, we revised the following numeric values:

 

Description

Period

Corrected Value

     

Net Loss

Three months ended March 31, 2005

$ (1,170,481)

Net Loss

Cumulative from inception

(34,661,173)

Depreciation and amortization

Three months ended March 31, 2005

4,875

Depreciation and amortization

Cumulative from inception

139,068

Stock issued or to be issued, in lieu of cash for professional services

Three months ended March 31, 2005

86,394

Stock issued or to be issued, in lieu of cash for professional services

Cumulative from inception

8,701,195

Stock options and warrants issued in lieu of cash for professional services and compensation

Three months ended March 31, 2005

184,649

Stock options and warrants issued in lieu of cash for professional services and compensation

Three months ended March 31, 2006

103,470

Stock options and warrants issued in lieu of cash for professional services and compensation

Cumulative from inception

5,282,909

Loss on write-down of Inventory

Cumulative from inception

13,822

Accounts receivable (net)

Three months ended March 31, 2005

50

Inventory

Three months ended March 31, 2005

(206)

Inventory

Cumulative from inception

(166,299)

Prepaid expenses

Three months ended March 31, 2005

(4,006)

Prepaid expenses

Cumulative from inception

22,725

Promissory notes

Three months ended March 31, 2005

37,268

Promissory notes

Three months ended March 31, 2006

41,140

Promissory notes

Cumulative from inception

1,159,006

Accounts payable and accrued expenses

Three months ended March 31, 2005

(114,385)

Accounts payable and accrued expenses

Three months ended March 31, 2006

15,988

Accounts payable and accrued expenses

Cumulative from inception

2,417,163

Accrued compensation

Three months ended March 31, 2005

119,312

Accrued compensation

Three months ended March 31, 2006

4,374

Accrued compensation

Cumulative from inception

1,579,782

Deferred revenue

Three months ended March 31, 2005

(2,837)

Deferred revenue

Cumulative from inception

9,705

Due to stockholders and officers

Three months ended March 31, 2005

(17,687)

Due to stockholders and officers

Cumulative from inception

266,260

Convertible notes

Three months ended March 31, 2005

435,041

Convertible notes

Cumulative from inception

2,297,413

Net cash used in operating activities

Three months ended March 31, 2005

(442,025)

Net cash used in operating activities

Three months ended March 31, 2006

(357,840)

Net cash used in operating activities

Cumulative from inception

(7,310,988)

Net proceeds from stock to be issued

Three months ended March 31, 2005

1,000

Net proceeds from stock to be issued

Cumulative from inception

546,500

Repayment of promissory note

Cumulative from inception

(158,000)

Proceeds from issuance of debentures and promissory notes

Three months ended March 31, 2005

441,000

Proceeds from issuance of debentures and promissory notes

Cumulative from inception

3,126,492

Net cash provided by financing activities

Three months ended March 31, 2005

442,000

Net cash provided by financing activities

Three months ended March 31, 2006

362,000

Net cash provided by financing activities

Cumulative from inception

7,865,565

NET CHANGE IN CASH

Cumulative from inception

11,032

CASH, END OF PERIOD

Cumulative from inception

11,032

Issuance of stock in exchange for notes payable

Three months ended March 31, 2005

461,250

Issuance of stock in exchange for notes payable

Cumulative from inception

1,885,663

Stock issued as a reduction of the liability for stock to be issued

Three months ended March 31, 2005

1,407,920

Stock issued as a reduction of the liability for stock to be issued

Cumulative from inception

4,147,998

 

4. In Note B. Summary of Significant Accounting Policies we deleted the text and added:

Share-Based Payment

Effective January 1, 2006 the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"), which requires the measurement and recognition of compensation cost at fair value for all share-based payments including stock options. The adoption of SFAS 123R did not have an impact on the Company’s financial position or results of operations as the Company had previously followed the fair value method under SFAS No. 123.

5. Also in Note B. Recent Accounting Pronouncements we deleted the text and added:

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140" which is effective for fiscal years beginning after September 15, 2006. This statement was issued to clarify the application of FASB Statement No. 133 to beneficial interests in securitized financial assets and to improve the consistency of accounting for similar financial instruments, regardless of the form of the instruments. The provisions of SFAS 155 are not expected to have an impact recorded at adoption.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140", which is effective for fiscal years beginning after September 15, 2006. this statement was issued to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. We have evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.

6. In Note C. Inventory, we deleted the text:

The Company assembles finished goods for specific sale on approval contracts. At March 31, 2006, all finished goods had been deployed at multiple sites for three divisions of one customer and the Company was awaiting customer acceptance.

7. In Note F. Convertible Notes with Detachable Warrants, we added the following text in bold:

In the period January through December 2005, the Company entered into agreements to issue convertible notes with detachable warrants in the amount of $1,627,507. The convertible notes accrue simple interest at an annual rate of either 1.47% or 5.0% and convert any time between three and six months of the date of the agreement or upon the automatic conversion date, which ever comes first. The Company elected to allow certain investors to accelerate the conversions. The notes converted or are to be converted into approximately 30,244,538 shares. During 2005, we issued approximately 25,065,372 of these shares pursuant to conversions under these agreements. The detachable warrants issued during 2005 were valued under a Black-Scholes model and a debt discount of approximately $500,000 was recorded and added to paid in capital. During the three months ended March 31, 2006, the debt discount related to the value of the warrants and amortized to interest was approximately $30,450. In addition, a beneficial conversion value was recognized as additional debt discount and paid-in capital was added in the approximate amount of $910,000. For the three months ended March 31, 2006, the debt discount related to the beneficial conversion feature of the security and amortized to interest expense was approximately $52,400.

8. In Note K. Commitments and Contingencies in the Commitment section we added the text in bold:

On March 9, 2006, the Company entered into a contract with Robert B. Nelson appointing him Vice President, Worldwide Sales, for QoVox, Inc. Mr. Nelson’s compensation is comprised of a base salary with incentives for reaching specific gross sales and field trial goals; options to purchase 50,000 shares of the Company’s unregistered stock. The stock options to purchase 50,000 shares agreement has not been issued and no compensation was paid by March 31, 2006.

On March 13, 2006, the Company entered into a contract with Michael West appointing him Senior Vice President, National Accounts, for QoVox, Inc. Mr. West’s compensation is comprised of a base salary with incentives for reaching specific sales goals; a stock grant of 1,000,000 shares of the Company’s unregistered stock, with 500,000 shares due upon execution of Mr. West’s contract and 500,000 shares due upon the Company’s receipt of new revenue. The initial stock grant of 500,000 shares has not been issued and no compensation was paid by March 31, 2006.

9. Also in Note K. Commitments and Contingencies in the Contingencies section we added the following paragraph at the end of the section:

In some of its standard Stock Purchase Agreements, the Company granted purchasers stock registration rights including a 2% monthly penalty for delayed registration. As of March 31, 2006, the Company has not met some of the registration requirements. While the Company intends to proceed with registration, legal counsel has advised the Company that the penalty is against public policy and is not payable or enforceable.

10. In Note M. Net Loss per Common Share we updated the table with the corrected values in bold:

 

 

For the three

Months Ended

March 31,

2005

(unaudited)

For the three

Months Ended

March 31,

2006

(unaudited)

   

Cumulative from

Inception

(January 13, 1999)

to

March 31,

2006

(unaudited)

         

Net Loss (numerator)

$ (1,170,481) $ (651,110)

$ (34,661,173)

 

Weighted Average Shares (denominator)

276,550,932 338,795,677

144,912,102

 

Basic and diluted net loss per common share

$ (0.00) $ (0.00)

$(0.24)

 

11. In Item 2. Plan of Operations in the subsection Liquidity and Capital Resources we changed the Warrant Expiration date for Mr. Martin J. Hennessey to 3/23/08.

 

12. Also in this section we added the following text following the table Subscription Agreements and Associated Warrants issued in the period January through March 31, 2006:

In some of its standard Stock Purchase Agreements, the Company granted purchasers stock registration rights including a 2% monthly penalty for delayed registration. As of March 31, 2006, the Company has not met some of the registration requirements. While the Company intends to proceed with registration, legal counsel has advised the Company that the penalty is against public policy and is not payable or enforceable.