f10q0612a1_voiceserve.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-51882

VOICESERVE, INC.

(Exact name of registrant as specified in its charter)

Delaware		98-0597288
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Grosvenor House, 1 High Street Middlesex England		HA8, 7TA
(Address of principal executive offices)		(Zip Code)

44 208 136 6000

(Registrant’s telephone number, including area code)

N/A

(Former Name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x

There were 49,385,198 shares of the Registrant’s Common Stock outstanding as of August 7, 2012.

EXPLANATORY NOTE

VoiceServe, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amendment”) to the Company’s quarterly report on Form 10-Q for the period ended June 30, 2012 (the “Original Form 10-Q”), filed with the Securities and Exchange Commission on August 20, 2012 (the “Original Filing Date”), to revise the following disclosures in Item 1 “Financial Statements” and Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I “Financial Information”:

We had originally applied a 50% discount to the closing price of our common stock that was used to determine the fair value of 3,000,000 shares issued on April 20, 2012 to officers and directors of the Company. After additional review and analysis, we now believe that this discount should not have been applied. Accordingly, our records were adjusted to reflect the additional $486,000 in stock based compensation.

We had previously not accounted for 1,800,000 shares granted but not issued to a member of the Company’s Board of Directors and to two consultants for prior services rendered of the Company on April 26, 2012. The management now believes that the issuance should be accounted for in the quarter ending June 30, 2012. The fair value of the stock was $383,400 and has been expensed for the period ended June 30, 2012.

Although this Amendment supersedes the Original Form 10-Q in its entirety, this Amendment amends and restates only Item 1 and Item 2 of Part I. No other information in the Original Form 10-Q is amended hereby. This Amendment speaks as of the Original Filing Date and does not reflect any events that may have occurred subsequent to the Original Filing Date. In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, as a result of this Amendment, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Form 10-Q have been re-executed and re-filed as of the date of this Amendment and are included as exhibits hereto.

VOICESERVE, INC.

QUARTERLY REPORT ON FORM 10-Q/A

JUNE 30, 2012

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
		PAGE
Item 1.	Financial Statements (Unaudited)	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

PART II - OTHER INFORMATION

Item 6.	Exhibits	6

SIGNATURES		7

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to VoiceServe, Inc. “SEC” refers to the Securities and Exchange Commission.

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

VOICESERVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

	June 30,			March 31,
	2012			2012

Assets	(Restated)

Current assets:
Cash and cash equivalents	$	316,691		$	315,774
Accounts receivable, net of allowance
for doubtful accounts of $190,388 and $89,662, respectively		150,764			106,691
Prepaid expenses and other current assets		14,173			27,714

Total current assets		481,628			450,179

Property and equipment, net of accumulated depreciation
of $68,351 and $68,573 respectively		10,541			7,927
Intangible assets, net of accumulated amortization of
$1,025,417 and $967,917, respectively		1,837,624			1,895,124

Total assets	$	2,329,793		$	2,353,230

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable and accrued expenses payable	$	300,594		$	430,535
Deferred software license fees and support		228,550			181,503
Loans payable to related parties		37,782			38,308
Liability for common stock purchase warrants		678,183			1,066,808

Total current liabilities		1,245,109			1,717,154

Stockholders' equity:
Preferred stock, $.001 par value; authorized
10,000,000 shares, none issued and outstanding		-			-
Common stock, $.001 par value; authorized
100,000,000 shares, issued and outstanding
49,385,198 and 44,585,198 shares, respectively		49,385			44,585
Additional paid-in capital		7,983,607			6,742,662
Deficit		(6,903,712	)		(6,085,427	)
Accumulated other comprehensive loss		(44,596	)		(65,744	)

Total stockholders' equity		1,084,684			636,076

Total liabilities and stockholders' equity	$	2,329,793		$	2,353,230

See notes to unaudited consolidated financial statements.

F-1

VOICESERVE, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

	Three Months Ended June 30,
	2012			2011
Operating revenues:	(Restated)
Software license fees	$	1,381,118		$	1,172,654
Revenues from communications airtime and devices		-			2

Total operating revenues		1,381,118			1,172,656

Cost of operating revenues:
Software license fees		776,868			736,766
Communications air time		-			-

Total cost of operating revenues		776,868			736,766

Gross profit		604,250			435,890

Operating expenses:
Selling, general and administrative expenses
(including stock-based compensation of $1,245,745
and $999,645, respectively)		1,811,227			1,550,526

Total operating expenses		1,811,227			1,550,526

Loss from operations		(1,206,977	)		(1,114,636	)

Income/(expense) from revaluation of liability for common stock purchase warrants		388,625			(450,954	)
Interest income		67			20
Interest expense		-			(10	)

Income (loss) before income taxes		(818,285	)		(1,565,580	)

Income taxes (benefit)		-			-

Net loss	$	(818,285	)	$	(1,565,580	)

Net loss per share - basic and diluted	$	(0.02	)	$	(0.03	)

Weighted average number of shares
outstanding - basic and diluted		49,385,198			40,289,425

Comprehensive loss
Net loss		(818,285)			(1,565,580	)
Foreign exchange translation adjustment		21,148			(3,690	)
Comprehensive loss	$	(797,137)		$	(1,569,270	)

See notes to unaudited consolidated financial statements.

F-2

VOICESERVE, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

										Accumulated
	Common Stock,				Additional					Other			Total
	$.001 par value				Paid-In					Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Income (Loss)			Equity

Balances,
March 31, 2011		38,354,429	$	38,354	$	5,482,281	$	(3,766,212	)	$	(84,527	)	$	1,669,896

Private placement of shares
and warrants,
less $41,930 costs and
less $214,122
attributable to warrants
classified as liabilities		3,830,769		3,831		238,117		-			-			241,948

Shares issued for services		2,400,000		2,400		861,600		-			-			864,000

Stock options expense		-		-		160,664		-			-			160,664

Foreign currency
translation
adjustment		-		-		-		-			18,783			18,783

Net loss		-		-		-		(2,319,215	)		-			(2,319,215	)

Balances,
March 31, 2012		44,585,198		44,585		6,742,662		(6,085,427	)		(65,744	)		636,076

Unaudited:

Shares issued to the Company's chairman and
to the Company's chief executive officer
for services		2,400,000		2,400		624,000		-			-			626,400

Shares issued to non-management directors
of the Company
for services		1,200,000		1,200		283,200		-			-			284,400

Shares issued to consultants		1,200,000		1,200		254,400								255,600

Stock option expense		-		-		79,345		-						79,345

Foreign currency
translation
adjustment		-		-		-		-			21,148			21,148

Net loss		-		-		-		(818,285	)		-			(818,285	)

Balances,
June 30, 2012 ((Restated)		49,385,198	$	49,385	$	7,983,607	$	(6,903,712	)	$	(44,596	)	$	1,084,684

See notes to unaudited consolidated financial statements.

F-3

VOICESERVE, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
	2012			2011
Cash flows from operating activities:	(Restated)
Net income (loss)	$	(818,285)		$	(1,565,580	)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Provision for doubtful accounts		105,779			-
Stock-based compensation		1,245,745			999,645
Depreciation		464			639
Amortization		57,500			57,500
(Income) expense from revaluation of liability for common stock purchase warrants		(388,625	)		450,954
Changes in operating assets and liabilities:
Accounts receivable, net		(149,852	)		(47,351	)
Prepaid expenses and other current assets		13,541			(5,032	)
Accounts payable and accrued expenses payable		(129,941	)		(50,184	)
Deferred software license fees		47,047			20,342

Net cash used in operating activities		(16,627	)		(139,067	)

Cash flows from investing activities:
Property and equipment additions		(4,886	)		-

Net cash provided by (used in) investing activities		(4,886	)		-

Cash flows from financing activities:
Proceeds from sales of common stock, net of offering costs of $41,930		-			456,070
Increase (decrease) in loans payable to related parties		(526	)		23

Net cash provided by (used in) financing activities		(526	)		456,093

Effect of exchange rate changes on cash and cash equivalents		22,956			(3,734	)

Increase (decrease) in cash and cash equivalents		917			313,292

Cash and cash equivalents, beginning of period		315,774			141,739

Cash and cash equivalents, end of period	$	316,691		$	455,031

Supplemental disclosures of cash flow information:

Interest paid	$	-		$	10

Income taxes paid	$	-		$	-

See notes to unaudited consolidated financial statements.

F-4

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

VoiceServe, Inc. (“VoiceServe”) was incorporated in the State of Delaware on December 9, 2005 under the name 4306, Inc. On February 20, 2007, VoiceServe acquired 100% of the issued and outstanding stock of VoiceServe Limited (“Limited”), a corporation incorporated in the United Kingdom on March 21, 2002, in exchange for 20,000,000 shares of VoiceServe common stock (representing 100% of the issued and outstanding shares of VoiceServe after the exchange). From October 1, 2006 to February 20, 2007, Limited owned 100% of the issued and outstanding shares of VoiceServe. Accordingly, this acquisition was treated as a combination of entities under common control and was accounted for in a manner similar to pooling of interests accounting.

On January 15, 2008, VoiceServe acquired 100% of the issued and outstanding stock of VoipSwitch Inc. (“VoipSwitch”), a corporation incorporated in the Republic of Seychelles on May 9, 2005 (see Note 4). VoipSwitch licensed software systems (online telephony management applications) to customers online. Generally, the license of a system includes remote installation and initial configuration of the main system, training relating to the use of the system and modules, and 1 year technical support.

VoiceServe has had no operations; VoiceServe is a holding company for its wholly owned subsidiaries Limited (since February 20, 2007) and VoipSwitch (since January 15, 2008). In 2010, Voiceserve formed two additional subsidiaries: VoipSwitch Inc., a Delaware corporation, and VoipSwitch AG, a Swiss corporation. VoipSwitch Inc. was formed to provide a future North American presence and has had no significant operations to date. VoipSwitch AG was formed to coordinate sales and billing activities from Switzerland and commenced operations in the three months ended December 31, 2010.

Limited is engaged in the telephone communications business from its London, United Kingdom office. Limited offers its software to large enterprises and carriers. The software allows communication through the Company’s exchange via the internet. Since January 15, 2008, Limited has also licensed VoipSwitch software systems.

F-5

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 2 – INTERIM FINANCIAL STATEMENTS

The unaudited financial statements as of June 30, 2012 and for the three months ended June 30, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2012 and the results of operations and cash flows for the three months ended June 30, 2012 and 2011. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three month period ended June 30, 2012 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending March 31, 2013. The balance sheet at March 31, 2012 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended March 31, 2012 as included in our report on Form 10-K filed July 16, 2012.

NOTE 3 – RESTATEMENT

During November 2012, the Company identified an error in the accounting for common shares issued for services during April 2012. The Company incorrectly applied a 50% discount to the market price of the Company’s common stock when determining the fair value of the common shares.In addition, the Company discovered an aggregate of 1,800,000 common shares granted for services during April 2012 that were not accounted for. This resulted in an adjustment to the previously reported amounts in the consolidated financial statements as of June 30, 2012 and for the three months then ended as restated in this Form 10Q/A.

The correction impacts the consolidated balance sheet as of June 30, 2012 and the consolidated statements of operations and cash flows for the three months ended June 30, 2012 which are restated herein to reflect the cumulative effect of the errors described above. The tables below summarize the impact of this restatement:

	June 30, 2012
Consolidated Balance Sheet:	As Reported			Adjustments			As Restated
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares, issued and outstanding
49,385,198 and 44,585,198 shares, respectively	$	47,585		$	1,800		$	49,385
Additional paid-in capital		6,702,007			1,281,600			7,983,607
Accumulated deficit	$	(5,620,312	)	$	(1,283,400	)	$	(6,903,712	)

	Three Months Ended June 30, 2011
Consolidated Statement of Operations and Comprehensive Income (Loss):	As Reported			Adjustments			As Restated
Operating expenses:
Selling, general and administrative expenses	$	959,827		$	851,400		$	1,811,227
Total operating expenses		959,827			851,400			1,811,227

Loss from operations		(355,577	)		(851,400	)		(1,206,977	)

Net income (loss)	$	33,115		$	(851,400	)	$	(818,285	)

Net loss per share - basic and diluted	$	0.00		$	(0.02	)	$	(0.02	)

Weighted average number of shares
outstanding - basic and diluted		46,958,824			2,426,374			49,385,198

Comprehensive income (loss):
Net income (loss)		33,115			(851,400	)		(818,285	)
Foreign exchange translation adjustment		21,290			-			21,290
Comprehensive loss	$	54,263		$	(851,400	)	$	(796,995	)

	Three Months Ended June 30, 2011
Consolidated Statement of Cash Flows:	As Reported			Adjustments			As Restated
Cash flows from operating activities:
Net income (loss)	$	33,115		$	(851,400	)	$	(818,285	)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Stock-based compensation		394,345			851,400			1,245,745
Net cash used in operating activities	$	(16,627	)	$	-		$	(16,627	)

F-6

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	Principles of Consolidation

The consolidated financial statements include the accounts of VoiceServe and its wholly owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

(b)	Basis of presentation

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”).

The financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as of June 30, 2012, the Company had working capital of $85,298. Further, since inception, the Company has incurred losses of $5,620,312. These factors raise substantial doubt as to the Company’s ability to continue as a going concern.

F-7

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to pursue new customers and certain acquisition prospects to attain profitable operations. However, there is no assurance that the Company will be successful in accomplishing these objectives. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

(c)	Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

(d)	Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses payable, and loans payable to related parties. The fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments.

(e)	Foreign Currency Translation

The functional currency of VoiceServe is the United States dollar. The functional currency of Limited is the United Kingdom pound sterling (“£”). The functional currency of VoipSwitch is the United States dollar. The functional currency of VoipSwitch AG is the Swiss Franc (“chf”). The reporting currency of the Company is the United States dollar. Limited’s assets and liabilities are translated into United States dollars at period-end exchange rates ($1.57065 and $1.586475 at June 30, 2012 and March 31, 2012, respectively). Limited’s revenue and expenses are translated at weighted average exchange rates ($1.579953 and $1.631476 for the three months ended June 30, 2012 and 2011, respectively). VoipSwitch AG’s assets and liabilities are translated into United States dollars at the period end exchange rates ($1.055242 and $1.091597 at June 30, 2012 and March 31, 2012, respectively). VoipSwitch AG’s revenue and expenses are translated into United States dollars at the weighted average exchange rate ($1.06928 and $1.152158 for the three months ended June 30, 2012 and 2011, respectively,). Translation adjustments are included in accumulated other comprehensive income in the stockholders’ equity section of the balance sheets.

Foreign currency exchange transaction losses (which are included in selling general and administrative expenses) were $1,927 and $889 for the three months ended June 30, 2012 and 2011, respectively.

F-8

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

(f)	Cash and Cash Equivalents

The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.

(g)	Property and Equipment, Net

Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using an accelerated declining balance method over the estimated useful lives of the respective assets.

(h)	Intangible Assets

Intangible assets, net are stated at their estimated fair values at date of acquisition less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.

(i)	Goodwill and Intangible Assets with Indefinite Lives

The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually. When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value. If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced and an impairment loss is recorded.

(j)	Long-lived Assets

The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the asset’s carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.

F-9

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

(k)	Revenue Recognition

Revenues from licenses of software are recognized upon delivery of the software when persuasive evidence of an arrangement exists, the fee is fixed or determinable, and collectibility is probable. The portion of the fee allocated to post contract customer support and services is recognized ratably over the period of the agreed support and services.

(l)	Advertising

Advertising costs, which include sales promotion costs, are expensed as incurred and amounted to $87,214 and $76,634 for the three months ended June 30, 2012 and 2011, respectively.

(m)	Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation”.

In addition to requiring supplemental disclosures, ASC 718, Compensation – Stock Compensation, addresses the accounting for share-based payment transactions in which a company receives goods in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. FASB ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.

References to the issuances of restricted stock refer to stock of a public company issued in private placement transactions to individuals who are eligible to sell all or some of their shares of restricted Common Stock pursuant to Rule 144 promulgated under the Securities Act of 1933 (“Rule 144”), subject to certain limitations. In general, pursuant to Rule 144, a stockholder who is not an affiliate and has satisfied a six-month holding period may sell all of his restricted stock without restriction, provided that the Company has current information publicly available. Rule 144 also permits, under certain circumstances, the sale of restricted stock, without any limitations, by a non-affiliate of the Company that has satisfied a one- year holding period.

F-10

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

(n)	Income Taxes

Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

(o)	Net Income (Loss) per Share

Basic net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the three months ended June 30, 2012 and 2011, the diluted net loss per share calculation excluded the effect of stock options outstanding and exercisable into a total of 2,403,000 and 1,903,000 shares of common stock, respectively, and warrants outstanding and exercisable into a total of 3,295,385 and 3,295,385 shares of common stock, respectively.

NOTE 4 – ACQUISITION OF VOIPSWITCH INC.

On January 15, 2008, VoiceServe closed an Acquisition Agreement with VoipSwitch Inc. (“VoipSwitch”) whereby VoiceServe acquired all VoipSwitch issued and outstanding ordinary shares as well as all of VoipSwitch’s assets, including customer orders and intangible assets, for total consideration of $3,000,000 ($450,000 cash, $150,000 notes payable due on demand, $600,000 notes payable in total monthly installments of $50,000 per month for 12 months, and 3,750,000 shares of VoiceServe common stock valued at $0.48 per share or $1,800,000).

Payment of the monthly installments of the $600,000 notes payable was contingent upon and limited each month to the future monthly net income of VoipSwitch. Accordingly, pursuant to SFAS No. 141, this $600,000 “contingent consideration” portion of the $3,000,000 total purchase price was not included in the initial recorded cost of the acquisition or the recorded notes payable. As payments of the $600,000 notes payable were made, such paid amounts were added to goodwill.

F-11

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

The estimated fair values of the identifiable net assets of VoipSwitch at January 15, 2008 (date of acquisition) consisted of:

Cash and cash equivalents	$	6,682
Developed software (for licensing to customers)		2,000,000
In-place contracts and customer list		100,000
Trade name		100,000
Accounts payable and accrued expenses		(2,999	)
Deferred software license fees		(48,474	)

Identifiable net assets	$	2,155,209

Goodwill of $244,791 (excess of the $2,400,000 consideration, excluding the $600,000 contingent consideration, over the $2,155,209 identifiable net assets) was recorded at the acquisition date January 15, 2008. In February and March 2008, $100,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill. In the year ended March 31, 2009, an additional $99,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill. In the three months ended June 30, 2009, an additional $88,000 of the $600,000 “contingent consideration” notes payable was paid and added to goodwill.

On December 7, 2010, pursuant to a verbal agreement on October 19, 2010, Voiceserve issued a total of 2,250,000 SEC Rule 144 restricted shares of its common stock to the three sellers of VoipSwitch in full and final satisfaction of debt totaling $463,000, consisting of the $150,000 demand note payable and the remaining $313,000 “contingent consideration” potential amount due the three sellers. The $131,250 excess of the $281,250 estimated fair value of the shares, which was calculated based on the October 19, 2010 nearest day closing trading price of $0.25 per share and a 50% restricted stock discount (2,250,000 shares x $0.125 [50% discount applied to $0.25 per share price] per share = $281,250), over the $150,000 demand note payable was added to goodwill.

F-12

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 5 – INTANGIBLE ASSETS, NET

Intangible assets, net, consisted of:

Developed software (for licensing to customers)	$	2,000,000	$	2,000,000
In-place contracts and customer list		100,000		100,000
Trade name		100,000		100,000
Goodwill		663,041		663,041

Total		2,863,041		2,863,041

Accumulated amortization		1,025,417		967,917

Intangible assets, net	$	1,837,624	$	1,895,124

The developed software, in-place contracts and customer list, and trade name are amortized using the straight-line method over their estimated economic lives (ten years for the developed software and trade name; five years for the in-place contracts and customer list). Goodwill is not amortized.

For the three months ended June 30, 2012 and 2011, amortization of intangible assets expense was $57,500. $50,000 was included in cost of software license fees and $7,500 was included in selling, general and administrative expenses.

Expected future amortization expense for acquired intangible assets as of June 30, 2012 follows:

Year ending March 31,	Amount

2013		168,333
2014		210,000
2015		210,000
2016		210,000
2017		210,000
Thereafter		166,250

Total	$	1,174,583

F-13

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 6 – DEFERRED SOFTWARE LICENSE FEES AND SUPPORT

The licenses of the VoipSwitch systems generally include certain post contract customer support (“PCS”). In accordance with Accounting Standards Codification (“ASC”) Topic 985-605-25, “Software Revenue Recognition”, the Company allocates a portion of the license fees to PCS based on the vendor-specific objective evidence of fair value (generally $1000 for 1 year technical support) of the PCS and recognizes the PCS revenues ratably over the period of the agreed PCS.

Deferred software license fees (attributable to PCS) for the three months ended June 30, 2012 and 2011 were accounted for as follows:

	2012			2011
Balance, beginning of period	$	181,503		$	188,197
Additions		121,234			61,967
Recognized as revenue		(74,187	)		(41,625	)

Balance, end of period	$	228,550		$	208,539

NOTE 7 – LOANS PAYABLE TO RELATED PARTIES

Loans payable to related parties consisted of:

	June 30, 2012		March 31, 2012
Due chairman of the board of directors	$	22,596	$	22,840
Due chief operational officer		15,107		15,389
Due former chief financial officer		79		79

Total	$	37,782	$	38,308

The loans payable to related parties are all non-interest bearing, unsecured, and due on demand.

F-14

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 8 – LIABILITY FOR COMMON STOCK PURCHASE WARRANTS

As part of the private placement which closed on May 26, 2010, the Company issued a total of 1,380,000 warrants to certain accredited investors. Each warrant entitles the holder to purchase one share of common stock at a price of $0.50 per share (the “Exercise Price”) to May 26, 2015.

As part of the private placement which closed on June 6, 2011 (see Note 9), the Company issued a total of 1,915,385 warrants to certain accredited investors. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share (the “Exercise Price”) to June 6, 2014.

The Exercise Price of the warrants is to be adjusted in the event of any stock splits or stock dividends or in the event that the Company issues or sells any shares of common stock, options, warrants or any convertible instruments (other than exempted issuances) at an effective price per share which is less than the Exercise Price. Accordingly, in accordance with EITF Issue No. 07-05, "Determining whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock", the Company reflected the $457,608 fair value of the warrants issued on May 26, 2010 (calculated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.45 per share, exercise price of $0.50 per share, risk-free interest rate of 2.06%, term of five years, and expected volatility of 100%) and the $214,122 fair value of the warrants issued on June 6, 2011 (calculated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.15 per share for the 1,311,539 warrants sold May 6, 2011 and $0.318 per share for the 603,846 warrants sold June 6, 2011, exercise price of $0.30 per share, risk free interest rate of 0.96% for the 1,311,539 warrants sold May 6, 2011 and 0.74% for the 603,846 warrants sold June 6, 2011, term of 3 years, and expected volatility of 100%) as a liability and remeasures the fair value of the warrants each quarter, adjusts the liability balance, and reflects changes in operations as “income (expense) from revaluation of liability for common stock purchase warrants”.

At June 30, 2012 and March 31, 2012, the fair values of the warrants (calculated using the Black-Scholes option pricing model with the following assumptions at June 30, 2012: stock price of $0.25 per share, risk free rate interest rates ranging from 0.32% to 0.40%, terms ranging from 1.93 years to 2.90 years, and expected volatility of 191% and at March 31, 2012: stock price of $0.37 per share, risk-free interest rates ranging from 0.37% to 0.55%, terms ranging from 2.21 years to 3.15 years, and expected volatility of 191%) consisted of:

F-15

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

	June 30, 2012				March 31, 2012
	Common				Common
	Shares		Fair		Shares		Fair
	Equivalent		Value		Equivalent		Value
Warrants issued May 26, 2010,
exercise price of $0.50 per share, expiration
date May 26, 2015.		1,380,000	$	295,873		1,380,000	$	457,332

Warrants issued June 6, 2011,
exercise price of $0.30 per share, expiration
date June 6, 2014.		1,915,385		382,310		1,915,385		609,476

Totals		3,295,385	$	678,183		3,295,385	$	1,066,808

F-16

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

Below is a reconciliation of the change in the fair values of the warrants from May 26, 2010 to June 30, 2012.

	Common
	Shares		Fair
	Equivalent		Value
Issuance to accredited investors in
conjuction with common stock in private
placement on May 26, 2010 (see Note 9)		1,380,000	$	457,608
Revaluation credited to operations		-		(121,854	)
Balance, June 30, 2010		1,380,000		335,754
Revaluation credited to operations		-		(33,120	)
Balance, September 30, 2010		1,380,000		302,634
Revaluation credited to operations		-		(116,196	)
Balance, December 31, 2010		1,380,000		186,438
Revaluation credited to operations		-		(34,224	)
Balance, March 31, 2011		1,380,000		152,214
Issuance to accredited investors in
conjuction with common stock in private
placement which closed June 6, 2011
(see Note 9)		1,915,385		214,122
Revaluation credited to operations		-		450,954
Balance, June 30, 2011		3,295,385		817,290
Revaluation credited to operations		-		(243,143	)
Balance,September 30, 2011		3,295,385		574,147
Revaluation credited to operations		-		(167,989	)
Balance, December 31, 2011		3,295,385		406,158
Revaluation charged to operations		-		660,650
Balance, March 31, 2012		3,295,385		1,066,808
Revaluation credited to operations		-		(388,625	)
Balance, June 30, 2012		3,295,385	$	678,183

NOTE 9 – STOCKHOLDERS’ EQUITY

Common stock issuances

On May 6, 2011, the Company closed on the sale to certain accredited investors of a total of 2,623,077 shares of common stock at a price of $0.13 per share and 1,311,539 warrants to purchase 1,311,539 shares of common stock, for $341,000. Net proceeds, after deducting $27,280 in commissions and $20 in other expenses, were $313,700. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share (the “Exercise Price”) to June 6, 2014.

F-17

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

On June 6, 2011, the Company closed on the sale to certain accredited investors of a total of an additional 1,207,692 shares of common stock at a price of $0.13 per share and 603,846 warrants to purchase 603,846 shares of common stock for $157,000. Net proceeds, after deducting $12,560 in commissions and $2,070 in other expenses, were $142,370. Each warrant entitles the holder to purchase one share of common stock at a price of $0.30 per share to June 6, 2014.

On June 21, 2011, the Company’s Board of Directors authorized the issuance of a total of 2,400,000 shares (1,200,000 shares each) of common stock to the Company’s Chief Executive Officer and the Company’s President and Chairman of the Board of Directors for prior services rendered. The $432,000 estimated fair value of the shares, based on the nearest day closing trading price of $0.36 per share was included in selling, general and administrative expenses in the three months ended June 30, 2011.

On April 20, 2012, the Company’s Board of Directors authorized the issuance of a total of 2,400,000 shares (1,200,000 shares each) of common stock to the Company’s Chief Executive Officer and the Company’s President and Chairman of the Board of Directors for prior services rendered. The $374,400 estimated fair value of the shares, based on the closing trading price of $0.261 per share was included in selling, general and administrative expenses in the three months ended June 30, 2012.

On April 20, 2012, the Company’s Board of Directors renewed the director agreements with Michael Taylor and Andrew Millet (see note 12) and approved the issuance of a total of 600,000 restricted shares of Company common stock (300,000 shares each). The $93,600 estimated fair value of the shares, based on the closing trading price of $0.261 per share was included in selling, general and administrative expenses in the three months ended June 30, 2012.

On April 26, 2012 the company’s Board of Directors authorized the issuance of a total of 600,000 shares of common stock to Chris Ogalga, a director of the company for services received. The shares were valued at $127,800 and expensed during the three months ended June 30, 2012.

Also on April 26, 2012 the company’s Board of Directors authorized the issuance of a total of 1,200,000(600,000 each) of common stock to Michal Kosloski and Lucas Nowalk, contractors and shareholders for services received. The shares were valued at $255,600 and expensed during the three months ended June 30, 2012.

Stock options

Effective May 12, 2009, VoiceServe granted non-qualified stock options to 4 service providers exercisable into a total of up to 703,000 shares of common stock at an exercise price of $0.13 per share to December 23, 2013. The options vested 2/3 on December 23, 2010 and 1/3 on December 23, 2011.

The $81,618 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.15 share price, (ii) 5 year term, (iii) 100% expected volatility, and (iv) 3% risk free interest rate) was expensed ratably over the requisite service period from May 12, 2009 to December 23, 2011. To date, none of the options which vested December 23, 2011 have been exercised.

F-18

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

On January 4, 2010, VoiceServe granted non-qualified stock options to 2 service providers exercisable into a total of up to 200,000 shares of common stock at an exercise price of $0.13 per share to January 4, 2015. The options vested 2/3 on January 4, 2012 and vest 1/3 on January 4, 2013. The $39,520 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.24 share price, (ii) 5 year term, (iii) 100% expected volatility, and (iv) 2.65% risk free interest rate) is being expensed ratably over the three year requisite service period.

Effective July 26, 2010, VoiceServe committed to grant non-qualified stock options exercisable into up to a total of 500,000 shares of common stock at an exercise price of $0.25 per share to its president and chairman (250,000 options) and chief executive officer (250,000 options) pursuant to the employment agreements discussed in Note 12. The $128,200 estimated fair value of the options (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.33 share price, (ii) term of 1773 days, (iii) 100% expected volatility, and (iv) 1.7037% risk free interest rate) was expensed and included in selling, general and administrative expenses in the three months ended September 30, 2010.

F-19

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2011

(Unaudited)

On June 4, 2011, pursuant to employment agreements with its (1) President and Chairman and (2) Chief Executive Officer (See Note 12), the Company became obligated to issue a total of 500,000 common stock options exercisable at a 25% discount from the common stock closing price on that date. The $124,600 estimated fair value of the options at June 4, 2011 (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.318 share price, (ii) $0.2385 exercise price, (iii) term of 5 years, (iv) 100% expected volatility, and (v) 1.6% risk free interest rate) was included in selling, general and administrative expenses in the three months ended June 30, 2011.

On June 4, 2012, pursuant to employment agreements with its (1) President and Chairman and (2) Chief Executive Officer (See Note 12), the Company became obligated to issue a total of 500,000 common stock options exercisable at a 25% discount from the common stock closing price on that date. The $76,000 estimated fair value of the options at June 4, 2012 (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $0.162 share price, (ii) $0.1215 exercise price, (iii) term of 5 years, (iv) 161% expected volatility, and (v) 0.68% risk free interest rate) was included in selling, general and administrative expenses in the three months ended June 30, 2012.

Stock options expense for the three months ended June 30, 2012 and 2011 was $79,345 and $135,645, respectively. As of June 30, 2012, there was $6,689 of total unrecognized compensation cost relating to unexpired stock options. That cost is expected to be recognized in the year ending March 31, 2013.

A summary of stock options activity for the three months ended June 30, 2012 follows:

	Vested		Nonvested			Total
Outstanding at March 31, 2010		-		903,000			903,000
Granted		-		500,000			500,000
Vested		468,667		(468,667	)		-
Outstanding at March 31, 2011		468,667		934,333			1,403,000
Granted		-		500,000			500,000
Vested		367,666		(367,666	)		-
Outstanding at March 31, 2012		836,333		1,066,667			1,903,000
Granted		-		500,000			500,000
Vested		-		-			-
Outstanding at June 30, 2012		836,333		1,566,667			2,403,000

At June 30, 2012, stock options consisted of:

	Number of
	Stock
Date of Grant	Options		Exercise Price		Expiration date
May 12, 2009		703,000	$	0.1300	December 23, 2013
January 4, 2010		200,000		0.1300	January 4, 2015
July 26, 2010		500,000		0.2500	July 26, 2015
June 4, 2011		500,000		0.2385	June 4, 2016
June 4, 2012		500,000		0.1215	June 4, 2017
Total		2,403,000

NOTE 10 – INCOME TAXES

No provisions for income taxes were recorded in the three months ended June 30, 2012 and 2011 since the Company didn’t have any income subject to income tax (after taking into account available net operating loss carryforwards in the respective tax jurisdictions) in those periods.

Based on management‘s present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of net operating loss carryforwards as of June 30, 2012 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at June 30, 2012. The Company will continue to review this valuation allowance and make adjustments as appropriate.

VoiceServe, Inc. has not filed its United States corporate income tax returns commencing year 2007. Such failure may result in the Company’s inability to utilize certain net operating loss carryfowards.

NOTE 11 – RELATED PARTY TRANSACTIONS

For the three months ended June 30, 2012 and 2011, consulting fees paid to officers, directors, and their affiliates totaled $335,937 and $454,880, respectively. These fees were included in cost of software license fees and support ($177,396 and $261,883 for the three months ended June 30, 2012 and 2011, respectively) and selling, general, and administrative expenses ($158,541 and $192,997 for the three months June 30, 2012 and 2011, respectively) in the accompanying statements of operations.

F-20

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Registration Rights Agreements

In connection with the private placement which closed May 26, 2010 (see Note 8), the Company and the investors executed a Securities Purchase Agreement and a Registration Rights Agreement. Among other things, the Registration Rights Agreement provides that the Company will prepare and file with the SEC a Registration Statement covering the resale of the Registrable Securities and use its commercially reasonable efforts to cause it to be declared effective. If the Registration Statement is not filed by July 30, 2010 or if the Registration Statement filed is not declared effective by the SEC within certain time periods (by December 27, 2010 in the event of a "full review" by the SEC) and the Company has not exercised its reasonable best efforts to secure the Registration Statement's effectiveness with the SEC, the Registration Agreement provides that the Company will pay monthly (until cured) partial liquidated damages to the investors equal to 1% of the purchase price paid by the investors, subject to a maximum of 10% of the purchase price paid by the investors. The Registration Statement was declared effective by the SEC on April 25, 2011.

Potential claims for liquidated damages relating to this Registration Rights Agreement, which the Company does not believe are probable of assertion, approximate $41,400 at June 30, 2012 and March 31, 2012.

In connection with the private placement which closed May 6, 2011 and June 6, 2011 (see Note 9), the Company and the investors executed a Securities Purchase Agreement and a Registration Rights Agreement. Among other things, the Registration Rights Agreement provides that the Company will prepare and file with the SEC a Registration Statement covering the resale of the Registrable Securities and use its commercially reasonable efforts to cause it to be declared effective. If the Registration Statement is not filed by July 6, 2011 or if the Registration Statement filed is not declared effective by the SEC within certain time periods (by December 2, 2011 in the event of a "full review" by the SEC) and the Company has not exercised its reasonable best efforts to secure the Registration Statement's effectiveness with the SEC, the Registration Agreement provides that the Company will pay monthly (until cured) partial liquidated damages to the investors equal to 1% of the purchase price paid by the investors, subject to a maximum of 10% of the purchase price paid by the investors. The Registration Statement has not yet been filed.

Potential claims for liquidated damages relating to this Registration Rights Agreement, which the Company does not believe are probably of assertion, approximate $49,800 and $44,820 at June 30, 2012 and March 31, 2012, respectively.

F-21

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

Employment and Director Agreements

On June 4, 2010, VoiceServe, Inc. executed employment agreements with (i) its President and Chairman, Alexander Ellinson, and (ii) its Chief Executive Officer, Michael Bibelman. Each agreement has a term of five (5) years and each provides for (i) an annual base salary of $240,000, (ii) an annual bonus of up to 100% of the base salary as determined in the sole discretion of the Board of Directors, and (iii) annual grants of stock options under the Company's Equity Incentive Stock Plan to purchase 250,000 shares of common stock at $0.25 per share for the first year, which shall occur on or before July 26, 2010, and at a 25% discount off the price on each June 4 thereafter in 2011, 2012, 2013, and 2014 (which vest at such time as approved by the Board of Directors). The Board has not yet approved the initial grant of the 250,000 common stock options, which was to occur on or before July 26, 2010, nor the two succeeding year grants of an additional 250,000 common stock options each, which was to occur on June 4, 2011 and June 4, 2012, for either Mr. Ellinson or Mr. Bibelman.

Both employment agreements also provide for other employee benefits, such as an allowance for leasing a car for the Company or the Company providing one, healthcare insurance, vacation and other benefits provided in accordance with Company policy. In addition, each agreement contains provisions concerning early termination of the executive for death, disability, or with or without cause by the executive. In the event of death or disability, the Company is obligated to pay three months base salary plus accrued benefits. In the event of a termination of the executive "without cause," the Company is obligated to pay each executive, in lieu of "severance payments," his base pay and bonus, including percentage of profits, for the term in which the termination occurs for 36 months after the termination date in accordance with Company payroll practices, and maintain other benefits for that executive also for that 36 month period. Finally, the Company is obligated to pay the exercise price for the stock options to be granted as described in the preceding paragraph and the Company is required to issue 250,000 shares of common stock to the terminated executive with demand registration rights.

F-22

VOICESERVE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

(Unaudited)

On September 30, 2010, VoiceServe, Inc. executed an employment agreement with Alfred Stefansky, its concurrently appointed Chief Financial Officer. The agreement has a term of five (5) years and provides for (i) a monthly base salary of $8,000, (ii) an annual bonus of up to 100% of the base salary as determined in the sole discretion of the Board of Directors, and (iii) a one-time issuance of 300,000 restricted shares of Company common stock. Additionally, the agreement provides that the Company shall provide standard health insurance coverage for the executive and each individual family member and the Executive shall be eligible to participate in any employee benefit plans of the Company. Either party may terminate the agreement without cause upon 60 days prior written notice. In the event of death or disability, the Company is obligated to pay three months base salary plus accrued benefits.

Also on September 30, 2010, VoiceServe, Inc. executed director agreements with Michael Taylor and Andrew Millet, concurrently appointed members of the Board of Directors. Both agreements had terms of one year, subject to a one year renewal term upon reelection by a majority of the Company stockholders. Both agreements provided for (i) a monthly retainer of $1,000 and (ii) a one-time issuance of 300,000 restricted shares of Company common stock (which was issued effective September 30, 2010). Additionally, the agreements provide that the Company shall provide reimbursements for all reasonable out-of- pocket expenses incurred. On April 20, 2012 (see Note 9), these director agreements were renewed for a one year period.

Rental Agreements

Limited rents office space at monthly rentals of £710 with three months notice (or $1,115 translated at the June 30, 2012 exchange rate). For the three months ended June 30, 2012 and 2011, rent expense was $3,590 and $3,475, respectively.

VoipSwitch AG rents office space at quarterly rentals of CHF 6,000 with three months notice (or $6,331 translated at the June 30, 2012 exchange rate). For the three months ended June 30, 2012 and 2011, rent expense was $27,622 and $6,913, respectively.

Cash Deposits in Excess of Insured Limit

At June 30, 2012 and March 31, 2012, Voipswitch AG had cash in one bank which exceeded the Switzerland national insurance limit by approximately $143,000 and $159,000, respectively.

F-23

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Statement on Forward-Looking Information.”

Overview

We were founded December 9, 2005 as 4306, Inc. On February 20, 2007, pursuant to a share exchange agreement (the “Share Exchange”), Voiceserve Limited became our wholly owned subsidiary. Following the Share Exchange, we adopted Voiceserve Limited’s business plan and began conducting business as a global Internet communications company. We are now a global Internet communications company that makes it possible for anyone with an Internet connection to make low cost, high quality voice calls over the Internet. Immediately following the Share Exchange, we changed our name to VoiceServe, Inc., to better reflect our new business plan.

Voiceserve Limited was founded in March 2002 by Michael Bibelman, Alexander Ellinson and Mike Ottie. The founders each have over 15 years of experience in the telecommunications industry.

We generate revenue by developing, manufacturing, licensing, and supporting a wide range of VoIP software products and services for many different types of devices, including a wide range of cellular telephones. Our founders began their careers in 1991 with Econophone Inc. (“Econophone”) a marketer of international “call-back” and “calling cards”. The founders worked as independent resellers of calling cards creating markets in Europe and third world countries transmitting the calls via universal 0800 numbers. While working at Econophone, the founders discovered a huge potential in the market for pre-paid calling cards and were one of the first groups in the industry to market such a product in Europe. Our founders introduced, among the many famous European distributors to market such a product, the Audax Group (“Audax”), based in Holland with an annual turnover in excess of $850 million. Our founders were also instrumental in aiding Econophone LLC in its transformation from a privately held company to one listed on the New York Stock Exchange, known thereafter as Viatel. Once Viatel was listed on the New York Stock Exchange, our founders independently set up their own ISDN and VoIP platforms with the intention of developing and marketing a comprehensive VoIP solution.

Our marketing efforts are focused on VoIP wholesalers termination carriers, retail VoIP providers, Internet providers, including WiFi and WiMax operators, Cable TV networks, GSM providers, telecom resellers, prepaid serve companies, and small-to-medium size companies (businesses, hotels, hospitals, etc.).

On January 15, 2008, we acquired all of the issued and outstanding ordinary shares of VoIPSwitch as well as all of VoipSwitch’s assets, including customer orders and intangible assets, for total consideration of $3,000,000 consisting of $450,000 cash, $150,000 notes payable due on demand, $600,000 notes payable in total monthly installments of $50,000 per month for 12 months, and 3,750,000 shares of our common stock valued at $0.48 per share or $1,800,000. Payment of the monthly installments of the $600,000 notes payable was contingent upon and limited each month to the future monthly net income of VoIPSwitch. Accordingly, pursuant to SFAS No. 141, this $600,000 “contingent consideration” portion of the $3,000,000 total purchase price was not included in the initial recorded cost of the acquisition or the recorded notes payable. As payments of the $600,000 notes payable were made, such paid amounts were added to goodwill.

On December 7, 2010, pursuant to a verbal agreement on October 19, 2010, Voiceserve issued a total of 2,250,000 shares of its common stock to the three sellers of VoipSwitch in full and final satisfaction of debt totaling $463,000, consisting of the $150,000 demand note payable and the remaining $313,000 “contingent consideration” potential amount due the three sellers. The $131,250 excess of the $281,250 estimated fair value of the shares, which was calculated based on the October 19, 2010 nearest day closing trading price of $0.25 per share and a 50% restricted stock discount (2,250,000 shares x $0.125 [50% discount applied to 0.25 per share price] per share = $281,250), over the $150,000 demand note payable was added to goodwill.

VoipSwitch

VoipSwitch is a complete IP telephony system offering a variety of services including device to phone technology, PC to phone/web to phone features, calling cards, SMS/ANI/PIN/DID/WEB callback, DIDs’ mapping, call shops and more. Unlike competitive VoIP systems composed of many different parts, the VoipSwitch platform is fully integrated into one application, which makes it easy to manage. All elements that are necessary for VoIP implementation are already built in. All the features are integrated in one multiple server based application. To date, we have installed over 16,000 VoipSwitch systems around the world.

The “VoipSwitch Brand” has gained recognition and popularity especially in countries where land-line telecommunication infrastructure are less developed. Since increasing our participation in telecom conferences and exhibitions over the last year, awareness of our comprehensive VoIP software offering has significantly increased.

To further the breadth of VoipSwitch’s system, we added VoIP dialers for cellular phones. Over the last twelve months, we have enhanced its dialers for Blackberry and Apple’s iPhone, in addition to its existing dialers for Symbian (Nokia, Motorola, Samsung, Sony, etc.), Android and Windows® cellular phones. We have also introduced video conferencing for Apple, iPads and iPods, enabling the end-users to conduct economical VoIP video conference calls, worldwide via the internet.

The Company cultivates long-term growth of its businesses through technological innovation, engineering excellence, advanced functionality and security, and a commitment to delivering high-quality products and services. Our goal is to deliver products that provide the best platform with the lowest total cost of ownership.

We will continue to invest in research and development in existing and new lines of business, including Video On Demand. We will also invest in research and development of advanced technologies for future products. We believe that delivering innovative and high-value solutions through our integrated platform is the key to meeting customer needs and to our future growth.

We believe that we have laid a foundation for long-term growth by delivering innovative products, creating opportunities for wholesale and retail partners, and offering a comprehensive VoIP software platform with a low cost of ownership for service providers as well as end users. Our focus in fiscal year 2013 is to build on this foundation, and expand our marketing efforts into North, Central and South America and Asia.

Key market opportunities:

VoipSwitchSoftswitch Technology. We are focused on delivering consumers softswitch products that we believe are compelling in terms of design, features, and functionality. We also are working to define the next era of VoIP telephony through the development of innovative software that runs on a wide range of devices and connects people quickly and easily to the information, experiences, and communities they care about.

Mobile phone VoIP connectivity. The ability to combine the power of VoIP and mobile technology via the Internet represents an opportunity across all our businesses lines. We believe our approach will enable us to deliver new experiences to end users and new value to businesses.

Expanding our presence. Through our ability to deliver additional value in VoIP telephony, we believe we are well-positioned to build on our strength. In addition to wholesalers and retailers, we intend to market our VoIP software to small-to-medium size business, hotels, cruise lines, hospitals and schools/universities.

Plan of Operation

During the next twelve months, we expect to take the following steps in connection with the development of our business and the implementation of our plan of operations:

●	Maintain a strong presence at key telecommunications exhibitions across the world.

●

Further develop our Video On Demand capabilities with additional full-time programmers hired during the quarter. We expect to introduce a Video On Demand solution for Hoteliers during our second or third quarter of the current fiscal year. We believe providing VOD to our customers will have a material impact on our ability to penetrate market opportunities.

●	Market our VoIP software capabilities to the transportation industry (commercial and leisure), hotel industry, small-to-medium size business and larger commercial enterprises, as well as wholesalers and resellers.

●	Amass a large subscription base for our Vippie retail service via Internet advertising and direct marketing.

●	Expand our distribution partnership network throughout Asia.

Private Placements

On May 6, 2011, we entered into definitive agreements with investors to sell in a private placement an aggregate of 2,623,077 shares of our common stock and warrants to purchase 1,311,539 shares of our common stock at a purchase price of $0.13 per unit, resulting in gross proceeds to us of $341,000, before deducting placement agent fees and other offering expenses. The warrants are exercisable at an exercise price of $0.30 per share and expire three years from the closing date.

On June 6, 2011, we entered into definitive agreements with investors to sell in a private placement an aggregate of 1,207,692 shares of our common stock and warrants to purchase 603,846 shares of our common stock at a purchase price of $0.13 per unit, resulting in gross proceeds to us of $157,000, before deducting placement agent fees and other offering expenses. The warrants are exercisable at an exercise price of $0.30 per share and expire three years from the initial closing date.

Results of Operations for the three months ended June 30, 2012 compared to June 30, 2011

The following table presents the statement of operations for the three month periods ended June 30, 2012 and June 30, 2011. The discussion following the table is based on these results.

	Three Months Ended June 30,
	2012			2011
Operating revenues:
Software license fees	$	1,381,118		$	1,172,654
Revenues from communications airtime and devices		-			2

Total operating revenues		1,381,118			1,172,656

Cost of operating revenues:
Software license fees		776,868			736,766
Communications air time		-			-

Total cost of operating revenues		776,868			736,766

Gross profit		604,250			435,890

Operating expenses:
Selling, general and administrative expenses
(including stock-based compensation of $1,245,745
and $999,645, respectively)		1,811,227			1,550,526

Total operating expenses		1,811,227			1,550,526

Loss from operations		(1,206,977	)		(1,114,636	)

Income/(expense) from revaluation of liability for common stock purchase warrants		388,625			(450,954	)
Interest income		67			20
Interest expense		-			(10	)

Income (loss) before income taxes		(818,285)			(1,565,580	)

Income taxes (benefit)		-			-

Net income (loss)	$	(818,285)		$	(1,565,580	)

Net income (loss) per share - basic and diluted	$	(0.02	)	$	(0.03	)

Weighted average number of shares
outstanding - basic and diluted		49,385,198			40,289,425

Total Revenue. For the three months ended June 30, 2012 and 2011 we generated revenues of $1,381,118, and $1,172,654 respectively. The change represents an increase of $208,462 or 17.7% for the three months ended June 30, 2012. The revenue increase is attributed to the exposure of the company’s products through exhibitions as well as the reputational success the products are having in the market place.

Cost of Revenues. For the three months ended June 30, 2012 and 2011 the cost of revenues were $776,868, and $736,766 respectively. The change represents an increase in cost of revenues of $40,102 or 5.4% for the three months ended June 30, 2012. The cost of revenue increase is attributed to the increase in clients that require servicing. Gross margin averaged 44% during the first quarter of fiscal year 2012 (ended June 30, 2012) compared to 37% during the first quarter of fiscal 2011. The increase in gross margins is due to an increase in productivity.

Sales, General and Administrative Costs. For the three months ended June 30, 2012 and 2011 the SG&A were $1,811,227,and $1,550,526, respectively. The change represents anincrease of $260,701 or 16.8% for the three months ended June 30, 2012. The increase in SG&A was due to higher stock-based compensation in the quarter June 30, 2012 versus the quarter June 30, 2011. The group has not materially increased its overhead despite its customer base and revenues increasing over the quarter.

Net Income (Loss). The Company generated net loss for the three period ending June 30, 2012 of $818,285 and compared to net loss of $1,565,580 for the three month period ended June 30, 2011. The net gain is due to the reasons described above as well as a gain of $388,625 on the revaluation of the common stock warrants. In the quarter ended June, 30 2011 there was a loss on the revaluation of the common stock warrants of $450,954. A difference of $839,579 between the two periods.

Liquidity and Capital Resources. As of June 30, 2012 we had $316,691 in cash and cash equivalents. At June 30, 2012 the Company had liabilities of $1,245,109 comprised of accounts payable of $300,594 deferred software license fees and support of $228,550, loans payable to related parties totaling $37,782, as well as liability for common stock purchase warrants totaling $678,183. Comparatively at June 30, 2011, we had $1,717,154 in liabilities comprised accounts payable of $430,535, deferred software license fees and support of $181,503, loans payable to related parties totaling $38,308, as well as liability for common stock purchase warrants totaling $181,503.

Net cash used in operating activities during the three months ended June 30, 2012 was $16,627 compared to $139,067 in the comparable period in 2011. Net cash used by financing activities during the three months ended June 30, 2012 was ($526) compared to net cash provided of $456,093 in the comparable period in 2011. In the quarter ended June 30, 2011 the Company raised $456,070 from the sale of Common Stock.

On May 6, 2011, the Company raised $313,700 in net proceeds through the sale of shares of its common stock. In addition, on June 6, 2011 the Company raised $142,370 in net proceeds through the sale of shares of the Company stock, which was accomplished through advice and support of professional investment consultants.

Additional capital may be required in order to grow and sustain operations over the next twelve months. In addition, unless the Company becomes profitable and begins generating sufficient cash flow, we will need to raise additional capital to continue our operations past 12 months, and there is no assurance we will be successful in raising the needed capital. Management believes that, if the Company’s operational cash flow is not sufficient to support its operational and/or its marketing strategy, its short-term capital needs could range between $500,000 and $1,500,000 for which it would most probably seek to raise the capital in the equity markets.

Long term capital needs of the company highly depend upon the amount of time it takes for us to achieve market penetration. If we are successful in growing market share and developing new markets around the world, it will be necessary for us to hire additional employees to support an expanding client base. If additional working capital is needed to support an expanded operation, we will seek such capital in the form of debt and/or equity. Management believes that the Company’s long term capital needs could potentially range between $1,500,000 and $3,000,000.

Currently, we have no material commitments for capital expenditures. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. In the short term, should the release of our new features and modules take longer than we anticipate capital will be required to finance the engineers working on these products. Long term, once the products are fully developed and enhanced, capital will be required to expand the marketing prospects into different regions and markets.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On April 20, 2012, the Company’s Board of Directors renewed the director agreements with Michael Taylor and Andrew Millet and approved the issuance of a total of 600,000 restricted shares of Company common stock (300,000 shares each).

On April 26, 2012 the company’s Board of Directors authorized the issuance of a total of 600,000 shares of common stock to Chris Ogalga, a director of the company for services received.

On April 26, 2012 the company’s Board of Directors authorized the issuance of a total of 1,200,000(600,000 each) of common stock to Michal Kosloski and Lucas Nowalk, contractors and shareholders for services received.

On June 4, 2012, pursuant to employment agreements with its (1) President and Chairman and (2) Chief Executive Officer, the Company became obligated to issue a total of 500,000 common stock options exercisable at a 25% discount from the common stock closing price on that date

Off Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Significant Accounting Policies

Our significant accounting policies are summarized in Note 3 of our financial statements included in Item 1 of this Report.

Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would have materially affected our results of operations, financial position or liquidity for the periods presented in this report.

Item 6.

Exhibits.

Exhibit Number		Descriptions

31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH **		XBRL Taxonomy Schema

101.CAL **		XBRL Taxonomy Calculation Linkbase

101.DEF **		XBRL Taxonomy Definition Linkbase

101.LAB **		XBRL Taxonomy Label Linkbase

101.PRE **		XBRL Taxonomy Presentation Linkbase

** Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

+ In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are furnished and not filed.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	VOICESERVE, INC.

Date: November 14, 2012	By:	/s/ Michael Bibelman
		Michael Bibelman
		Chief Executive Officer (Duly authorized officer and principal executive officer)

Date: November 14, 2012	By:	/s/ Alfred Stefansky
		Alfred Stefansky Chief Financial Officer and Principal
		Accounting Officer (Duly authorized officer and principal financial officer)