UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the fiscal year ended: December 31, ~~2012~~2014

¨ 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: 000-53668

NET TALK.COM, INC.

(Exact name of registrant as specified in its charter)

Florida		20 – 4830633
(State or other jurisdiction of		(I.R.S. Employer
(State of incorporation)		(I.R.S. Employer Identification No.)
incorporation or organization)		Identification No.)
1080 NW 163rd Drive, Miami Gardens, FL		33169 – 5816
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (305) 621-1200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,: $0.001 par value

Title of each class		Name of each exchange on which registered
Common stock, $0.001 par value per share		OTCBB
Redeemable preferred stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

~~Indicate~~Check bywhether ~~check mark if~~ the registrant is not arequired ~~well-known~~to ~~seasoned issuer,~~file asreports ~~defined~~pursuant into ~~Rule~~Section ~~405~~13 or Section 15(d) of the ~~Securities~~Exchange Act. Yes ¨ No x

~~Yes~~Indicate ¨by Nocheck 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if ~~the~~disclosure of ~~registrant~~delinquent filers pursuant to Item 405 of Regulation S-K is not ~~required~~contained ~~to file~~herein, ~~reports~~and ~~pursuant~~will not be contained, to ~~Section~~the 13best of registrant's knowledge, in definitive proxy or ~~Section~~information ~~15(d)~~statements incorporated by reference in Part III of ~~the~~this ~~Exchange~~Form ~~Act~~10-K or any amendment to this Form 10-K. ¨

Yes ¨ No x

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Check whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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 ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	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 ¨ No x

~~Yes~~The aggregate market value of the registrant’s common ¨stock Noheld xby non-affiliates as of June 30, 2014 was $906,887.

The ~~aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of September 4 , 2013 was $349,634.1 The~~ Registrant had 60 125,~~251~~676,~~355~~528 shares of Common Stock, $0.001 par value, outstanding as of ~~September~~April 410, ~~2013~~2015.

1 The aggregate market value of common equity held-by non-affiliates is computed based upon sale price of $0.07 occurring on September 4, 2013. The calculation does not account for common shares issuable upon conversion of convertible preferred stock or exercise of common stock purchase warrants.

Net Talk.com, Inc.

Form 10-K

For year ended December 31, ~~2012~~ 2014

Table of contents		Page
Part I
Item 1.	Business	4
Item 1A.	Risk factors	98
Item 2.	Properties	11
Item 3.	Legal proceedings	11
Item 4.	Mine safety disclosures	12
Part II
Item 5.	Market for registrant’s common equity, related stockholders matters and issuer purchases of equity securities	1213
Item 6.	Selected financial data	1514
Item 7.	Management discussion and analysis of financial condition and ~~operation~~results of operations	1514
Item 7A.	Quantitative and qualitative disclosure about market risk	2521
Item 8.	Financial statements and supplementary data	2521
Item 9.	Changes in and disagreements with accountants on accounting and financial disclosure	2521
Item 9A.	Controls and procedures	2521
Item 9B.	Other information	2722
Part III
Item 10.	Directors, executive officers and corporate governance	2722
Item 11.	Executive compensation	3026
Item 12.	Security ownership of certain owners and management and related stockholder matter	3127
Item 13.	Certain relationships and related transactions, and directors independence	3227
Item 14.	Principal accountant fees and services	3328
Part IV
Item 15.	Exhibits, financial statement schedules	3329
	Signatures	3430
	Financial statements	3531

Forward Looking Statements

Certain statements contained in this ~~annual~~ report on Form 10-K ~~(including~~are not ~~the~~statements ~~section~~of ~~regarding~~historical ~~Management's~~fact ~~Discussion~~ and ~~Analysis~~constitute offorward-looking ~~Financial~~statements ~~Condition and~~within ~~Results~~the meaning of ~~Operations)~~the ~~and~~various ~~other~~provisions ~~written~~of ~~material~~the Securities ~~and~~Act ~~oral~~of ~~statements~~1933, ~~made~~as ~~from~~amended, ~~time~~(the to“Securities ~~time~~Act”) ~~by us~~and dothe ~~not~~Securities ~~relate~~Exchange toAct ~~historical~~of or1934, ~~current~~as ~~facts.~~amended As(the “Exchange ~~such~~Act”), ~~they~~including, ~~are~~without ~~referred~~limitation, tothe statements specifically identified as “forward-looking statements~~,” which~~ ~~are~~within ~~intended~~this toreport. ~~convey~~Many ~~our~~of ~~expectations~~these orstatements ~~predictions~~contain ~~regarding~~risk ~~the~~factors ~~occurrence~~as ofwell. ~~possible~~In ~~future~~addition, ~~events~~certain orstatements ~~the~~in ~~existence~~our offuture ~~trends~~filings with the SEC, in press releases, and ~~factors~~in ~~that~~oral ~~may~~and ~~impact~~written statements made by or with our ~~future~~approval ~~plans~~which ~~and~~are ~~operating~~not ~~results.~~statements ~~These~~of historical fact constitute forward-looking statements ~~are~~within ~~derived,~~the inmeaning ~~part,~~of ~~from various~~the ~~assumptions~~Securities Act and ~~analyses~~the weExchange ~~have~~Act. ~~made~~Examples inof ~~the~~forward-looking statements, ~~context~~include, but are not limited to: (i) projections of ~~our~~capital ~~current~~expenditures, ~~business~~revenues, ~~plan~~income ~~and~~or ~~information~~loss, ~~currently~~earnings ~~available~~or toloss usper share, capital structure, and inother ~~light~~financial items, (ii) statements of our ~~experience~~plans and ~~perceptions~~objectives of ~~historical~~our ~~trends,~~management ~~current~~or ~~conditions~~Board of ~~and~~Directors ~~expected~~including those relating to planned development of future ~~developments~~products, ~~and other~~(iii) ~~factors~~statements weof ~~believe~~future toeconomic beperformance and ~~appropriate~~(iv) instatements ~~the~~of ~~circumstances~~assumptions underlying such statements. You can generally identify forward-looking statements through ~~words~~ words and phrases such as “ ~~seek~~believes, ” “ ~~anticipate~~anticipates,” “expects,” “intends,” ~~believe~~“targeted,” “may,” “will” “ ~~estimate~~seek, ” “ ~~expect~~anticipate, ” “ ~~intend~~estimate, ” “ plan, ” “ budget, ” “ project, ” “ may be, ” “ may continue,” “may likely result, ” and similar expressions. When reading any forward looking statement, you should remain mindful that actual results or developments may vary substantially from those expected as expressed in or implied by that statement for a number of reasons or factors, such as those relating to:

●

our ability to develop sales and marketing capabilities;

●

the accuracy of our estimates and projections;

●

our ability to fund our short-term and long-term financing needs;

●

changes in our business plan and corporate strategies; and other risks and uncertainties discussed in greater detail in other sections of this report.

~~Each~~Consequently, forward-looking ~~statement~~ statements should be ~~read~~regarded insolely ~~context~~as ~~with, and~~our ~~with~~current ~~an understanding of~~plans, ~~the~~estimates ~~various other disclosures concerning our Company~~ and ~~our business made elsewhere in this prospectus, as well as other public reports filed with the SEC~~beliefs. You should not place undue reliance on ~~any~~ forward-looking ~~statement~~statements. We ascannot aguarantee ~~prediction~~ future results, events, levels of ~~actual~~activity, ~~results~~performance or ~~developments~~achievements. We ~~are~~do not ~~obligated~~undertake and specifically decline any obligation to update, republish or revise ~~any~~ forward-looking ~~statement~~statements ~~contained in this report~~ to reflect ~~new~~future events or circumstances ~~unless~~or ~~and~~ to reflect the ~~extent~~occurrences ~~required~~of byunanticipated ~~applicable law~~events.

~~Part~~PART I

Item 1. Business

~~Company~~Description ~~and~~of Business

WeNET ~~are~~TALK.COM, INC. (“netTALK” or the “Company” or “we” or “us” or “our”) netTALK is a telephone company, ~~which~~who ~~manufactures,~~ provides, ~~sells~~ and ~~supplies~~sells ~~commercial and~~ residential telecommunication services, including services utilizing voice over internet protocol (“VoIP”) technology, session initiation protocol (“SIP”) technology, wireless fidelity technology, ~~wireless maximum technology,~~ and other similar type technologies. Our main offerings ~~products~~ are ~~the~~(1) analog telephone adapters (“~~DUO”,~~Device ~~DUO~~or IIDevices”) ~~and~~that ~~the~~provide ~~“DUO~~connectivity ~~WIFI”.~~for analog telephones for ~~All~~home ofor ~~these~~home ~~products~~office. ~~are~~Our ~~analog~~Devices ~~telephone~~and ~~adapters~~the ~~that~~telecommunication ~~provide~~services ~~connectivity~~are ~~for~~a ~~analog~~cost ~~telephones~~effective solution for individuals and ~~faxes~~telecommuters connecting to ~~home,~~any ~~home~~analog ~~office~~ telephone, or ~~corporate~~private ~~local~~branch ~~area~~exchange ~~networks~~ (“~~LAN~~PBX”). Our main Device, the DUO, provides one USB port, one Ethernet port, and one analog telephone port. The DUO ~~WIFI~~Wifi ~~allows~~adds ~~users~~a WiFi interface. A full suite of internet protocol features is available to ~~use~~maximize ~~these~~universal ~~services~~connectivity. ~~without~~In anaddition, ~~Ethernet~~analog ~~cable~~telephones attached to our Device are able to use advanced ~~plugged~~calling ~~into~~features ~~the~~such ~~device~~as call forwarding, caller ID, 3-way calling, call holding, call retrieval, and call transfer.

Our DUO, DUO II and DUO WIFI and their related services are cost effective solution for individuals, small businesses and telecommuters connecting to any analog telephone, fax or private branch exchange (“PBX”). Our DUO, DUOII and DUO WIFI provide a USB port, one Ethernet port and one analog telephone port. The DUO WIFI additionally provides a wireless chip so that users can connect to the device over WIFI hotspots. A full suite of internet protocol features is available to maximize universal connectivity. In addition, analog telephones attached to our DUO, DUOII and DUO WIFI are able to use advanced calling features such as call forwarding, caller ID, 3-way calling, call holding, call retrieval, SMS, international call plans, local number portability and call transfer.

History and Overview

We are a Florida corporation, originally incorporated on May 1, 2006, under the name Discover Screens, Inc. (“Discover Screens”).

OnPrior to September 10, 2008, we ~~changed our~~were ~~name~~known ~~from~~as Discover Screens, ~~Inc.~~a company dedicated to ~~NetTalk.com~~providing advertising through interactive, ~~Inc.~~audiovisual, information and ~~acquired~~advertising ~~certain~~portals ~~tangible~~located in high-traffic indoor venues. Our name and ~~intangible~~business ~~assets,~~operations ~~formerly~~changed ~~owned~~in ~~by Interlink~~a ~~Global~~series ~~Corporation~~of ~~(“Interlink”),~~transactions ~~related~~beginning toin ~~our~~December ~~VOIP~~of ~~products~~2007.

~~Our~~On ~~Strategy~~September 10, 2008, we changed our name from Discover Screens, Inc. to NetTalk.com, Inc. and we acquired certain tangible and intangible assets, formerly owned by Interlink Global Corporation (“Interlink”), directly from Interlink’s creditor who had seized the assets pursuant to a Security and Collateral Agreement.

~~We continue to improve and enhance the following factors in building and expanding our customer base:~~Operations

·We ~~Deployment~~provide, sell and ~~distribution~~supply ofcommercial ~~our~~and ~~main~~residential ~~products~~telecommunication services, ~~the~~including ~~DUO,~~services ~~DUO~~utilizing IIvoice ~~and~~over ~~DUO~~internet ~~WIFI~~protocol (“VoIP”) technology, ~~NetTalk~~session TVinitiation ~~devices~~protocol (“SIP”) technology, ~~IPhone~~wireless fidelity technology, and ~~Androids~~other ~~applications~~similar ~~for~~type ~~smartphones~~technologies. We are developing our business infrastructure and ~~tablets~~new products and services.

·Our WeProducts ~~offer our customers an attractive~~ and ~~innovative value proposition: a portable telephone replacement with multiple and unique features that differentiates our services from the competition.~~Strategy

·At ~~Innovative~~this time, ~~high~~our ~~technology~~main products are the DUO, DUO II, DUO WIFI and ~~low~~CONNECT ~~cost~~smartphone ~~technology~~application ~~platform.~~for WeApple ~~believe~~iOS ~~our~~and ~~innovative~~Google ~~software~~Android. Our DUO and ~~network~~DUO ~~technology~~WIFI ~~platform~~are ~~provides~~designed usto ~~with~~provide aspecifications unique ~~competitive~~to ~~advantage~~each ~~over~~customer’s ~~our~~existing ~~competition~~equipment. ~~and~~They ~~allows~~allow usthe customer full mobile flexibility by leveraging our first to market ~~maintain~~patented atechnology ~~low~~to ~~cost~~allow ~~infrastructure~~the ~~relative~~customer to ~~our~~connect ~~competitors~~to the internet using a variety of interfaces.

~~Plan~~· A Universal Serial Bus (“USB”) connection allowing the interconnection of ~~Operation~~our DUO or DUO WIFI to any host computer.

We· ~~provide,~~In ~~sell~~addition ~~and~~to ~~supply~~the ~~commercial~~USB ~~and~~power ~~residential~~source ~~telecommunication services~~option, ~~including~~our ~~services~~DUO ~~utilizing~~and ~~voice~~DUO ~~over~~WIFI ~~internet~~have ~~protocol~~an ~~(“VoIP”)~~external ~~technology,~~power ~~session~~supply ~~initiation~~allowing ~~protocol (“SIP”)~~the ~~technology,~~phone ~~wireless~~to ~~fidelity~~independently ~~technology,~~power ~~wireless~~itself ~~maximum~~when ~~technology,~~not ~~marine~~connected ~~satellite~~to ~~services~~a ~~technology and~~host ~~other similar type technologies~~computer. ~~We are developing our business infrastructure and new products and services.~~

4· Our first to market and patented DUO and DUO WIFI are compact, space-efficient products.

~~Our~~· ~~Products~~With a physical footprint smaller than the average size of a business card.

At· ~~this~~The ~~time, our main products are the~~ DUO, ~~DUOII and DUO~~ WIFI~~. Our~~ ~~DUO,~~also ~~DUOII~~includes ~~and~~the ~~DUO~~ability ~~WIFI are designed~~ to ~~provide~~connect ~~specifications unique~~ to ~~each customer’s existing equipment. They allow~~ the ~~customer full mobile flexibility by being able to take~~ internet ~~interface~~using ~~anywhere~~a ~~the~~standard ~~customer~~WiFi ~~has an internet~~ connection. ~~Our DUO and DUO WIFI both have the following features:~~

·Our Aproducts ~~Universal~~are ~~Serial~~portable ~~Bus~~and ~~(“USB”)~~allow our customers to make and receive phone calls with a telephone anywhere a broadband internet connection ~~allowing~~is available. We transmit the ~~interconnection~~calls ofusing Voice ~~our~~over ~~DUO~~Internet ~~and~~Protocol ~~DUO~~“VoIP” ~~WIFI~~technology, towhich ~~any~~converts ~~host~~voice ~~computer~~signals into digital data transmissions over the internet.

· In addition to the USB power source option, our DUO and DUO WIFI have an external power supply allowing the phone to independently power itself when not connected to a host computer;

· Unlike most VoIP telephone systems, our DUO and DUO WIFI both have standalone feature allowing them to be plugged directly into a standard internet connection.

· Our DUO and DUO WIFI are compact, space-efficient products.

Our DUO, DUOII and DUO WIFI have interface components so that the customer can purchase multiple units that can communicate with each other allowing simultaneous ringing from multiple locations.

Our DUO products are portable and allow our customers to make and receive phone calls with a telephone anywhere a broadband internet connection is available. We transmit the calls using Voice over Internet Protocol “VOIP” technology, which converts voice signals into digital data transmissions over the internet.

Our Services

~~Our~~Regarding ~~business~~our ~~is to provide products and~~ services ~~that utilize Voice Over Internet Protocol~~, ~~which~~ we ~~refer~~believe toeveryone asshould ~~“VoIP.”~~have ~~VoIP is a technology that allows the consumer~~ access to ~~make~~super ~~telephone calls~~simple ~~over~~and aaffordable ~~broadband~~home ~~internet~~and ~~connection~~on-the-go ~~instead~~digital ofphone ~~using~~service. aWe ~~regular~~Connect ~~(or~~You ~~analog)~~® ~~telephone~~to ~~line.~~our ~~VoIP~~global ~~works~~communications ~~by converting the~~network ~~user’s~~through ~~voice~~our ~~into a~~DUO ~~digital~~devices ~~signal~~and ~~that~~CONNECT ~~travels~~mobile ~~over~~apps, ~~the~~which ~~internet~~ring ~~until~~simultaneously it- ~~reaches~~answer ~~its~~on ~~destination. If~~ the ~~user~~device isthat ~~calling a regular telephone line number, the signal~~ is ~~converted~~most ~~back~~convenient ~~into~~to ~~a voice signal once it reaches the end user~~you. We ~~Our~~provide ~~business~~a ~~model is~~high totech, ~~develop~~simple and ~~commercialize~~ultra-low ~~software technology solutions for~~ cost ~~effective,~~service ~~real-time~~with ~~communications~~just ~~over~~one ~~the~~bill ~~internet~~once ~~and related~~a ~~services~~year.

~~Patents – Domestic and International~~4

~~Our~~Marketing ~~product~~and ~~is under US patent number 8,243,722 as well as International patent pending in over 123 countries.~~Advertising

~~Marketing~~We have developed retail brick and mortar channels, as well as direct sales channels, as represented by our web sites in the United States and Canada. Customer acquisition through our sales channels are supported primarily by “word of mouth” through the pure power of innovation. Our products and services can be found at www.nettalk.com, www.nettalk.ca and www.nettalkconnect.com.

WeOur ~~have~~primary ~~developed~~source ~~direct~~of ~~sales~~revenue ~~channels,~~is asthe ~~represented~~sale ~~by web sites~~ and ~~toll~~distribution ~~free~~of our ~~numbers.~~DUO, ~~Our~~DUO ~~direct~~WiFi, ~~sales~~DUO ~~channels~~II, ~~are~~CONNECT ~~supported~~Smartphone byApps ~~highly integrated advertising campaigns across multiple media such as infomercials, television~~ and ~~other~~related ~~media channels~~services. ~~Our~~ ~~website~~We isalso ~~www.nettalk.com,~~generate ~~our~~revenue ~~telephone~~from ~~number~~the issale ~~305~~of value-~~621-1200~~add telecom services and ~~our~~international ~~fax~~long ~~number is 305-621-1201~~distance.

Our ~~primary~~goal ~~source~~is ofto ~~revenue~~position isourselves ~~the~~as ~~sale~~a ~~and~~leading ~~distribution~~provider of ultra-low ~~our~~cost ~~netTalk~~smart ~~DUO~~home and smart phone communications. Unlike our competitors, ~~DUO~~our IIcurrent business strategy is to focus on “word of mouth” advertising and ~~DUO~~utilizing ~~WIFI~~social media. WeShould ~~also~~we ~~generate~~decide ~~revenue~~to ~~from~~alter the ~~sale~~strategy, our advertising could consist of mass ~~accessories~~marketing tocampaigns ~~our~~focusing ~~product~~on ~~and~~television ~~international~~commercials ~~long distance~~geared ~~monthly~~towards ~~charges~~the ~~that~~ethnic ~~are~~markets ~~billed~~in tothe ~~our~~US ~~customers~~and Canada.

Advertising

Our goal is to position ourselves as a premier supplier of choice for VoIP services. Our current business strategy is to focus our advertising dollars on our home market in South Florida. Our advertising will consist of mass marketing campaigns focusing on television infomercials for the South Florida market and other states including cable television channels..

Customers

Our customers are made up of ~~retail,~~ residential ~~and small businesses~~consumers. We anticipate that future services will appeal to our existing customers and hope that our additional phone products and services will provide a complete phone/communications package experience to our customers.

5Our target audiences are individual consumers and potentially small businesses looking to lower their current cost of telecommunications. We are also reaching a large amount of informed customers who have been paying for over priced communication services from Vonage, BasicTalk, and the traditional cable company bundles.

Our target audience is individual consumers and small businesses looking to lower their current cost of telecommunications. We are also reaching a large audience with our websites. We hope that consumers will find our websites by doing an internet search for VoIP service providers. We also use other means of advertising such as direct to consumer sales, ecommerce and retail marketing co-ops with retail customers.

Geographic Markets

Our primary geographic market is North America. ~~Our~~which ~~target audiences~~includes ~~are individual~~the ~~consumers~~US and ~~small businesses looking to lower their current cost of telecommunications~~Canada. We also expect to reach a large audience with our websites. We hope that consumers will find our websites by doing an internet search for VoIP service providers. We will also use other means of advertising such as direct to consumer sales, ecommerce and coop marketing with retail stores.

We have been granted and or are applying for Competitive Local Exchange Carrier (“CLEC”) Licenses in multiple states~~, as follows:~~.

Alabama Hawaii Massachusetts New York Utah Arizona Idaho Michigan North Carolina Vermont Arkansas Illinois Minnesota North Dakota Washington, D.C. California Indiana Missouri Ohio Washington Colorado Iowa Montana Oregon West Virginia Connecticut Kansas Nebraska Pennsylvania Wisconsin Delaware Kentucky Nevada South Carolina Wyoming Florida Maine New Jersey South Dakota Georgia Maryland New Mexico Texas

It is our intent to focus our expansion on the geographic markets in which we have been granted CLEC Licenses. We also intend to expand our market place to reach customers worldwide.

Research and Development

On July 14, 2010 we revealed our product the (first to market) netTALK DUO.

The DUO enables our customers to make unlimited nationwide calls to any landline or mobile phone in the U.S. or Canada from anywhere in the world, as well as low-cost international rates. Also, it’s a versatile digital phone service requiring no monthly fee, no contracts and no computer required all for one low annual price.

Our DUO is flexible enough to connect directly to an internet connection through a router or modem; there is also a convenient option with our DUO to connect to your computer. The sleek design is small enough to fit in the palm of your hand, making it a portable device.

In April 2012, we revealed our (second first to market) product, the DUO WiFi.

Our DUO WiFi offers the same features and functions as the DUO, but with the added ability to connect to the internet via an onboard WiFi circuit. Additionally, this added feature was accomplished without sacrificing the small footprint as present in the DUO. Both products have the same footprint

The portability of both these small devices are also great for international travelers who want to place free nationwide calls to the U.S. and Canada, or to those looking for a low-cost solution for international rates. Calls to other netTALK customers are always free.

We are presently working and improving upon our other new products and anticipate future developments in the later part of this year and over the next year, including the netTALK CONNECT “APP’s” for iPhone and Android and netTALK TV.

The Industry

In the past decade, the use of the internet for all purposes has exploded. VoIP is a technology that enables communications over the internet through the compression of voice, video and/ or other media into data packets that can be efficiently transmitted over data networks and then converted back into the original media at the other end of the transmission. Since the introduction of the first VoIP technology in the mid 1990s, the quality and clarity of VoIP connections have continued to evolve and improve. Perhaps the biggest jump in VoIP quality came with the introduction of SIP, or Session Initiation Protocol. SIP is a text-based protocol suitable for integrated voice-data applications. Today SIP is the predominant industry standard for establishing ~~multimedia~~VoIP communications over the Internet. As the clarity and quality of of VoIP services have increased, so has the acceptance of VoIP by consumers.

As a result of the potential cost savings and added feature availability of VoIP, consumers, industry leaders and traditional telecommunication service providers see VoIP as the future of telecommunications. Factors that have been contributing to the boom in VoIP use include: (a) increased consumer demand for lower cost telephone services; (b) increased demand for long distance services as the market place becomes increasingly global; (c) improved reliability and quality of VoIP due to technological advances; and (d) innovations that allow services for VoIP users that are not available in traditional telephone services. These factor, and others, have resulted in various service providers and consumers exploring VoIP alternatives to traditional analog phone services.

Our Competition

The communications industry is highly competitive and significantly affected by regulatory changes, technology evolution, marketing strategies, and pricing decisions of the larger industry participants. The market for our services is evolving rapidly and is subject to shifting customer demands and the introduction of new products and services. Our current and potential competitors come from different market sectors and vary in size and scope with respect to the products and services that they offer or intend to offer in the future.

~~One~~Our ofdirect ~~our~~competitor ~~competitors~~ in the domestic market is ~~traditional telephone~~MagicJack ~~service providers~~ Vocaltec that ~~are~~is increasingly adding advanced product and service features tothat ~~traditional~~have ~~telephone~~been ~~services.~~previously ~~Domestic telephone~~released ~~providers~~or already patented by us. They have the advantage of having strong name recognition, large ~~research~~advertising ~~and development~~ budgets, and existing ~~service and~~sales ~~market networks~~channels.

6Our indirect competitors in the domestic market are traditional telephone service providers that are increasingly adding advanced service features to traditional telephone services. Domestic telephone providers have the advantage of having strong name recognition, large advertising budgets, research and development budgets and existing service and market networks. However, we feel our competitors’ most significant weakness is the high prices charged to their customers on a monthly basis.

In addition, numerous vendors sell products and services using VoIP technology. Our indirect competitors use innovations such as Analogue Terminal Adapters, or (“ATAs”), to connect an analogue telephone to a VoIP network. Sometimes referred to as VoIP Gateways, these devices are widely advertised and sold. Sales are conducted by many different methods, including internet and infomercial sales, and barriers to entry into the business are low.

WeAs ~~also~~a ~~face~~result, ~~competition~~these ~~from~~direct ~~alternative~~and ~~communication~~indirect ~~methods~~competitors may be able ~~such~~to asadapt ~~internet~~more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the promotion and sale of their products. Moreover, ~~fax~~we ~~providers~~may not have sufficient resources to undertake the continuing research and ~~voice~~development ~~mail~~necessary ~~service~~to ~~providers~~remain competitive, as we have in the past.

~~Many~~We ofdifferentiate our services from those offered by our competitors by ~~may~~offering befirst ~~better~~to ~~established~~market products through the pure power of innovation, ~~larger~~exceptional customer service and lower cost alternatives. ~~better~~We ~~financed~~have ~~than~~worked ushard to control the development costs associated with the DUO, DUO II and ~~are~~DUO ~~able~~WIFI. We tohave ~~use~~done ~~their~~this ~~visibility~~by choosing phone components and ~~substantial~~component ~~marketing~~vendors ~~resources~~that toare ~~attract~~economical ~~customers~~but do not compromise on quality. InWe ~~particular, many~~have ofdeveloped and marketed our own ~~competitors~~products ~~are~~and ~~large~~services, ~~established~~rather ~~network~~than ~~service~~simply ~~providers~~reselling another manufacturer’s innovations. We have developed our own infrastructure switching structure so as not to have to rely on vendors that charge by line, and require costly support and update contracts. Finally, our DUO, DUO II and DUO WIFI products are ~~able~~standalone phone products that do not require the user to ~~market~~first invest in a computer. For these reasons, we believe that our DUO, DUO II and ~~distribute~~DUO ~~enhanced~~WIFI ~~communication~~product is a lower cost alternative to similar telephone products currently being marketed because we are engaged in the same cost saving measures for the services ~~within~~we ~~their~~offer. ~~already~~We ~~large~~are ~~base~~able to ofoffer ~~subscribers~~those services at a competitive price.

AsWe abelieve ~~result,~~our ~~these~~products ~~competitors~~and ~~may~~services beare ~~able~~user tofriendly ~~adapt~~and ~~more quickly~~convenient tofor ~~new~~our orcustomers; ~~emerging~~for ~~technologies and~~example, ~~changes~~our inpackaging ~~customer~~includes ~~requirements.~~detailed, ~~They~~user-friendly ~~may~~instructions ~~also~~and bediagrams ~~able~~ to ~~devote~~allow ~~greater~~for ~~resources~~easy toinstallation ~~the promotion~~ and ~~sale~~activation. ofWe ~~their~~believe ~~products.~~we ~~Moreover,~~have wedistinguished ~~may~~ourselves ~~not~~from ~~have~~our ~~sufficient~~primary ~~resources~~competitors tothrough ~~undertake~~innovation, and the ~~continuing~~level ~~research~~of ~~and~~customer ~~development~~service ~~necessary~~ offered to ~~remain~~our ~~competitive~~consumers following their purchase of our products or services.

We differentiate our services from those offered by our competitors by offering exceptional customer service and lower cost alternatives. We have worked hard to control the development costs associated with the DUO, DUO II and DUOWIFI. We have done this by choosing phone components and component vendors that are economical but do not compromise on quality. We have developed and marketed our own products and services, rather than simply reselling another manufacturer’s innovations. Finally, our DUO, DUO II and DUO WIFI products are standalone phone products that do not require the user to first invest in a computer. For these reasons, we believe that our DUO DUOII and DUO WIFI product is a lower cost alternative to similar telephone products currently being marketed (because we are engaged in the same cost saving measures for the services we offer). We are able to offer those services at a competitive price.

Our products and services are user friendly and convenient for our customers; for example, our packaging includes detailed, user friendly instructions and diagrams to allow for easy installation and activation. We have distinguished ourselves from our main competitors through the level of customer service offered to our consumers following their purchase or our products or services. Many of our competitors only offer customer service through an email query program. This does not allow the customer to receive rapid, real-time problem solving assistance in the event our competitor’s product or service fails. We have established a customer service online forum where our users can post their questions and read other users’ responses. The forum has key word or key phrase search option so that our customers can easily find a solution to the problem they are experiencing. Our forum is moderated by one of our development engineers to ensure that all questions are being properly addressed and issues resolved. We also offer a live customer support hotline. This allows us to provide superior customer service, while still keeping our costs low.

Government Regulation

As a telecommunications supplier, we are subject to extensive government regulation. The majority of our government regulation comes from the Federal Communications Commission (the “FCC”).

Telecommunications is an area of rapid regulatory change. Changes in the laws and regulations and new interpretations of existing laws and regulations may affect permissible activities, the relative costs associated with doing business and amounts paid to us for our services. We cannot predict the future of federal, state ~~and~~or local regulations or legislation, including FCC regulations.

~~Federal Communications Commission (“FCC”) regulation~~6

~~The~~Federal ~~FCC is an independent United States government agency. The FCC was established by the~~ Communications ~~Act~~Commission of 1934 and is charged with regulating interstate and international communications by radio, television, wire, satellite and cable. The FCC’s jurisdiction covers all fifty states, the District of Columbia and U.S. possessions.Regulations

The ~~FCC~~Federal ~~works~~Communications toCommission ~~create~~(“FCC”) is an ~~environment~~independent ~~promoting~~United ~~competition and~~States ~~innovation~~government toagency. ~~benefit~~The ~~communications~~FCC ~~customers.~~was ~~Where~~established ~~necessary,~~by the ~~FCC~~Communications ~~has~~Act ~~acted~~of to1934 ~~ensure~~and ~~VoIP~~is ~~providers~~charged ~~comply~~ with ~~important~~regulating ~~public~~interstate ~~safety~~and ~~requirements~~international communications by radio, television, wire, satellite and ~~public~~cable. ~~policy~~The ~~goals~~FCC’s jurisdiction covers all fifty states, the District of Columbia and U.S. possessions.

~~Interconnected~~The ~~VoIP~~FCC ~~providers~~works ~~must comply with the Commission’s Telecommunications Relay Services (TRS) requirements, including contributing~~ to ~~the~~create ~~TRS~~an ~~Fund~~environment ~~used~~promoting ~~to support the provision of telecommunications~~competition ~~services~~and innovation to ~~persons~~benefit ~~with~~communication ~~speech~~customers. orWhere ~~hearing disabilities~~necessary, ~~and~~the ~~offering~~FCC ~~711~~has ~~abbreviated~~acted ~~dialing for access~~ to ~~relay~~ensure ~~services. Interconnected~~ VoIP providers ~~and~~comply ~~equipment manufacturers also must ensure that, consistent~~ with ~~Section 255 of the Communication Act, their~~important ~~services~~public ~~are~~safety ~~available~~requirements to and ~~usable~~public bypolicy ~~individuals with disabilities, if such access is readily achievable~~goals.

7Finally, the FCC now requires interconnected VoIP providers and telephone companies that obtain numbers from them to comply with Local Number Portability (LNP) rules. These rules allow telephone, and now VoIP, subscribers that change providers to keep the subscribers’ telephone numbers provided that they stay in the same geographic area. VoIP providers must also contribute to funds established to share LNP and numbering administrative costs among all telecommunications providers benefiting from these services.

Finally, the FCC now requires interconnected VoIP providers and telephone companies that obtain numbers from them to comply with Local Number Portability (LNP) rules. These rules allow telephone, and now VoIP, subscribers that change providers to keep the subscribers telephone numbers provided that they stay in the same geographic area. VoIP providers must also contribute to funds established to share LNP and numbering administrative costs among all telecommunications providers benefiting from these services.

The FCC monitors and investigates complaints against VoIP providers and, if necessary, can bring enforcement actions against VoIP providers that do not comply with applicable regulations.

Federal CALEA

On August 5, 2005, the ~~Federal Communication Commission (the~~ FCC) released an Order extending the obligation of the Communication Assistance for Law Enforcement Act (“CALEA”) to interconnect ~~VOIP~~VoIP providers. Under CALEA , telecommunication carriers must assist law enforcement in executing electronic surveillance, which includes the capability of providing call content and call identifying information to local enforcement agencies, ~~or LEA,~~ pursuant to a court order or other lawful authorization.

The FCC required all interconnect ~~VOIP~~VoIP providers to become CALEA compliant by May 14, 2007. WeAt ~~are~~this ~~fully~~time ~~compliant~~we ~~with~~are CALEA compliant.

State Telecommunication Regulation

We are also registered with the Florida Public Utilities Commission as a Competitive Local Exchange Carrier (“CLEC”) and Interexchange (“IXC”) Carrier.

In Florida, a ~~“competitive~~CLEC ~~local exchange carrier”~~ is defined as any company, other than an incumbent local exchange company, ~~certificated~~certified by the Public Service Commission to provide local exchange telecommunication services in the state of Florida on or after July 1, 1995. CLEC companies providing services in Florida after July 1, 1995, must be ~~certificated~~certified by the Florida Public Service Commission, and competitive local exchange companies are required to file a price list specifying their rates and charges for basic local telecommunication services.

Florida, as well as other states, also regulates providers of Interexchange Telecommunications (“IXC”). The Florida Public Service Commission includes the following as examples of IXC providers: (1) operator service providers; (2) resellers; (3) switchless re-billers; (4) multi-location discount aggregators; (5) prepaid debit card providers; and (5) facilities based interexchange carriers. Section 364.02(13) of the Florida Statutes requires IXCs to provide current contact information and a tariff to the Florida Public Service Commission.

We have been granted and or are applying for Competitive Local Exchange Carrier (“CLEC”) Licenses in multiple states, as follows:

The law relating to regulation of VoIP technology is in a flux. In recent court cases, other VoIP providers have challenged whether state regulations can be applied to VoIP technology or whether such regulation has been preempted by the Telecommunications Act of 1996 and other Federal laws. At least one of our competitors has successfully fought the application of state laws to VoIP technology. However, to be cautious, we will continue to obtain a competitive local exchange carrier license from each state in which we conduct business. An added advantage of obtaining a CLEC license from each state is that we can obtain an operational carrier number from the North American Numbering Plan Administration. The operational carrier number will allow us to assign our customers telephone numbers in the area code in which they reside.

Employees

We employ 2621 full time employees, none of our employees are subject to collective bargaining agreement, and we consider our employee relations to be satisfactory.

Patents – Domestic and International

Our products are under US patent number 8,243,722 and six additional patents have been submitted to the USPTO in the area of telecommunication and television technology.

Intellectual Property

We regard our domain names, patents, trademarks, copyrights, trade dress, trade secrets, proprietary technologies and similar intellectual property as critical to our success, and we rely on patent, trademark and copyright law, trade-secret protection, and confidentiality and/or license agreements with our employees, customers, partners, and others to protect our proprietary rights.

We have received multiple patents from the United States Patent Office (USPTO) and have filed multiple additional patent applications with the United States Patent and Trademark Office for the technology associated with our products. We also have software under development by our employees, subcontractors and consultants.

The status of any patent involves complex legal and factual questions, and the breadth of claims allowed is uncertain. Accordingly, we cannot assure ~~you~~ that any patent application filed by us will result in a patent being issued or that our issued patents, and any patents that may be issued in the future, will afford adequate protection against competitors with similar technology. We similarly face the risk that any patents issued to us might be infringed upon or designed around by others. Our patent prosecution and resulting claims are handled on a contingency basis by Niro, McAndrews, Dowell, & Grossman LLC after an initial standard fee.

~~Patents~~Our –DUO, ~~Domestic~~DUO II and ~~International~~DUO Wifi products are under US patent number 8,243,722 C2

~~Our~~Item ~~DUO~~1 ~~product~~A. isRisk ~~under US patent number 8,243,722 as well as International patent pending in over 123 countries.~~Factors

~~Research~~Set forth below are risks with respect to our Company. Readers should review these risks, together with the other information contained in this report. The risks and ~~Development~~uncertainties we have described in this report are not the only ones we face. There may be additional risks and uncertainties that are not presently known to us, or that we presently deem immaterial, that may become material and also adversely affect our business. If any of the following risks develop into actual events, our business, financial conditions or results of operations could be materially and adversely affected. See “Forward-Looking Statements” at the beginning of this report for additional risks.

We expense research and development expenses as these costs are incurred. We account for our offering-related software development costs as costs incurred internally in creating a computer software product which are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. At this time, our main product the DUO, DUO II and DUO WIFI is being sold in the market place. Therefore, research and development cost reported in our financial statements relates to development of upcoming new products.

On July 14, 2010 we revealed our product the netTALK DUO (“DUO”).

Our DUO offers our customers free nationwide calls to any landline or mobile phone in the U.S. and Canada from anywhere in the world, as well as low-cost international rates. It’s also a versatile digital phone service with no monthly fees, no contracts and no computer required.

Our DUO is flexible enough to connect directly to your Internet connection through the router/modem, there is also a convenient option with our DUO to connect to your computer. The sleek design is small enough to fit in the palm of your hand, making it a portable device.

Our DUO reduces the wear and tear on your home or office computer and reduces energy costs, resulting in money savings. Our fax-friendly DUO, offers fax (incoming and outgoing), a unique feature not offered, to our knowledge, by similar digital phone services.

The portability of this small device is also great for international travelers who want to place free nationwide calls to the U.S. and Canada, or who are looking for a low-cost solution for international rates. Calls to other netTALK customers are always free.

We are presently working on other new products and anticipate future deployment the later part of this year and over the next year, including Nettalk “APP” for IPhone and Android and Nettalk TV.

Item 1 A. Risk factors

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives and other forward-looking statements included in this section, “Item 1 Business,” “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other places in this Annual Report. Such statements may be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “believe”, “estimate”, “anticipate”, “intend”, “continue”, or similar terms, variations of such terms or the negative of such terms. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Factors that could cause such results to differ materially from those described in the forward-looking statements include, but are not limited to, those set forth below.

Our business faces many risks. We believe the risks described below are the material risks we face. However, the risks described below are not the only risks we face. Additional unknown risks or risks that we currently consider immaterial may also impair our business operations. If any of the events or circumstances described below actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our shares of common stock could decline significantly. Investors should consider the specific risk factors discussed below, together with the “Special Note Regarding Forward-Looking Information” and the other information contained in this Annual Report on Form 10-K and the other documents that we will file from time to time with the SEC.

RISKS RELATED TO OUR BUSINESS:

We have ~~not~~never ~~sustained~~been ~~profits~~profitable and our losses could continue. Without sufficient additional capital to ~~apply to~~ repay our indebtedness or continue operations, we may be required to significantly scale back our operations, significantly reduce our headcount, seek protection under the provisions of the U.S. Bankruptcy Code, and/ or discontinue many of our activities which could negatively affect our business and prospects. ~~Our current capital raising efforts may not be successful in raising additional capital on favorable terms, or at all.~~

We have ~~experienced~~incurred significant losses in the past and have never sustained profits. For the years ended December 31, ~~2012~~2014 and ~~2011~~2013, we recorded net losses of $~~14.7~~2,841,207 and $~~29.8 million~~4,787,830, respectively. ~~For~~ ~~the~~Also, ~~three~~at ~~month ended~~ December 31, ~~2011~~2014 and ~~2010~~2013, we ~~recorded~~had ~~net~~a ~~losses~~total of $~~3.4~~7,576,155 and $~~1.2 million~~5,929,278 ~~respectively.~~in ~~For the fiscal~~promissory ~~years~~notes ~~ended September 30, 2011~~ and ~~2010~~mortgage wepayable ~~recorded~~(see ~~net~~note ~~losses~~9 ofto ~~$27.7~~financials ~~and $6~~statements).~~4 million, respectively.~~

AsWe ofare ~~December~~not 31certain if our current cash resources, ~~2012~~together with anticipated cash flows from operating activities, wewill ~~had~~be ~~$15.6~~sufficient ~~million~~to fund our operations in ~~current~~2015 ~~senior~~or repay indebtedness that ~~debentures~~becomes due in 2015. Further, ~~demand~~we ~~notes~~do not anticipate having sufficient cash and ~~$1.4~~cash ~~million~~equivalents into ~~long~~repay ~~term~~the debt should our lenders or mortgage debt lenders accelerate the maturity date of outstanding debt, and we would be forced to seek alternative sources of financing. In light of these circumstances, we will need to seek additional capital through public or private debt or equity financings.

~~While~~However, wethere ~~believe~~are ~~that~~no ~~our~~assurances ~~current~~that ~~cash~~those ~~resources,~~efforts ~~together~~will ~~with~~be ~~anticipated~~successful ~~cash~~or ~~flows~~that ~~from~~additional ~~operating~~capital ~~activities,~~ will be ~~sufficient~~available toon ~~fund~~terms ~~our~~that ~~operations,~~do ~~including interest payments, in 2013, they will~~ not beadversely ~~sufficient~~affect toour ~~fund~~existing ~~repayment~~stockholders ofor ~~principal on~~ restrict our ~~outstanding indebtedness in 2013. Further~~operations, weif doit ~~not~~is ~~anticipate having~~available ~~sufficient~~at ~~cash~~all. ~~and~~If ~~cash~~we ~~equivalents~~raise toadditional ~~repay~~funds ~~the~~through ~~debt should~~ the ~~senior~~issuance ~~debentures~~of ~~or mortgage~~ debt ~~lenders~~securities, ~~accelerate~~these securities ~~the~~could ~~maturity~~have ~~date~~rights ofthat ~~outstanding~~are ~~debt,~~senior ~~and we would be forced~~ to ~~seek~~holders ~~alternative sources~~ of ~~financing.~~our Incommon ~~light~~stock ofand ~~these~~could ~~circumstances, we~~include ~~will~~different ~~need~~financial tocovenants, ~~seek~~restrictions and ~~additional capital through public~~ or ~~private~~financial ~~debt or equity financings~~ratios.

~~However,~~Equity there are no assurances that those efforts will be successful or that additional capital will be available on terms that do not adversely affect our existing stockholders or restrict our operations, if it is available at all. If we raise additional funds through the issuance of debt securities, these securities could have rights that are senior to holders of our common stock and could include different financial covenants, restrictions and financial ratios. The conversion of the convertible notes resulted in substantial dilution to our stockholders and any additional equity financing would ~~also~~ likely be substantially dilutive to our stockholders, particularly in light of the prices at which our common stock has been recently trading. In addition, if we raise additional funds through the sale of equity securities, new investors could have rights senior to our existing stockholders. The terms of any future financings may restrict our ability to raise additional capital, which could delay or prevent the further development or marketing of our products and services. Our need to raise capital before the repayment of our debt becomes due may require us to accept terms that may harm our business or be disadvantageous to our current stockholders, particularly in light of the current illiquidity and instability in the global financial markets.

Our business may be affected by factors outside our control .

Our ability to increase sales and to profitably ~~distribute~~sell and ~~sell~~ distribute our products and services is subject to a number of risks, including changes in our business relationships with our principal distributors, competitive risks such as the entrance of additional competitors into our markets, pricing and technological competition, ~~risks~~ risks associated with the development and marketing of new products and services in order to remain competitive and risks associated with changing economic conditions and government regulation. Our inability to overcome these risks could materially and adversely affect our operations.

The Company may experience delays in the deployment of new products. If it is not successful in the continued development, introduction or timely manufacture of new products, demand for its products could decrease.

While the Company has new products currently in development or beta versions, its continued ability to adapt to such changes will be a significant factor in maintaining or improving its competitive position and its prospects for growth. Factors resulting in delays in product development include:

rapid technological changes in the broadband communications industry;

federal, state and local regulations governing our products and services;

relationships with manufacturers, other carriers and service providers; and

the availability of third party technology for the development of new products.

There can be no assurance that the Company will successfully introduce new products on a timely basis or achieve sales of new products in the future. In addition, there can be no assurance that the Company will have the financial and product design resources necessary to continue to successfully develop new products or to otherwise successfully respond to changing technology standards and service provider service offerings. If the Company fails to deploy new products on a timely basis, then its product sales will decrease, its quarterly operating results could fluctuate, and its competitive position and financial condition would be materially and adversely affected.

In addition, the Company’s pursuit of necessary technology may require substantial time and expense. It may need to license new technologies to respond to technological change. These licenses may not be available to the Company on terms that it can accept or may materially change the gross profits that it is able to obtain on its products. The Company may not succeed in adapting its products to new technologies as they emerge. Development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that the Company will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to the Company’s future success. Any future delays, whether due to product development delays, manufacturing delays, lack of market acceptance, delays in regulatory approval, or otherwise, could have a material adverse effect on the Company’s results of operations.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brand.

We have invested significant resources to protect our brands and intellectual property rights. However, we may be unable or unwilling to strictly enforce our intellectual property rights, including our trademarks, from infringement. Our failure to enforce our intellectual property rights could diminish the value of our brands and product offerings and harm our business and future growth prospects.

We may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to sell some of our products.

Our industry is characterized by vigorous pursuit and protection of intellectual property rights, which has resulted in protracted and expensive litigation for several companies. Third parties may assert claims of misappropriation of trade secrets or infringement of intellectual property rights against us or against our end customers or partners for which we may be liable.

As our business expands, the number of products and competitors in our markets increases and product overlaps occur, infringement claims may increase in number and significance. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we would be successful in defending ourselves against intellectual property claims. Further, many potential litigants have the capability to dedicate substantially greater resources than we can to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing products or performing certain services.

RISKS RELATED TO OUR COMMON STOCK:

Our stock price may be volatile.

The market price of our common shares is subject to significant fluctuations in response to variations in our quarterly operating results. Factors other than our financial results that may affect our share price include, but are not limited to, market expectations of our performance, market perception or our industry, the activities of our managers, customers, and investors, and the level of perceived growth in the industry in which we participate, general trends in the markets for our products, general economic, business and political conditions in the countries and regions in which we conduct our business, changes in government regulation affecting our business, many of which are not within our control.

We have not and do not anticipate paying any dividends on our common stock.

We have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

We are subject to the reporting requirements of federal securities laws, this can be expensive and may divert resources from other projects, thus impairing its ability grow.

We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited financial statements reports to stockholders will cause our expenses to be higher than they would have been if we had remained privately held.

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our Common Stock.

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

Public company compliance may make it more difficult to attract and retain officers and directors.

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

The limited trading market for our common stock results in limited liquidity for shares of our common stock and significant volatility in our stock price.

Although prices for our shares of common stock are quoted on the OTC Bulletin Board (“OTCBB”), there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTCBB is generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our common stock will be quoted on another more prestigious exchange or market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market reduces the liquidity of our common stock.

The market price of our stock is likely to be highly volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on our stock price. As a result of the lack of trading activity, the quoted price for our common stock on the OTCBB is not necessarily a reliable indicator of its fair market value. Further, if we cease to be quoted, holders of our common stock would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock would likely decline.

Our Common Stock is currently deemed a “penny stock,” which makes it more difficult for our investors to sell their shares.

Our Common Stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

Offers or availability for sale of a substantial number of shares of our Common Stock may cause the price of our Common Stock to decline.

If our stockholders sell substantial amounts of our Common Stock in the public market upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our Common Stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Description of ~~properties~~Properties

On August 8, 2011, we purchased an existing building ~~located~~ located in Miami ~~Gardens~~, Florida, currently used as our corporate offices and operational center. The building, a 21,675 square foot free standing structure, was purchased for $2,700,000 from Core Development Holdings Corporation, which entity has no relationship to the Company.

Interconnection Leasing Agreements

The Company will be entering into lease arrangements to provide interconnection services in multiple states. “Interconnection services” is defined in the Telecommunications Act of 1996 (the “Telecommunications Act”) as the linking of two telecommunication systems so that users of either system may utilize the system components of the other. Pursuant to the FCC rules implementing the

Telecommunications Act, we negotiate interconnection agreements with incumbent local exchange carriers to obtain access to facilities. Facilities leasing occurs where one network service provider leases the facilities of another network service provider to provide services to end users. We currently have executed two interconnection leasing agreements and are negotiating an interconnection leasing agreement with other major hosting/bandwidth companies. Our current interconnection leasing agreements are with multiple carriers. The agreements relate to facilities located or to be located in the following states:

The agreements will grant us interconnection leasing rights in all forty-three states in which we have obtained or are pursuing a CLEC license. If we enter new markets, we expect to establish interconnection agreements with incumbent local exchange carriers on an individual state basis, as the need arises.

Item 3. Legal Proceedings

On ~~April~~September 421, 2012, ~~MagicJack~~NetTalk.com, ~~Vocaltec Ltd~~Inc. filed a complaint in in United States District Court ~~For~~for the Southern District of Florida, Civil Action No.: 9:12-cv-~~80360~~810220-~~DMM~~CIV-MIDDLEBROOK/BRANNON, against ~~the~~MAGICJACK ~~Company~~VOCALTECLTD, ~~alleging~~ ~~patent~~MAGIJACK ~~infringement,~~HOLDINGS ~~seeking~~CORPORATION ~~injunctive~~f/k/a ~~relief~~YMAX ~~and~~HOLDINGS ~~damages~~CORPORATION asand aDANIEL ~~result~~BORISLOW. ofIn the ~~alleged~~complaint we allege patent infringement. ~~The~~by ~~Company answered~~ the ~~complaint,~~defendants ~~denying~~and ~~all~~are ofseeking ~~its~~injunctive ~~material~~relief ~~allegations,~~and ~~asserting~~two ahundred ~~number~~million ofdollars ~~affirmative defenses~~($200, ~~and seeking counterclaims~~000,000) ~~for~~in ~~declaratory~~damages ~~relief.~~as ~~The~~a ~~Company’s~~result ~~patent~~of ~~counsel has provided an opinion that~~ the ~~NetTalk~~alleged ~~DUO does not infringe their~~ patent. ~~MagicJack~~infringement ~~Vocaltec~~by ~~Ltd~~defendants. ~~and~~There ~~NetTalk~~can ~~filed~~be ano ~~Joint~~assurances ~~Stipulation~~as ~~and~~to ~~motion for~~ the ~~dismissal. Effective~~outcome ~~November 2012, the federal court has dismissed the entire case with prejudice, including all claims, counterclaims, defenses and causes~~ of ~~action.~~this litigation.

OnAs ~~September~~a ~~21,~~result ~~2012,~~of ~~NetTalk.com~~this action, ~~Inc.~~MAGICJACK/ VOCALTEC LTC filed a document ~~complaint~~with in the United States ~~District~~Patent ~~Court~~Office ~~For~~(“USPTO”) ~~the~~requesting ~~Southern~~reexamination ~~District~~ of ~~Florida,~~netTALK ~~Civil~~patent ~~Action No.: 9:12-cv-81022-CIV-MIDDLEBROOK/BRANNON~~8, ~~against MAGICJACK VOCALTECLTD~~243,722. ~~MAGIJACK~~The ~~HOLDINGS~~USPTO granted ~~CORPORATION~~the ~~f/k/a~~reexamination ~~YMAX~~petition ~~HOLDINGS CORPORATION~~ and ~~DANIEL~~the ~~BORISLOW,~~claim Inagainst ~~the~~MAGICJACK/VOVALTEC ~~complaint, we~~LTD ~~allege~~was ~~patent~~stayed ~~infringement~~pending by the ~~defendants,~~outcome ~~seeking injunctive relief and damages as a result~~ of the ~~alleged~~USPTO ~~patent infringement by defendants~~reexamination.

In December 2013, netTALK received a USPTO Notice of Intent to Issue Ex Parte Reexamination Certificate (“NIRC”) for netTALK’s U.S. Patent Number 8,243,722.

In January 2014, netTALK petitioned the courts to restart the aforementioned lawsuit against MAGICJACK VOCALTECLTD, MAGIJACK HOLDINGS CORPORATION f/k/a YMAX HOLDINGS CORPORATION and DANIEL BORISLOW.

On February 27, 2014, netTALK received the reexamination certificate which restated that all three claims of the ‘722 Patent are deemed allowable by the USPTO. The three claims of the ‘722 Patent were minimally amended during the proceeding.

On February 27, 2015, by stipulation of the parties, the district court dismissed all claims and counterclaims in netTALK v. magicJack (Case No. 9:12-cv-810220, Dkt. #158.)

On March 20, 2014 a claim was filed by Billsoft, Case No. 14CV01827. The claim states the Company indebted to Billsoft in the amount of $16,776 pursuant the terms of said Contract including $1,192 for attorney and court fees incurred by Billsoft for a total of $17,968. The Company has reached a settlement agreement on April 24, 2014 to make monthly payments of $1,000 until the debt is satisfied. The balance due at December 31, 2014 is $10,969 which is recorded in accounts payable.

On July 30, 2014, Active Media Services, Inc. filed a complaint against the Company in the United States District Court for the Southern District of New York. The Complaint seeks 374,803.43 in damages based on the theory of breach of contract. On September 9, 2014 the Company answered the complaint and the parties are presently engaged in discovery. As of the filing date of this report, the Company is evaluating whether a loss is probable or if there is a reasonable possibility that a loss may had been incurred and whether an accrual is necessary.

On July 30, 2014, the Company was served with a complaint from QVC, Inc. that was filed in the United States District Court, for the Eastern District of Pennsylvania, Case No.: 2:14-cv-04406-LS, alleging breach of contract by the Company and seeking damages of no less than $95,798. As of the filing date of this Report, the parties have settle the case for $99,870 and the first installment has been paid according to the settlement agreement. As of December 31, 2014, the amount settled has been accrued by the Company and is recorded in accounts payable.

On ~~September~~February 1427, ~~2012~~2015, athe ~~supplier~~Company ~~filed~~was served with a complaint from Northern Communication Services, Inc. that was filed in the ~~United States~~Circuit ~~District~~ Court ~~for~~of the ~~Southern~~11th ~~District~~Judicial ofCircuit In and For Miami-Dade County, Florida, Case No.: ~~1:12-cv-23366-FAM~~14029771CA01 Civil Division, alleging breach of contract by the Company and seeking damages of ~~not~~no less than $~~473~~43,~~319~~110. As ~~due~~of tothe ~~such~~date ~~alleged~~of ~~breach.~~this ~~The~~filing, ~~supplier~~the ~~alleges~~parties inhave settled the ~~complaint~~case ~~that Net~~for ~~Talk~~43,110 ~~failed~~and tothe ~~pay~~first ~~for~~installment has ~~component~~been ~~parts~~paid ~~manufactured~~according ~~for~~to the ~~Company’s~~settlement ~~products~~agreement. ~~The~~As ~~Company~~of ~~filed~~December an31, ~~answer~~2014, to the ~~complaint denying~~amount ~~the~~settled ~~supplier’s~~has ~~allegations~~been accrued by the Company and ~~asserting~~is ~~affirmative~~recorded ~~defenses~~in accounts payable.

~~NetTalk~~On ~~reached~~March 25, 2015, the Company received a ~~settlement~~collection ~~with~~letter from Canadian Credit Corporation threatening litigation for breach of contract by the ~~supplier~~ Company and asseeking damages of no less than $29,687. As of the date of this filing, the Company is evaluating whether a loss is probable or if there is a reasonable possibility that a loss may had been incurred. As of December 31, ~~2012~~2014, wethe ~~are~~amount inclaimed, ~~full~~$29,687, ~~compliance~~has ~~with~~been ~~said~~accrued ~~settlement~~by the Company and is recorded in accounts payable.

On ~~November~~April 263, ~~2012~~2015, the Company received a ~~supplier~~collection toletter ~~the~~from ~~Client,~~Receivables ~~Broadvox,~~Control ~~LLC~~Corporation ~~(“Broadvox”),~~threatening ~~filed~~litigation afor ~~complaint~~breach inof contract by the ~~Court~~Company ofand ~~Common~~seeking ~~Pleas,~~damages ~~Cuyahoga~~of ~~County,~~no ~~Ohio,~~less ~~Case~~than No$247,500.: As ~~CV-12-796095,~~of ~~alleging~~the ~~breach~~filing date of ~~contract~~this byreport, the ~~Company~~parties ~~and~~have ~~seeking~~settle ~~damages~~the ofcase ~~not~~for ~~less than~~ $~~111~~10,~~701~~000 ~~due~~and tothe ~~such~~first ~~alleged~~installment has ~~breach~~been paid according to the settlement agreement. ~~The~~As ~~Company~~of ~~and~~December ~~Broadvox~~31, ~~entered~~2014, ~~into~~the aamount ~~settlement~~settled ~~agreement~~has ~~providing~~been ~~for~~accrued by the ~~payment~~Company ofand is ~~all~~recorded ~~past~~in ~~due~~accounts ~~amounts~~payable.

AOn ~~Statement~~November of5, ~~Claim~~2014, ~~was~~Telestrata, ~~served~~LLC (“Plaintiff”) byfiled ~~DACS~~an ~~Marketing~~action &against ~~Sponsorship~~the company in the United States District Court for the Southern District ~~Inc.~~of onFlorida ~~NetTalk~~titled: Telestrata, LLC v. NetTAlk.com., Inc. onet ~~June 20~~al., ~~2012~~1:14-cv-24137. The ~~claim~~Complaint ismakes ~~for~~claims ~~$125,834.21~~derivatively on behalf of the Company’s shareholders for ~~amounts~~an ~~DACS~~injunction ~~claims~~ordering isthe ~~owing~~Company’s management to: it(1) ~~pursuant~~turn over to ~~its~~the ~~agreement~~Company asall ~~well~~documents, data and other property; (2) prohibiting current management from accessing the Company’s computer systems; (3) prohibiting current management from representing they are employed with the Company; (4) suspending Anastasios Kyriakides from his position as ~~$126,000~~chairman ~~for~~of ~~general~~the ~~damages~~board of directors; and (5) preventing the Company and its employees from disclosing any information to current management. The Complaint also makes derivative claims for breach of fiduciary ~~contract~~duty against current management and seeks a declaratory judgment that holding the employment agreements between the Company and Anastasios Kyriakides, Kenneth Hosfeld, Nick Kyriakides, Steven Healy, and Garry Paxinos are void.

AThe ~~Statement~~Complaint makes direct claims against the Company and its management for: (1) a declaratory judgment stating the amount of ~~Defence~~shares ~~was~~owned ~~delivered~~by oncurrent ~~your~~management ~~behalf~~is oninaccurate; ~~August~~(2) an accounting; ~~31,~~(3) ~~2012,~~breach ~~denying~~of contract for an unspecified amount of damages; (4) fraudulent inducement for an unspecified amount of damages (5) an equitable lien; and conspiracy. The Company will respond to the Complaint as required by the Court. The Company denies all such claims and intends to vigorously defend this action.

~~The~~On ~~following~~January ~~offers~~14, 2015, the Company filed a motion to ~~settle~~dismiss ~~have~~the derivative ~~been~~claims ~~made~~based byon Telestrata not filing a demand on the ~~parties~~board of directors and its derivative and direct claims being ~~but~~in toconflict ~~date,~~with ~~the~~each ~~parties~~other. ~~have~~This ~~not~~motion ~~accepted~~is ~~any~~fully ~~proposed~~briefed ~~offers:~~and oral argument has been ordered for April 27, 2015.

1.On ~~November~~or 7about December 24, ~~2012~~2014, ~~NetTalk~~the ~~offered~~Company filed an action against Telestrata, LLC seeking to ~~settle~~quiet title on its property and for slander of title based on Telestrata placing a mortgage on the ~~action~~property without bythe ~~payment~~Company’s authorization. Telestrata has filed a motion to ~~DACS~~consolidate ofthis ~~$5,000~~action with the Telestrata Derivative Litigation. This motion is fully briefed and the Company is awaiting the Court’s decision on this issue.

2We are aggressively defending all of the lawsuits and claims described above. ~~December~~While ~~18,~~we ~~2012,~~do ~~DACS~~not ~~offered~~believe tothese ~~settle~~aforementioned claims will have a material adverse effect on our financial position, given the ~~action~~uncertainty byand ~~NetTalk~~unpredictability ~~paying~~of tolitigation ~~DACS~~there can be no assurance of no material adverse effect. The Company is engaged in other legal actions and claims arising in the ~~sum~~ordinary course of ~~$85~~business,~~000~~ none of which are believed to be material to the Company.

3Item 4. ~~December~~Mine ~~27,~~Safety ~~2012, NetTalk offered to settle the action by payment to DACS of $10,000.~~Disclosures

~~To date, we have heard nothing further from the lawyer for DACS.~~None

~~ITEM 4. Mine safety disclosures None~~12

~~Part~~PART II

~~Our~~The Company’s common stock has been quoted on the OTC Bulletin Board under the symbol “NTLK” since September 15, 2009. Effective March 30, 2015, the Company was upgraded to the OTCQB venture stage marketplace for early stage and developing U.S. and international companies and will continue to trade under the ticker symbol “NTLK”. The Company is DTC and DWAC eligible.

Market Information

The figures set forth below reflect the quarterly high and low bid information for shares of our common stock during the last two fiscal years, as reported by the OTC Bulletin Board. These quotations reflect inter-dealer prices without retail markup, markdown, or commission, and may not represent actual transactions.

	High		Low
2013 Quarter Ended	High		Low
2011 Quarter Ended
March 31, 2013	$	0.36	$	0.08
March 31, 2011	$	2.50	$	0.29
June 30, 2013	$	0.12	$	0.07
June 30, 2011	$	1.19	$	0.51
September 30, 2013	$	0.12	$	0.04
September 30, 2011	$	0.70	$	0.26
December 31, 2013	$	0.37	$	0.02
December 31, 2011	$	0.58	$	0.15
2014 Quarter Ended
2012 Quarter Ended
March 31, 2014	$	0.31	$	0.11
March 31, 2012	$	1.67	$	0.10
June 30, 2014	$	0.36	$	0.11
June 30, 2012	$	0.48	$	0.10
September 30, 2014	$	0.20	$	0.08
September 30, 2012	$	0.20	$	0.10
December 31, 2014	$	0.12	$	0.04
December 31, 2012	$	0.19	$	0.08

RULES GOVERNING LOW-PRICE STOCKS THAT MAY AFFECT ABILITY TO RESELL SHARES. Our common stock is subject to certain rules adopted by the SEC that regulate broker-dealer practices in connection with transactions in "penny stocks". Penny stocks generally are securities with a price of less than $ 5.00 other than securities registered on certain national exchanges or quoted on the NASDAQ system, provided that the exchange or system provides current price and volume information with respect to transaction in such securities. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares which could limit the market liquidity of the shares and impede the sale of our shares in the secondary market.Holders

12As of March 27, 2015, there were 179 registered holders or persons otherwise entitled to hold our common stock. The transfer agent of our common stock is VStock Transfer, LLC.

The penny stock rules require broker-dealers, prior to a transaction in a penny stock not otherwise exempt from the rules, to make a special suitability determination for the purchaser to receive the purchaser's written consent to the transaction prior to sale, to deliver standardized risk disclosure documents prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. In addition, the penny stock regulations require the broker-dealer to deliver prior to any transaction involving the penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with the respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.Dividends

~~Holders~~We have not declared or paid any cash dividends on our common stock since our inception, and our Board of Directors currently intends to retain all earnings for use in the business for the foreseeable future. Any future payment of dividends to holders of common stock will depend upon our results of operations, financial condition, cash requirements, and other factors deemed relevant by our Board of Directors.

AsSecurities ofAuthorized ~~December~~for ~~31,~~Issuance ~~2012,~~Under ~~there~~Equity ~~were 170 registered holders or~~Compensation persons otherwise entitled to hold our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Fidelity Transfer.Plans

~~Dividends~~The following table sets forth certain information about the common stock that may be issued upon the exercise of options under the equity compensation plans as of December 31, 2014.

We have not declared or paid any cash dividends on our common stock since our inception, and our Board of Directors currently intends to retain all earnings for use in the business for the foreseeable future. Any future payment of dividends to holder of common stock will depend upon our results of operations, financial condition, cash requirements, and other factors deemed relevant by our Board of Directors.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders		-0-		-0-		-0-

Equity compensation plans not approved by security holders		-0-		-0-		8,289,500

Total		-0-		-0-		8,289,500

~~Securities Authorized for Issuance Under Equity Compensation Plans~~13

~~The~~Share-Based ~~following~~Payment ~~table sets forth certain information about the common stock that may be issued upon the exercise of options under the equity compensation plans as of December 31, 2012.~~Arrangements

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders		-0-		-0-		-0-
Equity compensation plans not approved by security holders		-0-		-0-		19,528,500
Total		-0-		-0-		19,528,500

NetTalk adopted a 2010 Stock Option Plan, a 2011 Stock Option Plan and a 2012 Stock Option Plan (the "Plans") which are intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate key individuals by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of our employee and consultants with those of the Company. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plans. The shares are compensatory in nature and are fully vested upon issuance. We value the shares consistent with fair value at the time of issuance including adjustments for certain restrictions and limitations.

Share~~-Based~~–based ~~Payment~~compensation ~~Arrangements~~cost to employees is recorded as compensation expense and is recognized over the service period. Share–based payments to non–employees are recorded as consulting expense and is recognized over the service period.

In ~~June 2008,~~ the ~~FASB~~first ~~issued~~quarter ~~authoritative guidance on the treatment~~ of ~~participating~~2014, ~~securities in~~ the ~~calculation~~Company ofissued ~~earnings per shares (“EPS”). This guidance addresses whether~~10,929,000 ~~instruments granted in~~ share –of ~~based~~common ~~payment~~stock ~~transactions~~under ~~are~~the ~~participating~~Plan ~~securities prior~~ to ~~vesting~~management and, ~~therefore,~~employees. ~~need to~~The becompensation ~~included~~expense inrelated ~~the~~to ~~earnings~~these ~~allocation~~shares inis ~~computing EPS under the two - class method~~$131,148. Additional ~~This~~paid ~~guidance~~in capital was ~~effective~~credited for ~~fiscal years beginning on or after December 15~~$120,219 ~~2008. Adoption of this guidance did not have a material impact on our results of operations~~ and ~~financial~~common ~~position,~~stock orwas oncredited ~~basic~~for ~~or diluted EPS~~$10,929.

WeIssuance apply the grant date fair value method to our share – based payment arrangements with employees and consultants. Share – based compensation cost to employees is measured at the grant date fair value based on the value of ~~the~~Equity ~~award~~Securities ~~and is recognized over the service period. Share – based payments to non – employees are recorded at fair value on the measurement date and reflected in expense over the service period.~~

13Effective March 11, 2014, netTALK and Telestrata LLC (“Telestrata”), a Colorado limited liability company executed a restricted stock and warrant purchase agreement, pursuant to which, in part, Telestrata purchased: (a) 25,441,170 shares of the Company’s common stock and (b) a common stock purchase warrant entitling Telestrata to purchase share of common stock of the Company equal to 20% of the then outstanding shares of common stock of netTALK.

~~2010~~Also, ~~Stock~~in ~~Option~~the ~~Plan~~first quarter of 2014, the Company issued a common stock purchase warrant entitling management to purchase shares of common stock of the Company equal to 20% of the then outstanding shares of common stock of netTALK.

On ~~November~~October 15, ~~2009~~2014, ~~NetTalk~~Telestrata, ~~adopted~~exercised ~~the~~its ~~2010~~warrant ~~Stock Option~~for ~~Plan~~19,424,000 ~~(the~~shares ~~"Plan") which is intended to advance the interests~~ of ~~the~~netTALK ~~Company’s~~common ~~shareholders by~~stock. ~~enhancing~~This ~~the~~issuance ~~Company’s~~was ~~ability~~recorded toas ~~attract,~~a ~~retain~~debit ~~and motivate persons who make (or are expected~~ to ~~make)~~interest ~~important~~expense ~~contributions to~~for ~~the Company by providing such persons with equity ownership opportunities and performance-based incentives~~$69,926, ~~thereby~~a ~~better~~credit ~~aligning~~to ~~the~~common ~~interests~~stock offor ~~such persons with those of the Company’s shareholders. All of the Company’s employees~~$19,424 ~~officers,~~ and ~~directors,~~a ~~and~~credit ~~those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services~~ to ~~the~~additional ~~Company~~paid ~~not~~in ~~connected to a~~ capital ~~raising transaction or the promotion or creation of a market~~ for ~~the Company’s securities~~$50, ~~are eligible to be granted options or restricted stock awards under the Plan~~502. ~~The maximum aggregate number of shares of the Company’s common stock issuable under the Plan was 10,000,000 shares of the Company’s common stock.~~

On ~~July~~October 2616, ~~2010~~2014, wemanagement ~~issued~~exercised 3its warrant for 24,~~709~~280,~~500~~000 shares of netTALK common stock. toThis ~~our~~issuance ~~employees~~was recorded as ~~part~~a ofdebit ~~our~~to ~~2010~~compensation ~~Stock~~expense ~~Option~~for ~~Plan.~~$87,408, ~~The~~a credit ~~shares~~to ~~are~~common ~~compensatory~~stock infor ~~nature~~$24,280 and ~~are~~a ~~fully~~credit ~~vested. We~~to ~~have~~additional ~~valued~~paid ~~the~~in ~~shares~~capital ~~consistent with fair value at the time of issuance adjusted~~ for ~~ownership restrictions~~$63,128.

OnIn ~~May~~the 23third ~~2011,~~and wefourth ~~issued 3~~quarters,~~890,000~~ ~~shares of~~the ~~common~~Company ~~stock~~issued tofour ~~our~~convertible promissory ~~employees~~notes. asEach ~~part~~ of ~~our~~these ~~2010~~notes ~~Stock~~were ~~Option~~offered ~~Plan.~~and ~~The~~sold ~~shares~~to ~~are~~accredited ~~compensatory~~investors in ~~nature~~a ~~and~~private ~~are~~placement ~~fully~~transaction ~~vested.~~made in Wereliance ~~have~~upon ~~valued~~exemptions ~~the~~from ~~shares~~registration ~~consistent~~pursuant ~~with~~to ~~fair~~Section ~~value~~4(2) atunder the ~~time~~Securities Act of ~~issuance~~1933. ~~adjusted~~See ~~for~~footnote ~~ownership~~8 ~~restrictions~~for further discussion.

OnItem ~~July 26 2011, we issued 2,400,500 shares of common stock to our employees as part of our 2010 Stock Option Plan~~6. ~~The~~Selected ~~shares~~Financial ~~are compensatory in nature and are fully vested. We have valued the shares consistent with fair value at the time of issuance adjusted for ownership restrictions.~~Data

~~Summary~~As ofa ~~2010~~smaller ~~Stock~~reporting ~~Option~~company, ~~Plan~~we ~~(issuances):~~are not required to include disclosure pursuant to this item.

July 26, 2010	3,709,500	Common shares
May 23, 2011	3,890,000	Common shares
July 26, 2011	2,400,500	Common shares
Total	10,000,000	Common shares

2011 Stock Option Plan

On June 15, 2011, NetTalk adopted the 2011 Stock Option Plan (the "Plan") which is intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of such persons with those of the Company’s shareholders. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plan. The maximum aggregate number of shares of the Company’s common stock issuable under the Plan was 20,000,000 shares of the Company’s common stock.

On January 6, 2012, we issued 3,483,500 shares of common stock to our employees as part of our 2011 Stock Option Plan. The shares are compensatory in nature and are fully vested. We have valued the shares consistent with fair value at the time of issuance adjusted for ownership restrictions.

On May 28, 2012, we issued 15,488,000 shares of common stock to our employees as part of our 2011 Stock Option Plan. The shares are compensatory in nature and are fully vested. We have valued the shares consistent with fair value at the time of issuance adjusted for ownership restrictions.

On July 25, 2012, we issued 1,028,500 shares of common stock to our employees and vendors as part of our 2011 Stock Option Plan. The shares are compensatory in nature and are fully vested. We have valued the shares consistent with fair value at the time of issuance adjusted for ownership restrictions.

Summary of 2011 Stock Option Plan (issuances):

January 6, 2012	3,483,500	Common shares
May 28, 2012	15,488,000	Common shares
July 25, 2012	1,028,500	Common shares
Total	20,000,000	Common shares

2012 Stock Option Plan

On July 25, 2012, Nettalk adopted the 2012 Stock Option Plan (the "Plan") which is intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of such persons with those of the Company’s shareholders. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plan. The maximum aggregate number of shares of the Company’s common stock that may be issued under the Plan is 20,000,000 shares of the Company’s common stock.

On July 25, 2012, we issued 471,500 shares of common stock to our employees and vendors as part of our 2012 Stock Option Plan. The shares are compensatory in nature and are fully vested. We have valued the shares consistent with fair value at the time of issuance including and adjusted for ownership restrictions.

Recent Sales of Unregistered Securities

Unless otherwise noted below, we have previously included information concerning sales of unregistered securities in our Quarterly Reports on Form 10-Q or in a Current Report on Form 8-K.

Item 6. Selected financial data.

As a smaller reporting company, we are not required to include disclosure, pursuant to this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~This~~The following discussion and analysis ofshould be read together with our consolidated financial ~~condition~~statements and ~~results~~ ofthe ~~operations~~related ~~contains~~notes ~~forward-looking statements~~thereto ~~that involve~~reflected ~~risks~~in ~~and~~the ~~uncertainties.~~index Weto ~~have~~the ~~based~~consolidated financial ~~these~~statements in this report. This discussion contains forward-looking statements onreflecting our current expectations that involve risks and ~~projections~~uncertainties. ofSee ~~future~~“Forward-Looking ~~events.~~Statements” ~~However,~~for ~~our~~a ~~actual~~discussion ~~results~~of ~~could~~the ~~differ~~uncertainties, ~~materially~~risks ~~from~~and ~~those~~assumptions ~~discussed~~associated ~~herein~~with asthese astatements. ~~result~~Actual ofresults and the ~~risks that~~timing weof ~~face,~~events ~~including but~~could ~~not limited~~differ to materially from those ~~risks stated~~discussed in ~~”Risk~~ ~~Factors,"~~our orforward-looking ~~faulty~~statements ~~assumptions~~as ona ~~our~~result ~~part.~~of Inmany ~~addition~~factors, ~~the~~including ~~following~~those ~~discussion~~set ~~should~~forth beunder ~~read~~“Risk inFactors” ~~conjunction with the audited financial statements~~ and ~~the related notes thereto included~~ elsewhere in this ~~Annual Report~~report.

~~Liquidity~~Our ~~and~~Ability ~~Capital~~to ~~Resources~~Continue as a Going Concern

~~During~~The ~~the years~~accompanying ~~ended~~audited ~~December~~financial ~~31,~~statements ~~2012~~have been prepared and ~~2011,~~are wepresented ~~generated~~assuming ~~net~~the Company’s ability to continue as a going concern. The Company has incurred significant recurring losses offrom ~~$14,715,006~~operations and ~~$28,389,302,~~is ~~respectively~~dependent on outside sources of funding for continuation of its operations. WeOur ~~used~~independent ~~cash~~registered inpublic ~~our~~accounting ~~operations~~firm issued its report dated April 15, 2015, in connection with the ~~amount~~audit of $5our financial statements as of December 31,~~248~~ 2014,~~675~~ ~~during~~that included an emphasis of matter paragraph describing the ~~year~~existence ~~ended~~of ~~December~~conditions ~~31,~~that ~~2012~~raise substantial doubt about our ability to continue as a going concern.

AsThe accompanying audited financial statements do not include any adjustments relating to the recoverability and classification of ~~December~~asset ~~31,~~carrying ~~2012,~~amounts weor ~~had~~the ~~cash~~amount and classification of ~~cash~~liabilities ~~equivalents~~that onmight ~~hand~~result from the outcome of ~~$96,347~~this uncertainty.

Statement of cash flow data:	12/31/2012			12/31/2011
Net cash provided (used) in operating activities	$	(5,248,675	)	$	(7,577,533	)
Net cash provided (used) in investing activities	$	(317,395	)	$	(2,564,888	)
Net cash provided (used) in financing activities	$	4,123,154		$	10,660,000

In order to address the need to satisfy its continuing obligations and realize its long term strategy, management has been reviewing various strategic alternatives and has taken several steps and is considering additional actions to improve its operating and financial results, which we hope will be sufficient to provide the Company with the ability to continue as a going concern, including the following:

~~Our largest operating expenditures currently consist of compensation and benefits.~~14

~~Borrowing~~· ~~Arrangements~~We restructured the Company’s debt resulting in the extinguishment of $13,662,615 of debt, $436,234 of accrued interest and $1,301,116 of accrued dividends.

~~Long-term~~· We identified key vendors and ~~short~~developed ~~term~~strategic ~~debt~~alliances whereby the Company has reduced its cost of providing telecom service and extended the due dates of certain promissory notes to March 1, 2016.

~~Securities~~· ~~Option~~We ~~Agreement:~~are seeking other revenue streams utilizing our relationships with telecom providers and suppliers and our communication infrastructure and telephony switch to provide telecom service routing customer calls.

On· ~~June~~We ~~30,~~eliminated ~~2012,~~26 weemployees ~~executed~~reducing ~~Securities~~payroll ~~Option~~cost ~~Agreement with Vicis Capital Master Fund (“Vicis”) whereby Vicis grants us an option to purchase~~ and ~~redeem~~we ~~all~~cut ~~securities~~other ~~and~~general ~~debentures held by Vicis. The option becomes exercisable on the date that all principal~~ and ~~accrued~~administrative ~~interest~~costs onduring ~~all debentures have been paid in full, and may be exercised at any time after initial exercise date through and including December 31,~~ 2013 ~~(expiration~~by ~~date). Upon exercise of the “option” the redemption price for the securities shall be an amount equal to~~ $161,~~000~~164,000 ~~minus the sum of principal and accrued interest paid on all debentures held by Vicis~~. ~~Upon exercise of the option, any and all unpaid dividends on the securities shall be surrendered and cancelled without payment of additional consideration.~~

In addition, we are seeking financing from other sources, including the possibility of an infusion of equity, to generate additional funds for operations, including the retention of an investment banker to seek funding and evaluate other strategic alternatives. There is no assurance that the above actions will allow the Company to continue as a going concern.

Based upon the steps outlined above being successful, we hope our cash on hand and developing additional revenue streams will provide sufficient cash to meet current obligations for our operations to allow the Company to continue as a going concern. There can be no assurance that the actions will be successful and any such new financing or equity infusion will be available or that we could obtain any such arrangements on terms suitable to us.

General and Recent Developments

On October 10, 2014, the Company received a termination letter from its primary vendor, Iristel (owned by, and with its CEO being, the previous President of netTALK), which provides telecommunications service and phone numbers (“DID”), with respect to two contracts between Iristel and the Company, one dealing with carriage and one dealing with DIDs. Upon being informed of the termination, the Company ported its carriage to a new carrier, and informed Iristel that, pursuant to its rights under the DID contract, it would port the DIDs promptly to a new provider. On October 17, 2014, Samer Bishay, previous President of the Company and CEO of Iristel, purporting to act on behalf of both the Company and Iristel, without conflict waivers of any sort, attempted to agree to rescind the termination of the DID contract, which neither Iristel nor the Company had the power to do. The Company attempted to shift the DIDs to new carriers, but Iristel, through Samer Bishay, the previous President of the Company, refused to allow these customers to be moved to new DID vendors.

On October 15, 2014, Telestrata LLC (“Telestrata”), a Colorado limited liability company, owned or controlled by three members of the NetTalk board of directors that were removed from the Board November 26, 2014, exercised it warrant for 19,424,000 shares of netTALK common stock. On October 16, 2014, (1) members of management exercised their warrants for 24,280,000 shares of netTALK common stock and (2) shareholders representing more than a majority of the then outstanding common stock of the Company voted, via written consent in lieu of a meeting, to remove each of Samer Bishay (President), Maged Bishara, and Nardir Aljasrawi from their positions as members of the Company's Board of Directors (the "Director Removal"). The Director Removal became effective November 26, 2014.

On October 27, 2014, Company was notified that Samer Bishay, current President of the Company, on or about October 24th, 2014, through counsel for Telestrata, an entity with which he is affiliated, unilaterally filed a mortgage in the amount of approximately $4.5 million, encumbering certain real property of the Company. The Company's Board of Directors (the "Board"), through a unanimous written consent executed September 2, 2014, by all directors including Mr. Bishay, authorized the company to undertake such action only under certain conditions, including the condition that only the Chief Financial Officer of the Company could execute and authorize any such filing. Such written consent has not been revoked, modified or superseded by any subsequent valid action of the Board, and accordingly, the Company is working with counsel to rescind such unauthorized encumbrance and pursue any causes of action it or its shareholders may have against Mr. Bishay.

As a result of this unauthorized encumbrance, at this time the Company is unable to refinance the mortgage payable that matured November 29, 2014. However, the maturity date was extended to November 29, 2015.

The Company executed a redemption and debt restructuring agreement with Vicis Capital Master Fund ("Vicis") to, among other things, extend the term of our loans with two additional one year extensions, and reduce the overall loan with Vicis from approximately seventeen million dollars ($17,000,000) to three million dollars ($3,000,000). The restated loan accrues interest at six percent (6%) per annum.

In addition, pursuant to the redemption and restructuring agreement, all shares and derivative securities held by Vicis were cancelled including the series A convertible redeemable preferred stock, 19,995,092 shares of the Company’s common stock, and common stock purchase warrants exercisable for 76,864,250 shares of common stock. These securities have been returned to the Company and have been cancelled. The holders received no additional consideration to effect the modification.

Effective March 11, 2014, netTALK and Telestrata executed a restricted stock and warrant purchase agreement, pursuant to which, in part, Telestrata purchased: (a) 25,441,170 shares of the Company’s common stock and (b) a common stock purchase warrant entitling Telestrata to purchase shares of common stock of the Company equal to 20% of the then outstanding shares of common stock of netTALK.

~~Extension~~Subject ofto ~~Maturity~~repayment ~~Dates~~obligations of ~~Outstanding~~the ~~Non-Convertible~~Company ~~Debentures~~as provided below, Telestrata received credit of $4,571,939 to acquire the shares and warrants as follows: (a) $500,000 in the form of the conversion and cancellation of two promissory notes issued to Samer Bishay in May and July 2013, (b) $837,373 in loans to the Company received in the third and fourth quarters of 2013 and (c) the satisfaction by Telestrata of $2,734,566 of liabilities of the Company.

OnAlso, ~~June~~on 30March 11, ~~2012~~2014, wethe ~~entered~~Company ~~into an agreement to modify~~executed ~~our~~a ~~outstanding~~secured ~~debentures~~promissory ~~solely~~note towith ~~extend~~Telestrata ~~their~~for ~~maturity dates that originally ranged from June 30~~$4, ~~2012 to July 1~~071, ~~2013 to December 31, 2013~~940. ~~There~~Interest ~~were~~accrues noat ~~other~~5% ~~material~~and ~~modifications to~~ the ~~debentures~~note and ~~the~~interest ~~holders~~are ~~received~~payable noMarch ~~additional~~1, ~~consideration~~2016 subject to ~~effect~~accelerated ~~the~~repayment ~~modification.~~terms Asas adefined ~~result~~in ~~of these modifications, we evaluated each debenture to determine whether~~ the ~~maturity~~promissory ~~extension~~note ~~constituted~~agreement. aThe ~~substantial~~principal ~~modification.~~balance ~~Under~~of ~~current~~this ~~accounting~~note ~~standards~~increased $500,000 from ~~a debtor’s~~additional ~~perspective~~advances, aas ~~modification~~defined ofin ~~a debt instrument is deemed equivalent to~~ the ~~exchange~~promissory ofnote ~~debt~~agreement, ~~instruments~~resulting ~~if the~~in ~~present~~a ~~value~~new ofprincipal ~~the~~balance ~~cash flows under the terms~~ of ~~the~~$4,571,940. Advanced ~~modified~~payments ~~arrangement~~ are atrequired ~~least~~based 10certain ~~percent~~conditions ~~different~~with ~~from~~qualified ~~the present~~financing ~~value~~as ofdefined ~~the~~in ~~remaining cash flows under~~ the ~~terms~~secured ofpromissory ~~the original debt instrument~~note. ~~In cases where the difference in~~The ~~cash~~promissory ~~flows~~note ~~exceeds~~provides ~~this~~for ~~level, extinguishment accounting is prescribed. As~~ a ~~result~~discount of ~~our~~up ~~calculations,~~to wea ~~concluded~~maximum ~~that the present values, using the effective interest rates on the issuance dates,~~ of ~~our face value~~ $51,~~266~~805,~~130,~~785 ~~$2,000,000,~~if ~~and $3,500,000 debentures exceeded~~ the ~~substantive~~Company ~~threshold.~~makes ~~Accordingly,~~timely ~~the~~principal ~~debentures~~and ~~were~~interest ~~adjusted to their respective fair~~payments ~~values~~as ofrequired ~~$6,150,160,~~by ~~$2,313,888, and $3,852,748 and a corresponding charge to income in~~ the ~~amount~~promissory ~~of $3,135,235 representing the extinguishment loss~~note.

~~The~~Results ~~fair values~~ of ~~the debentures were determined based upon their future cash flows, discounted at a credit-risk adjusted market interest rate of 7.4%.~~Operations

~~2012~~Year ~~Issuance~~Ended ofDecember ~~Non-Convertible~~31, ~~Debentures~~2014 compared to the year ended December 31, 2013

OnRevenues: ~~March~~Net ~~29,~~revenues ~~2012~~were $5,063,416 wefor ~~issued~~the ayear ~~face~~ended December ~~value~~31, 2014, compared to $~~500~~6,~~000~~024,150 ~~10%~~for ~~senior secured~~the ~~debenture,~~year ~~due~~ended ~~June~~December 3031, ~~2012,~~2013. ~~extended~~The decrease in revenues is due primarily to ~~December~~the decrease ~~31,~~in ~~2013~~the number of devices sold during the year offset slightly by the increase in sales of telecom services. Our customers typically pay fees in advance which are deferred and recognized ratably over the service period.

OnCost ~~April~~of ~~20,~~sales: ~~2012,~~Cost weof ~~issued~~sales awas ~~face value~~ $~~500~~3,~~000~~100,906 ~~10%~~for ~~senior~~the year ~~secured~~ended ~~debenture~~December 31, ~~due~~2014, ~~June~~compared ~~30,~~to ~~2012~~$4,678,863 ~~extended~~for tothe year ended December 31, 2013. The decrease in cost of sales is due primarily to the reduction in sales of our devices and a reduction in the cost of providing telecommunications service to our customers.

OnOperating ~~June~~Expenses: ~~26,~~Operating ~~2012~~expenses were $4,162,458 for wethe ~~issued~~year aended ~~face~~December ~~value~~31, 2014 compared to $~~450~~4,~~000~~953,388 ~~10%~~for ~~senior~~the year ended December 31, 2013. The decrease in operating expenses ~~secured~~is ~~debenture~~due primarily to management’s cost cutting plan necessary to conserve working capital in order to maintain liquidity. Additionally, research and development expense decreased significantly due ~~June~~to 30costs capitalized as other assets which amounted to approximately $377,000 ~~2012~~net of amounts reclassified as fixed assets and certain projects expensed that were previously capitalized. Also, ~~extended~~patent toprotection legal fees were previously recorded as other assets and were expensed as of December 31, ~~2013~~2014.

During the year ended December 31, 2012, we received advances in the total amount of $1,150,000, as part of a series of 10% senior secured debentures, due December 31, 2013, issued to our largest investor.

	Year Ended December 31,
	2014		2013		$ Change			% Change
Advertising	$	145,453	$	373,308	$	(227,855	)		-61	%
Compensation & Benefits		1,172,369		1,301,904		(129,535	)		-10	%
Professional fees		965,319		438,822		526,497			120	%
Depreciation & Amortization		241,718		298,647		(56,929	)		-19	%
Research & Development		469,351		953,370		(484,019	)		-51	%
General & Administrative		1,168,248		1,587,337	$	(419,089	)		-26	%
Total operating expenses	$	4,162,458	$	4,953,388		(790,930	)

~~During~~General and Administrative Expenses: General and administrative expenses were $1,168,248 for the year ended December 31, ~~2012~~2014, wecompared ~~received~~to ~~advances~~$1,587,337 at year ended December 31, 2013. The decrease in ~~the~~general ~~total~~and ~~amount~~administrative ofexpenses ~~$275,000,~~is ~~represented~~due byprimarily ~~Demand~~to ~~Notes,~~management’s ~~issued~~cost cutting plan necessary to ~~our~~conserve ~~largest~~working ~~investor~~capital in order to maintain liquidity. Also, selling fewer devises resulted in less commission expense. Travel expense increased in an effort to raise capital and pursue new business prospects.

The carrying values our long-term and short term debt consisted of the following as of December 31, 2012 and December 31, 2011:

	Year Ended December 31,
	2014		2013		$ Change			% Change
Insurance	$	175,150	$	214,490	$	(39,340	)		-18	%
Taxes and licenses		273,862		279,871		(6,009	)		-2	%
Travel		76,687		40,906		35,781			87	%
Commissions		220,485		399,393		(178,908	)		-45	%
Other		422,064		652,677		(230,613	)		-35	%
Total G&A expenses	$	1,168,248	$	1,587,337	$	(419,089	)

	December 31,		December 31,
	2012		2011
$2,000,000 face value 12% debenture, due December 31, 2013	$	2,398,153	$	941,762
$3,500,000 face value 12% debenture, due December 31, 2013		3,993,053		2,211,483
$5,266,130 face value 12% debenture, due December 31, 2013		6,374,130		2,841,930
$ 500,000 face value 10% debenture, due December 31, 2013		500,000		-
$ 500,000 face value 10% debenture, due December 31, 2013		500,000		-
$ 450,000 face value 10% debenture, due December 31, 2013		450,000		-
$1,150,000 advances on 10% debenture, due December 31, 2013		1,150,000		-
$ 275,000 demand notes, due on demand		275,000		-
Total	$	15,640,336	$	5,995,175

~~Long-term~~Loss ~~debt~~from operations: The loss from operations was $2,199,948 for the year ended December 31, 2014, compared to $3,608,101 for the year ended December 31, 2013. The reduction in the loss is due primarily to the significant reduction in operating expenses and the increase in gross profit as a percent of sales offset by the decrease in sales of devices.

OnInterest ~~January~~Expense: ~~11,~~Interest ~~2013,~~expense wewas ~~received an additional advance of~~ $~~400~~641,~~000~~259 ~~pursuant~~for ~~to its existing lending facility with 1080 NW 163rd Drive, LLC. The additional advance of $400,000 was~~the ~~endorsed~~year byended aDecember ~~mortgage promissory note~~31, ~~which~~2014 ~~was~~compared ~~consolidated~~to ~~with the initial advance of~~ $1,~~000~~479,~~000~~186 ~~from~~for the ~~mortgage~~year ~~on 1080~~ended NWDecember ~~163rd Drive~~31, ~~LLC~~2013. The ~~consolidated~~reduction ~~promissory~~in ~~mortgage~~interest ~~note~~expenses ~~has an aggregate principal balance of $1,400,000, accrues~~is ~~interest~~primarily atdue ~~12%~~to ~~per~~the ~~year,~~significant isreduction ~~payable~~ in ~~full~~outstanding ondebt ~~November~~resulting ~~29,~~from ~~2014~~the ~~and~~debt isrestructuring ~~secured~~effective byDecember ~~our corporate office building~~31, ~~located~~2013 offset atby ~~1080~~new NWdebt ~~163rd~~incurred ~~Drive,~~in ~~Miami Gardens, FL 33169~~2014.

OnNet ~~February~~Loss: ~~15,~~Net ~~2013~~loss ~~and~~for ~~April~~the ~~10,~~year ~~2013~~ended weDecember ~~received~~31, ~~additional~~2014 ~~advances~~was of $~~100~~2,~~000~~841,207 ~~and~~compared to $754,~~000~~787,830 ~~from~~for ~~1080~~the NWyear ~~163rd~~ended ~~Drive~~December 31, ~~LLC~~2013. ~~These~~The ~~advances~~reduction ~~are~~in ~~not~~the ~~evidenced~~net byloss ais ~~formal~~due ~~promissory~~primarily ~~note.~~to ~~The~~the ~~additional~~significant ~~advances~~reduction ofin ~~$100,000~~operating ~~and $75~~expenses,~~000~~ ~~accrue~~the ~~interest~~reduction atin 8%cost ~~per~~of ~~year,~~sales ~~and~~as ~~were~~a ~~payable~~percent inof ~~full~~sales, onoffset ~~June~~by 9,other ~~2013.~~income ~~These~~of ~~notes~~$299,457 ~~are now~~ in ~~default~~2013.

OnLiquidity ~~February 19, 2013, August 9, 2013, August 14, 2013~~ and ~~September 3,~~Capital 2013the Company’s CEO advanced the Company $25,000, $5,000, $20,000 and $25,000, respectively. These advances are not evidenced by a formal promissory note. These advances were for working capital and bear no interest and are due on demand.Resources

OnAt ~~April~~December 2231, ~~2013~~2014, ~~and~~we ~~May~~had 3negative working capital of $9,233,886 compared to negative working capital of $4,899,828 at December 31, 2013. weThe ~~received~~decrease ~~advances~~in ~~from~~working capital ~~Vicis~~was indue primarily to the ~~amount~~(1) ofa ~~$50,000~~reduction ~~and~~in ~~$25~~receivables,~~000~~ inventories, ~~respectively~~and prepaid expenses offset by an increase in cash, ~~both~~(2) ~~due~~an increase onin ~~demand~~debt (3) offset by an increase in other assets. ~~These~~At ~~advances~~December 31, ~~are~~2014, ~~not~~we ~~evidenced~~had bycash aand ~~formal~~cash ~~promissory~~equivalents and restricted ~~note~~cash of $487,814 compared to cash and cash equivalents and restricted cash of $260,720 at December 31, 2013.

OnNet ~~May~~cash ~~31,~~used ~~2013,~~in weoperations ~~issued~~for athe ~~$300,000~~year ~~face value, 5% Secured~~ended ~~Convertible~~December ~~Promissory Note~~31, ~~due~~2014 ~~December~~was $1,385,002 ~~2013.~~compared ~~This~~to ~~note~~net iscash ~~convertible~~used ~~into~~in ~~shares~~operations of ~~the Company’s common stock at a rate of~~ $~~0.08 per share~~2,576,443 for athe ~~total~~same period of ~~3,750,000 common shares~~2013. ~~This~~The ~~note~~decrease in ~~has~~net acash ~~second~~used ~~priority security interest, junior~~ in ~~priority~~ ~~only~~operations towas ~~the~~primarily ~~holder~~due ~~of the first priority interest,~~ to ~~all real property of~~ the ~~Company~~reduction ~~and~~in ~~any~~net ~~and~~loss ~~all cash proceeds and/or noncash proceeds~~ of ~~any~~$1,946,624 offor the ~~foregoing,~~year ~~including,~~ended ~~without~~December ~~limitation~~31, ~~insurance~~2014 compared ~~proceeds,~~to ~~and all supporting obligations and~~ the ~~security~~same ~~therefore~~period orin ~~for any right to payment~~2013.

OnNet ~~July~~cash ~~15,~~used ~~2013,~~in weinvesting ~~issued a $200,000~~activities ~~face~~for ~~value,~~the 5%year ~~Secured~~ended ~~Convertible~~December ~~Promissory Note~~31, ~~due~~2014 ~~January~~was 15$418,193 ~~2014.~~compared ~~This~~to ~~note~~net iscash ~~convertible~~used ~~into~~in ~~shares~~investing ofactivities ~~the Company’s common stock at a rate~~ of $~~0.08 per share~~105,160 for athe ~~total~~same period of ~~2,500,000 common shares~~2013. ~~This~~The ~~note~~increase ~~has~~in anet ~~second~~cash ~~priority~~used ~~security interest, junior~~ in ~~priority~~investing ~~only~~activities towas ~~the~~due ~~holder~~primarily ~~of the first priority interest,~~ to ~~all~~fixed ~~real~~asset ~~property~~acquisitions of ~~the Company and any and all cash~~ ~~proceeds~~$109,421 and~~/or~~ ~~noncash~~development ~~proceeds~~costs of ~~any of the foregoing~~$377,172 ~~including,~~for ~~without limitation, insurance proceeds, and all supporting obligations and~~ the ~~security~~year ~~therefor~~ended or2014 ~~for~~compared ~~any right~~ to ~~payment~~2013.

OnNet ~~July~~cash 7,provided ~~2013,~~by ~~August~~financing 9,activities for ~~2013,~~the ~~August 9,~~year ~~2013,~~ended ~~August~~December 1531, ~~2013~~2014 ~~and~~was ~~August 22~~$2,098,688 ~~2013~~compared weto ~~received~~net ~~$111,000,~~cash ~~$111,000,~~provided ~~$55,000,~~by ~~$75,000~~financing ~~and~~activities of $~~125~~2,~~000 respectively~~662,047 for ~~working~~the ~~capital~~same ~~from~~period anof ~~outside party~~2013. ~~These~~The ~~notes~~decrease ~~are~~in ~~due~~cash onprovided ~~demand~~by ~~and~~investing ~~carry~~activities awas 0%due ~~interest~~primarily ~~rate.~~to ~~Interest~~proceeds ~~will~~from bethe ~~imputed~~mortgage ~~on these notes~~note ~~at current market rates~~payable..

Future Commitments and Funding Sources

Contractual Obligations
	Payments Due to Period
	Total		2015		2016		2017
6% secured promissory note, due on demand	$	3,000,000	$	3,000,000
12% mortgage note payable, due November 29, 2015		1,400,000		1,400,000
5% secured promissory note, due March 1, 2016		2,766,155				2,766,155
6% promissory note, due June 30, 2017		175,000						175,000
12% convertible promissory note, due August 21, 2016		55,000				55,000
8% convertible promissory note, due September 19, 2015		83,500		83,500
8% convertible promissory note, due November 21, 2015		43,000		43,000
8% convertible promissory note, due December 29, 2015		53,500		53,500
Total Long-Term Debt		7,576,155		4,580,000		2,821,155		175,000
Purchase obligations		437,500		281,000		156,500

Total Long-Term obligations	$	8,013,655	$	4,861,000	$	2,977,655	$	175,000

Critical Accounting Policies

The following is a summary of significant accounting policies used in preparing the Company’s financial statements and recent accounting pronouncements that may impact our financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Significant estimates inherent in the preparation of our financial statements include developing fair value measurements upon which to base our accounting for acquisitions of intangible assets and issuances of financial instruments, including our common stock. Our estimates also include developing useful lives for our tangible and intangible assets and cash flow projections upon which we determine the existence of, or the measurements for, impairments, allowance for billing adjustments, doubtful accounts and allocation of prices between device and telecom services.

~~Results~~Our ofestimates ~~Operations~~and assumptions are based on experience, historical trends identified by management, telecommunications industry trends and the overall economic condition in the United States and abroad. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.

~~Year~~Risk ~~ended December 31, 2012~~ and ~~2011~~Uncertainties

~~Revenues:~~ Our ~~operating~~future ~~revenue~~results ~~amounted~~of tooperations ~~$5,790,983 for~~and ~~the~~financial ~~year~~condition ~~ended~~will be ~~December~~impacted ~~31,~~by ~~2012,~~the ~~compared~~following ~~to $3~~factors,~~548,714~~ atamong ~~December~~others: ~~31,~~dependence ~~2011.~~on ~~The~~the ~~increase~~worldwide intelecommunication ~~revenues~~markets ~~relates~~characterized toby ~~increases~~intense incompetition ~~sales to large retail customers~~ and ~~increases~~rapidly ~~sales~~changing ~~volume~~technology, ~~during~~on ~~the~~third-party ~~period~~manufacturers ~~ended~~and ~~December 31~~subcontractors, ~~2012.~~on Wethird-party ~~have~~distributors ~~historically~~in ~~benefitted~~certain ~~from~~markets, aon ~~high~~the ~~degree~~successful ofdevelopment ~~revenue retention from both subscription based renewals~~ and onmarketing ~~demand customers. This high degree~~ of ~~customer retention~~new ~~means~~products ~~that~~in ~~our~~new ~~customers provide a stable~~ and ~~reliable~~existing ~~cash flow retention model~~markets. ~~Our~~Generally, ~~customers~~we ~~typically~~are ~~pay~~unable usto ~~upfront~~predict ~~and~~the ~~then~~future ~~use~~status ~~their~~of ~~downloads~~these inareas aof ~~predictable~~risk ~~pattern over time, which results in favorable cash flow~~ and ~~is adding predictability and stability to our financial performances~~uncertainty.

~~Cost~~Revenue of sales: Our cost of sales amounted to $6,184,787 for the year ended December 31, 2012, compared to $3,631,360 at December 31, 2011. The increase in cost of sales relates to increased sales to large retail customers and increasing sales volume during the year ended December 31, 2012.Recognition

~~Advertising:~~Revenue ~~Our~~is ~~advertising~~generated ~~expenses~~from ~~amounted~~product tosales, $1telecom services,~~019,882~~ shipping ~~the~~and ~~year~~handling ~~ended~~charges ~~December~~and 31leasing cell tower and co-location rack space in our operations center. All revenues are recognized in accordance with ASC 605, ~~2012~~Revenue Recognition and SAB 104 as follows: when evidence of an arrangement exists, ~~compared~~in tothe $2case of products,~~391,898~~ when atthe ~~December~~product 31is shipped to a customer, ~~2011.~~or ~~The~~in ~~breakdown~~the case of ~~our~~telecom ~~advertising~~services, ~~expense~~when the service is asused ~~follows:~~by the consumer, when the fee is fixed or determinable and amounts are collectible from the customers.

	12/31/2012		12/31/2011
Media and others	$	914,427	$	2,130,823
Smartphone		105,455		261,075
Total	$	1,019,882	$	2,391,898

Revenue is recognized for a device sale when the product is shipped and the customer is invoiced for retail sales and when the customer completes the transaction for internet sales. Revenue for telecom service is recognized prorate monthly as the service is used and revenue for shipping costs billed to customers are included as a component of product sales. The associated cost of shipping is included as a component of cost of product sales.

~~Compensation~~Cash and ~~Benefits:~~Cash Our compensation and benefits expense amounted to $1,692,237 for the year ended December 31, 2012, compared to $1,036,201 at December 31, 2011. This amount represents normal salaries and wages paid to management members and employees. The increase is due to the addition of employees in our development, engineering and operations departments.Equivalents

~~Professional~~We ~~Fees:~~consider ~~Our~~all ~~professional~~highly ~~fees~~liquid ~~amounted~~cash ~~to $884,580~~balances ~~for~~and ~~the~~debt ~~year~~instruments with ~~ended~~an ~~December~~original ~~31,~~maturity ~~2012,~~of ~~compared~~three tomonths ~~$379,929~~or atless ~~December~~to ~~31,~~be ~~2011~~cash equivalents. ~~This~~We ~~amount~~maintain ~~includes~~cash ~~normal~~balances ~~payments and~~only ~~accruals~~in ~~for~~domestic ~~legal~~bank accounts, which ~~accounting~~at ~~and~~times, ~~other~~may ~~professional~~exceed ~~services~~FDIC ~~related~~limits. toOur ~~general~~cash ~~business~~balances ~~and~~occasionally ~~being~~exceed athe ~~public~~FDIC ~~company.~~limits ~~The increase~~during ~~also~~the ~~relates~~year ~~to legal fees incurred in defending~~ and ~~securing~~exceeded ~~our~~the FDIC ~~intellectual~~limit ~~property~~at ~~rights~~December ~~and~~31, ~~patents~~2014.

Depreciation and Amortization: Depreciation and amortization amounted to $262,842 for the year ended December 31, 2012, compared to $327,421 at December 31, 2011. These amounts represent amortization of our long-lived tangible and intangible assets using the straight-line method and lives commensurate with the assets’ remaining utility. Our long-lived assets, both tangible and intangible, are subject to annual impairment review, or more frequently if circumstances so warrant. During the years ended December 31, 2012 and 2011, we did not calculate or record impairment charges, however, negative trends in our business and our inability to meet our projected future results could give rise to impairment charges in future periods.Inventory

~~Research~~Inventories ~~and~~are ~~Development~~stated at the lower of cost or market. Cost is determined using the first-in first-out method. Obsolete inventory is reserved for if necessary and ~~Software~~there is ~~Costs~~zero reserve at December 31, 2014 and 2013.

WeProperty ~~expense research~~ and development expenses, as these costs are incurred. We account for our offering-related software development costs as costs incurred internally in creating a computer software product which are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. At this time our main products, the DUO, DUO II and DUO-WIFI are being sold in the market place.Equipment

Components of Research and development:	12/31/2012		12/31/2011
Product development and engineering	$	88,917	$	295,424
Payroll and benefits		1,122,794		825,061
Total	$	1,211,711	$	1,120,485

Property and equipment includes acquired assets which consist of network equipment, computer hardware, furniture and purchased and internally developed software. All of our equipment is stated at cost with depreciation calculated using the straight line method over the estimated useful lives of related assets, which range from three to thirty-five years. The costs of repairs and maintenance is charged to operating expenses unless it increases the assets useful life more than one year.

Intangible Assets

Intangible assets includes trademarks, patents and employee agreements. All of our intangible assets are stated at cost with amortization calculated using the straight line method over the estimated useful lives of related assets, which range from two to twenty years. The costs of repairs and maintenance is charged to operating expenses unless it increases the assets useful life more than one year.

Impairments and Disposals

We evaluate our tangible and definite-lived intangible assets for impairment annually or more frequently in the presence of circumstances or trends that may be indicators of impairment. Our evaluation is a two-step process. The first step is to compare our undiscounted cash flows, as projected over the remaining useful lives of the assets, to their respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows, as a second step, we compare the carrying values to the related fair values and, if lower, record an impairment adjustment. For purposes of fair value, we generally use replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates for intangible assets.

General, Selling and Administrative Expenses: General, selling and administrative expenses amounted to $2,614,408 for the year ended December 31, 2012, compared to $2,337,965 at December 31, 2011. General corporate expenses, are as follows:

Items	12/31/2012		12/31/2011
Shipping outbound	$	437,126	$	744,935
Insurance		272,240		137,669
Rent and occupancy		134,393		300,948
Taxes and licenses		148,619		66,814
Travel		168,599		188,067
Commissions		667,176		521,851
Other		786,255		377,681
Total	$	2,614,408	$	2,337,965

Loss from operations: Loss from operations amounted to $8,079,464 for the year ended December 31, 2012, compared to $7,676,545 at December 31, 2011. The increase in net loss resulted primarily from increase in payroll and legal fees.

Interest Expense: Interest expense amounted to $3,500,512 for the year ended December 31, 2012, compared to $2,035,257 at December 31, 2011. This amount represents interest on our mortgage debt and also includes, (i) stipulated interest under our convertible debentures that were converted to common stock during the year and our secured debentures issued on August 8, 2011, (ii) the related amortization of premiums and discounts (iii) the amortization of deferred finance costs. Aggregate premiums continue to be credited to interest expense over the term of the debentures using the effective interest method.

Derivative expenses: Derivative expense amounted to $0 for the year ended December 31, 2012, compared to $17,174,242 at December 31, 2011. Derivative expenses are extraordinary and non-recurring.

Debt extinguished: Debt extinguished amounted to $3,135,235 for the year ended December 31, 2012, compared to $1,293,539 at December 31, 2011.

Net Loss: Net loss amounted to $14,715,006 for the year ended December 31, 2012, compared to $28,389,302 at December 31, 2011.

Results of Operations

Three months ended December 31, 2011 and 2010

Revenues: Our operating revenue amounted to $1,298,623 for the three months ended December 31, 2011, compared to $470,378 at December 31, 2010. The increase in revenues relates to increase in sales to large retail customers and increase sales volume during the three month period. We have historically benefitted from a high degree of revenue retention from both subscription based renewals and on demand customers. This high degree of customer retention means that our customers provide a stable and reliable cash flow retention model. Our customers typically pay us upfront and then use their downloads in a predictable pattern over time, which results in favorable cash flow and is adding predictability and stability to our financial performances.

Cost of sales: Our cost of sales amounted to $1,787,815 for the three months ended December 31, 2011, compare to $724,988 at December 31, 2010. The increase in cost of sales relates to increased sales to large retail customers and increasing sales volume during the period.

Advertising: Our advertising expenses amounted to $606,209 for the three months ended December 31, 2011, compared to $109,996 at December 31, 2010. The breakdown of our advertising expense is as follows:

	12/31/2011		12/31/2010
Media and others	$	531,633	$	109,996
Smartphone		74,576		-
Total	$	606,209	$	109,996

Compensation and Benefits: Our compensation and benefits expense amounted to $289,652 for the three months ended December 31, 2011, compared to $104,750 at December 31, 2010. This amount represents normal salaries and wages paid to management members and employees. The increase is due to the addition of employees in our development, engineering and operations departments.

Professional Fees: Our professional fees amounted to $136,118 for the three months ended December 31, 2011, compared to $68,094 at December 31, 2010. This amount includes normal payments and accruals for legal, accounting and other professional services related to general business and being a public company.

Depreciation and Amortization: Depreciation and amortization amounted to $60,765 for the three months ended December 31, 2011, compared to $90,033 at December 31, 2010. These amounts represent amortization of our long-lived tangible and intangible assets using the straight-line method and lives commensurate with the assets’ remaining utility. Our long-lived assets, both tangible and intangible, are subject to annual impairment review, or more frequently if circumstances so warrant. During the three months ended December 31, 2011 and 2010, we did not calculate or record impairment charges, however, negative trends in our business and our inability to meet our projected future results could give rise to impairment charges in future periods.

Research and Development and Software Costs

WeThe ~~expense~~Company ~~research~~develops ~~and~~software ~~development expenses, as these costs are incurred. We account~~ for ~~our offering-related software development costs as costs incurred internally in creating a computer~~both ~~software~~internal ~~product~~ and ~~are~~external ~~charged~~use. ~~to expense~~The ~~when~~following ~~incurred~~describes asnetTALK’s ~~research~~policies and ~~development~~procedures ~~until~~regarding ~~technological~~expensing ~~feasibility~~versus ~~has~~capitalizing ~~been~~software established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. At this time our main products, the DUO are being sold in the market place. Therefore, research and development ~~cost reported in our financial statements relates to pre – marketing cost and are expensed accordingly~~costs.

Components of Research and development:	12/31/2011		12/31/2010
Product development and engineering	$	8,650	$	90,147
Payroll and benefits		262,132		95,411
Total	$	270,782	$	185,558

We capitalize costs of software to be sold, leased or marketed in accordance with FASB ASC 985-20. We expense research and development costs as they are incurred. We account for our software development costs as costs incurred internally in creating a computer software product and are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or completion of a working model. Capitalization of costs stops when the product is available for general release to customers at which point the capitalized costs are amortized over the software’s useful life.

~~General,~~We ~~Selling~~capitalize ~~and~~costs ~~Administrative~~for ~~Expenses:~~internally ~~General,~~developed ~~selling~~software in accordance with FASB ASC 350-40. We expense research and ~~administrative~~development ~~expenses~~costs ~~amounted~~as tothey ~~$497,986~~are ~~for~~incurred Costs incurred in the preliminary ~~three~~project ~~months~~stage ~~ended~~are ~~December~~expensed ~~31,~~as ~~2011,~~incurred. ~~compared~~Preliminary toproject ~~$184~~stage includes conceptual formulations and evaluation of alternatives,~~282~~ atdetermination of existence of needed technology and final selection of alternatives. Costs incurred in the application ~~December~~development ~~31,~~stage ~~2011~~are capitalized as incurred and ~~consisted~~includes design of ~~general~~chosen ~~corporate~~path, ~~expenses~~configuration, ascoding, ~~follows:~~installation of hardware, and testing. Capitalization stops after software implementation at which point the capitalized costs are amortized over the software’s useful life.

Items	12/31/2011		12/31/2010
Bad debt	$	-	$	990
Insurance		41,126		20,380
Software		1,600		11,225
Rent and occupancy		78,438		54,215
Taxes and licenses		34,254		-
Travel		51,434		52,150
Commissions		149,203		-
Other		141,931		45,322
Total	$	497,986	$	184,282

During the year ended December 31, 2014, we capitalized development costs of $475,259, completed projects and recorded fixed assets of $90,581 and wrote-off projects that were abandoned of $7,606 resulting in a balance of $377,172 in other assets.

Loss from operations: Loss from operations amounted to $2,350,704 for the three months ended December 31, 2011, compared to $997,323 at December 31, 2010. The increase in net loss resulted primarily from an increase in payroll and advertising expense to sustain our growth in the retail segment and support awareness of the Company’s products. .Reclassifications

~~Interest~~Certain ~~Expense:~~reclassifications ~~Interest~~have ~~expense~~been ~~amounted~~made to ~~$1,090,735 for~~prior ~~the~~years ~~three months ended December 31, 2011, compared to $126,000 at December 31, 2010. Such amount represented (i) stipulated~~financial ~~interest~~statements ~~under~~in ~~our~~order ~~aggregate $4,998,773 face value convertible debentures that were converted~~ to ~~common~~conform stock during the year and our secured debentures issued on August 8, 2011, (ii) the related amortization of premiums and discounts and (iii) the amortization of deferred finance costs. Aggregate premiums continue to ~~be credited to interest expense over~~ the ~~term~~current ofyear’s ~~the debentures using the effective interest method~~presentation.

~~Derivative~~Share-Based ~~expense:~~Payment ~~Derivative expense amounted to $0 for the three months ended December 31, 2011, compared to $105,778 at December 31, 2010.~~Arrangements

~~Net~~NetTalk ~~Loss:~~adopted ~~Net~~a ~~loss~~2010 ~~amounted~~Stock Option Plan, a 2011 Stock Option Plan and a 2012 Stock Option Plan (the "Plans") which are intended to $3advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract,~~440~~ retain and motivate key individuals by providing such persons with equity ownership opportunities and performance-based incentives,~~286~~ ~~for~~thereby better aligning the ~~three~~interests of our employee and consultants ~~months~~with ~~ended~~those ~~December~~of 31the Company. All of the Company’s employees, ~~2011~~officers, ~~compared~~and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to $1the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities,~~227,545~~ are eligible to be granted options or restricted stock awards under the Plans. The shares are compensatory in nature and are fully vested upon issuance. We value the shares consistent with fair value at ~~December~~the ~~31,~~time ~~2010~~of issuance including adjustments for certain restrictions and limitations.

Share–based compensation cost to employees is recorded as compensation expense and is recognized over the service period. Share–based payments to non–employees are recorded as consulting expense and is recognized over the service period.

Fair Value of Financial Instruments

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Financial instruments, as defined in the Accounting Standards Codification (“ASC”) 825 Financial Instruments, consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, secured convertible debentures, and derivative financial instruments. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.

We carry cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical costs since their respective estimated fair values approximate carrying values due to their current nature. We also carry convertible debentures and redeemable preferred stock at historical cost.

Derivative financial instruments, as defined in ASC 815-10-15-83, “Derivatives and Hedging”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

Certain risks and concentration

Our primary manufacturer accounted for approximately 23% of our cost of goods sold for the years ended December 31, 2014 and 2013, respectively. Also, our primary manufacturer accounted for approximately 17% and 2% of outstanding accounts payable at December 31, 2014 and 2013, respectively.

Our primary telecom service provider accounted for approximately 27% and 20% of cost of goods sold for the years ended December 31, 2014 and 2013, respectively. Also, our primary telecom service provider accounted for approximately 22% and 38% of outstanding accounts payable at December 31, 2014 and 2013.

One of our customers presently operates under a consignment agreement. Under the agreement we sell and ship merchandise to our customer, and collect payments upon the sale of our product to the ultimate (final) consumer.

Redeemable Preferred Stock

Redeemable preferred stock is initially evaluated for possible classification as liabilities under ASC 480 Distinguishing Liabilities from Equity. Redeemable preferred stock that does not, in its entirety, require liability classification is evaluated for embedded features that may require bifurcation and separate classification as derivative liabilities under ASC 815. In all instances, the classification of the redeemable preferred stock host contract that does not require liability classification is evaluated for equity classification or mezzanine classification based upon the nature of the redemption features. Generally, any feature that could require cash redemption for matters not within our control, irrespective of probability of the event occurring, requires classification outside of stockholders’ equity.

Loss per Common Share

Basic loss per common share represents our loss applicable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted loss per common share gives effect to all potentially dilutive securities. We compute the effects on diluted loss per common share arising from warrants and options using the treasury stock method or, in the case of liability classified warrants, the reverse treasury stock method. We compute the effects on diluted loss per common share arising from convertible securities using the if-converted method. The effects are all anti-dilutive and are excluded.

Patent Costs

Assets are probable future economic benefits obtained as a result of past transactions or events. Legal fees and other costs incurred for successfully defending a patent from infringement are considered deferred legal costs in the sense that they are part of the cost of retaining and obtaining the future economic benefit of the patent as per Statement of Accounting Concept No. 6. If defense of the patent lawsuit is expected to be successful, costs may be capitalized to the extent of an evident increase in the value of the patent per TIS Section 2260. On February 27, 2015, all claims and counterclaims have been dismissed and, as a result, the deferred legal costs have been expensed as of December 31, 2014.

~~Results~~Recent ofAccounting ~~Operations~~Pronouncements

~~Comparison~~ In April 2013, the FASB issued ASU 2013-04, Liabilities, (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 will be effective for the Company’s fiscal ~~years~~year ~~ended~~beginning ~~September~~January 301, ~~2011~~2014 and subsequent interim periods. The adoption of ~~2010~~ASU 2013-04 is not expected to have a material effect on the Company’s financial statements.

~~Revenues:~~In ~~Our~~July ~~operating~~2013, ~~income~~the ~~amounted~~FASB toissued $2ASU 2013-11,~~720,465~~ Presentation of an ~~and~~Unrecognized ~~$737,498~~Tax ~~for~~Benefit ~~the~~When ~~fiscal~~a ~~years~~Net ~~ended~~Operating ~~September~~Loss 30Carryforward, ~~2011~~a ~~and~~similar ~~2010~~Tax Loss, ~~respectively~~or a Tax Credit Carryforward Exists , (“ASU 2013-11). ~~The~~ASU ~~increase~~2013-13 inis ~~revenues~~intended ~~relates~~to end inconsistent practices regarding the presentation of a unrecognized tax benefits when a net operating loss (“NOL”), a similar tax loss or a tax credit carryforward is available to ~~establishing~~reduce the taxable income ~~several~~or ~~brick~~tax ~~and~~payable ~~mortar~~that ~~retail~~would ~~customers~~result ~~and~~from ~~increasing~~the ~~sales~~dis- ~~volume~~allowance ~~during~~of a tax position. ASU 2013-11 will be effective for the Company’s fiscal year ~~ended~~beginning ~~September~~January 301, ~~2011~~2014 and subsequent interim periods. The adoption of ASU 2013-11 is not expected to have a material effect on the Company’s financial statements.

~~Cost~~In ofMay ~~sales:~~2014, ~~Our~~the ~~cost~~FASB ofissued ~~sales~~standard ~~amounted~~ASU ~~to $3~~2014-09,~~098,366~~ Revenue ~~and~~from $1Contracts with Customers,~~453~~ that provides a single,~~332~~ comprehensive revenue recognition model for ~~the~~all ~~fiscal~~contracts ~~years~~with customers. The ~~ended~~standard ~~September~~is ~~30,~~principle-based ~~2011~~and provides a five-step model to determine the measurement of revenue and ~~2010,~~timing of ~~respectively~~when it is recognized. The ~~increase~~core inprinciple ~~cost~~is ofthat ~~sales~~a ~~relates~~company will recognize revenue to ~~increased~~reflect the transfer of goods or services ~~sales~~to ~~primarily~~customers ~~driven~~at byan ~~sales~~amount that the company expects to ~~our~~be ~~newly~~entitled ~~acquired~~to ~~retail~~in ~~customers~~exchange for those goods or services. This standard is effective for our interim and ~~increasing~~annual ~~sales~~reporting ~~volume~~periods ~~during~~beginning ~~the~~after ~~fiscal~~December 15, ~~year~~2016 ~~ended~~and allows for either full retrospective ~~September~~adoption 30or modified retrospective adoption. We will adopt this guidance on January 1, ~~2011~~2017, and are currently evaluating the impact on our financial statements.

~~Advertising:~~Off-Balance ~~Our~~Sheet ~~advertising expenses amounted to $1,701,490 and $357,413 for fiscal years ended September 30, 2011 and 2010. The breakdown of our advertising expense is as follows:~~Arrangements

	September 30,
	2011		2010
Infomercial/production time	$	-	$	18,400
Media and others		1,514,992		339,013
Smartphone		186,498		-
Total	$	1,701,490	$	357,413

None.

Compensation and Benefits: Our compensation and benefits expense amounted to $1,262,994 and $477,576 for fiscal years ended September 30, 2011 and 2010. This amount represents normal salaries and wages paid to management members and employees. The increase is due to the addition of employees in our development, engineering and operations departments.

Professional Fees: Our professional fees amounted to $235,756 and $255,471 for fiscal years ended September 30, 2011 and 2010, respectively. This amount includes normal payments and accruals for legal, accounting and other professional services related to general business and being a public company.

Depreciation and Amortization: Depreciation and amortization amounted to $356,688 and $363,335 for fiscal years ended September 30, 2011 and 2010. These amounts represent amortization of our long-lived tangible and intangible assets using the straight-line method and lives commensurate with the assets’ remaining utility. Our long-lived assets, both tangible and intangible, are subject to annual impairment review, or more frequently if circumstances so warrant. During fiscal years ended September 30, 2011 and 2010, we did not calculate or record impairment charges, however, negative trends in our business and our inability to meet our projected future results could give rise to impairment charges in future periods.

Research and Development and Software Costs

We expense research and development expenses, as these costs are incurred. We account for our offering-related software development costs as costs incurred internally in creating a computer software product and are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. At this time our main products, the DUO are being sold in the market place. Therefore, research and development cost reported in our financial statements relates to pre – marketing cost and are expensed accordingly.

Components of Research and development:	September 30, 2011		September 30, 2010
Product development and engineering	$	405,645	$	119,933
Payroll and benefits		497,724		255,264
Total	$	903,369	$	375,197

General, Selling and Administrative Expenses: General, selling and administrative expenses amounted to $1,484,971 for the fiscal year ended September 30, 2011 as compared to $547,075 for the fiscal year ended September 30, 2010 and consisted of general corporate expenses.

Our general and administrative expenses are made up of the following items:

Items	September 30, 2011		September 30, 2010
Bad debt	$	-	$	21,707
Insurance		116,023		73,801
Software support		42,883		26,671
Rent and occupancy		277,228		175,876
Taxes and licenses		77,661		17,538
Travel		176,031		85,088
Distribution, processing and commissions		434,885		-
Other		360,260		146,394
Total	$	1,484,971	$	547,075

Loss from operations: Loss from operations amounted to $6,323,169 and $3,091,901 for the fiscal year ended September 30, 2011 and 2010. The increase in net loss resulted primarily from an increase in payroll and advertising expense to sustain our growth in the retail segment and support awareness of the Company’s products. Research and development expenses increased as a result of the DUO WIFI and other products expected to roll out during 2012.

Interest Expense: Interest expense amounted to $1,070,522 for the fiscal year ended September 30, 2011 as compared to $1,058,363 for the fiscal year ended September 30, 2010. Such amount represented (i) stipulated interest under our aggregate $4,998,773 face value convertible debentures that were converted to common stock during the year and our secured debenture issued on August 8, 2011, (ii) the related amortization of premiums and discounts (iii) the amortization of deferred finance costs. Aggregate premiums continue to be credited to interest expense over the term of the debentures using the effective interest method.

Derivative Income (Expense): Derivative income (expense) amounted to $(17,280,018) for the fiscal year ended September 30, 2011 as compared to derivative income of $1,445,632 for the year ended September 30, 2010. Such amount represents the change in fair value of liability-classified warrants. Derivative financial instruments are carried as liabilities, at fair value, in our financial statements with changes reflected in income. In addition to the liability-classified warrants, we also had certain compound derivative financial instruments related to our $4,998,773 face value convertible debentures that had de minimus values. We are required to adjust our warrant and compound derivatives to fair value at each reporting period. The fair value of our warrant derivative is largely based upon fluctuations in the fair value of our common stock. The fair value of our compound derivative is largely based upon estimates of cash flow arising from the derivative and credit-risk adjusted interest rates. Accordingly, the volatility in these underlying valuation assumptions will have future effects on our earnings.

Debt extinguished: Debt extinguished amounted to $1,293,538 for the fiscal year ended September 30, 2011 as compared to $3,617,983 for the fiscal year ended September 30, 2010. The amount represents loss recognized related to the June 30, 2011 transaction whereupon the investor converted debt into shares of our common stock and was granted inducement warrants to convert such debt; expense was also incurred to settle accrued interest as part of the transaction. The expense incurred during the fiscal year ended September 30, 2011 related to the issuance of new debentures on February 24, 2010.

Net Loss: Net loss amounted to $26,176,565 for the fiscal year ended September 30, 2011, as compared to a net loss of $6,306,963 for the fiscal year ended September 30, 2010.

Net Loss Per Common Share: Basic loss per common share represents our net loss divided by the weighted average number of common shares outstanding during the period. Diluted loss per common share gives effect to all potentially dilutive securities. We compute the effects on diluted loss per common share arising from warrants and options using the treasury stock method. We computed the effects on diluted loss per common share arising from convertible securities using the if-converted method. The effects, are anti-dilutive and are excluded.

Contractual obligations – Not Applicable

Off-Balance Sheet Arrangements - NONE

Critical Accounting Policies and estimates

Our accounting policies are discussed and summarized in Note 1 to our financial statements. The following describes our critical accounting policies and estimates.

Critical Accounting Policies

The financial information contained in our comparative results of operations and liquidity disclosures has been derived from our financial statements. The preparation of those financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. The following significant estimates were made in the preparation of our financial statements and should be considered when reading our Management’s Discussion and Analysis:

● Impairment of Long-lived Assets: Our telecommunications equipment, other property and intangible assets are material to our financial statements. Further, they are subject to the potential negative effects arising from technological obsolescence. We evaluate our tangible and definite-lived intangible assets for impairment annually or more frequently in the presence of circumstances or trends that may be indicators of impairment. Our evaluation is a two-step process. The first step is to compare our undiscounted cash flows, as projected over the remaining useful lives of the assets, to their respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows, as a second step, we compare the carrying values to the related fair values and, if lower, record an impairment adjustment. For purposes of fair value, we generally use replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates, for intangible assets. These estimates are made by competent employees, using the best available information, under the direct supervision of our management.

● Intangible assets: Our intangible assets require us to make subjective estimates about our future operations and cash flows so that we can evaluate the recoverability of such assets. These estimates consider available information and market indicators including our operational history, our expected contract performance, and changes in the industries that we serve.

● Share-based payment arrangements: We currently intend to issue share-indexed payments in future periods to employees and non-employees. There are many valuation techniques, such as Black-Scholes-Merton valuation model that we may use to value share-indexed contracts, such as warrants and options. All such techniques will require certain assumptions that require us to develop forward-looking information as well as historical trends. For purposes of historical trends, we may need to look to peer groups of companies and the selection of such groups of companies is highly subjective.

● Common stock valuation: Estimating the fair value of our common stock is necessary in the preparation of computations related to acquisition, share-based payment and financing transactions. We believe that the most appropriate and reliable basis for common stock value is trading market prices in an active market.

● Derivative Financial Instruments: We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial instruments and contracts, such as our secured convertible debenture and warrant financing arrangements that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. We are required to carried as derivative liabilities, at fair value, in our financial statements. The fair value of share-indexed derivatives will be significantly influenced by the fair value of our common stock (see Common Stock Valuation, above). Certain other elements of forward-type derivatives are significantly influenced by credit-adjusted interest rates used in cash-flow analysis. Since we are required to carry derivative financial instruments at fair value and make adjustments through earnings, our future profitability will reflect the influences arising from changes in our stock price, changes in interest rates, and changes in our credit standing.

Revenue recognition

We derive revenue from (i) product sales and (ii) telecom services. All revenues are recognized in accordance with ASC 605, Revenue Recognition and SAB 104 as follows: when evidence of an arrangement exists, in the case of products, when the product is shipped to a customer, or in the case of telecom services, when the service is used by the consumer, when the fee is fixed or determinable and finally when we have concluded that amounts are collectible from the customers. Shipping costs billed to customers are included as a component of product sales. The associated cost of shipping is included as a component of cost of product sales.

Operating revenue consist of customer equipment sales of our main product the NetTalk DUO (“DUO”), telecommunication service revenues, shipping and handling revenues.

Our DUO provides for revenue recognition from the sale of the device and from the sale of telephone service. The initial year of telephone service is included on the sale price at time of sale and billed subsequently thereafter. Therefore, revenue recognition on our DUO is fully recognized at the time of our customer equipment sale, the one year telephone service is amortized over 12 month cycle. Subsequent renewals of the annual telephone service are amortized over the corresponding 12 months cycle.

International calls are billed as earned from our customers. International calls are prepaid and customers account is debited as minutes are used and earned.

Inventory

Inventory consists of the cost of customer equipment and is stated at the lower of cost or market.

At the present time we do not provide for inventory allowance. As we continue to sell our product we will evaluate the need for such an allowance.

	December 31,		December 31,
Inventory	2012		2011
Productive material and supplies	$	869,740	$	1,186,916
Finished goods		598,034		1,018,339
Total	$	1,467,774	$	2,205,255

During the year ended December 31, 2012 and 2011, in accordance with our lower of cost or market analyses we did not record any lower of cost or market adjustments to our finished goods inventories.

Of our $598,034 of finished goods inventory at December 31, 2012, $140,200 is held on consignment at one of our distributors.

Of our $1,018,339 of finished goods inventory at December 31, 2011, $170,402 was held on consignment at one of our distributors.

Income taxes

We recognize deferred taxes for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using tax rates in effect for the year. We have recorded a valuation allowance on the assumption that realization of the benefits is not more likely than not.

Net operating loss carry-forwards

As of December 31, 2012, we had net operating loss carry-forwards in the amount of $35,490,620 for US federal and state tax purposes expiring at various times thru 2031.

Recent accounting pronouncements

In May 2011, the FASB issued an update that amends the guidance provided in ASC Topic 820, Fair Value Measurement, by clarifying some existing concepts, eliminating wording differences between GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changing some principles to achieve convergence between GAAP and IFRS. The update results in a consistent definition of fair value, establishes common requirements for the measurement of and disclosure about fair value between GAAP and IFRS, and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This update became effective in the second quarter of fiscal 2012. The adoption of this update did not have a material impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item.

Item 8. Financial Statement and Supplementary Data

The financial statements are ~~part~~included ofherein commencing ~~this~~on ~~filings~~page ~~and are contained herein~~F-1.

Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

~~None~~On September 23, 2013 (the "Dismissal Date"), the Company dismissed, its independent certifying accountant. The Company's Board of Directors approved the dismissal on September 23, 2013. There were no disputes or disagreements between Thomas, Howell, Ferguson, CPA's and the Company during the previous fiscal year. Except for the provision of a "Going Concern" opinion, the reports of Thomas, Howell, Ferguson, CPA's on the Company's financial statements for the year ended December 31, 2012 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified, or modified as to audit scope or accounting principle.

During the year ended December 31, 2012 and through the Dismissal Date, the Company has not had any disagreements with Thomas, Howell, Ferguson, CPA's on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures.

During the year ended December 31, 2012 and through the Dismissal Date, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

New independent registered public accounting firm

On September 23, 2013, the Company engaged Zachary Salum Auditors P.A., as its independent registered public accounting firm, to audit the Company's financial statements. The decision to engage Zachary Salum Auditors P.A was approved by the Company's Board of Directors at a Board meeting called for such purpose.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure ~~controls~~Controls and Procedures

WeAs ~~maintain~~of ~~“disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under~~ the ~~Securities~~end ~~Exchange Act~~ of ~~1934 (~~the ~~“Exchange~~period ~~Act”), that~~covered ~~are designed to ensure that information required to be disclosed~~ by usthis inreport, ~~reports that~~ we ~~file~~conducted an orevaluation, ~~submit~~ under the ~~Exchange Act~~supervision ~~is recorded, processed, summarized,~~ and ~~reported~~with ~~within~~ the ~~time~~participation ~~periods~~of ~~specified~~our inchief ~~Securities~~executive ~~and~~officer ~~Exchange Commission rules~~ and ~~forms,~~our ~~and~~principal ~~that~~financial ~~such~~officer of ~~information~~our isdisclosure ~~accumulated~~controls and ~~communicated~~procedures to(as ~~our~~defined ~~management,~~in ~~including~~Rule ~~our~~13a-15(e) ~~Chief Executive Officer~~ and ~~Chief~~ ~~Financial~~Rule ~~Officer,~~15d-15(e) asof ~~appropriate,~~the toExchange ~~allow~~Act). ~~timely~~Based ~~decisions~~upon ~~regarding~~this evaluation, ~~required~~our ~~disclosure.~~chief Inexecutive ~~designing~~officer and ~~evaluating~~ our ~~disclosure~~ ~~controls~~principal ~~and~~financial ~~procedures,~~officer ~~management~~concluded ~~recognized~~ that our disclosure controls and procedures, are nonot ~~matter~~effective ~~how~~to ~~well~~ensure ~~conceived and~~that ~~operated,~~information ~~can~~required ~~provide~~to ~~only~~be ~~reasonable,~~disclosed ~~not~~by ~~absolute,~~us ~~assurance~~in ~~that~~ the ~~objectives~~reports ofthat ~~the~~we ~~disclosure~~file ~~controls~~or ~~and~~submit ~~procedures~~under the Exchange ~~are~~Act ~~met.~~is ~~Additionally~~recorded, inprocessed, ~~designing~~summarized ~~disclosure controls~~ and ~~procedures~~reported, ~~our~~within ~~management~~the ~~necessarily~~time ~~was~~periods ~~required~~specified ~~to apply judgment~~ in ~~evaluating~~ the ~~cost-benefit~~Commission’s ~~relationship~~rules ~~of possible disclosure controls~~ and ~~procedures~~forms. There ~~The~~was ~~design~~no ofchange ~~any~~in ~~disclosure~~our internal controls ~~and~~ ~~procedures~~or ~~also is based~~ in ~~part~~other ~~upon~~factors ~~certain~~that ~~assumptions~~could ~~about~~affect ~~the~~these ~~likelihood~~controls ofduring ~~future~~our ~~events,~~last ~~and~~fiscal ~~there~~year ~~can be no assurance~~ that has ~~any~~materially ~~design~~affected, ~~will~~or ~~succeed~~is inreasonably ~~achieving~~likely ~~its~~to ~~stated~~materially ~~goals~~affect, ~~under~~our ~~all~~internal ~~potential~~control ~~future~~over ~~conditions~~financial reporting.

As of December 31, 2012, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.21

In(b) ~~connection~~Management’s ~~with~~Report ~~the~~on ~~assessment~~Internal ~~described~~Control ~~above,~~over ~~management~~Financial ~~identified the following control deficiencies that represent material weaknesses at December 31, 2012:~~Reporting

·The ~~Due~~management toof the Company’s ~~limited~~is ~~resources~~responsible for establishing and maintaining adequate internal control over financial reporting, ~~the~~as ~~Company~~such ~~has~~term ~~insufficient~~is ~~personnel~~defined ~~resources~~in Rule 13a-15(f) and ~~technical~~15d-15(f) ~~accounting~~under the ~~and~~Exchange Act. Our internal control over financial reporting ~~expertise~~is designed to ~~properly~~provide ~~address~~reasonable ~~all~~assurance ofregarding the ~~accounting~~reliability of ~~matters~~financial ~~inherent~~reporting inand the ~~Company’s~~preparation of financial ~~transactions~~statements of external purposes in accordance with generally accepted accounting principles. ~~The~~Because ~~Company~~of ~~does~~the inherent limitations of internal control over financial reporting, misstatements may not ~~have~~be prevented or detected on a ~~formal~~timely ~~audit~~basis. ~~committee~~Also, ~~and~~projections ~~the~~of ~~Board~~any ~~does~~evaluation ~~not~~of ~~have~~effectiveness aof the internal control over financial ~~expert,~~reporting to ~~thus~~future periods are subject to the ~~Company~~risk ~~lacks~~that the ~~board~~controls ~~oversight~~may ~~role~~become ~~within~~inadequate because of changes in conditions, or that the degree ~~financial~~of ~~reporting~~compliance ~~process~~with the policies or procedures may deteriorate.

~~The~~Our ~~Company’s~~management ~~small~~assessed ~~size~~the ~~and~~effectiveness ~~“one-person”~~of our internal control ~~office~~over ~~prohibits~~financial ~~the~~reporting ~~segregation~~as of ~~duties~~December ~~and~~31, 2014 using criteria set forth in Internal Control – Integrated Framework issued by the ~~timely~~Committee ~~review~~of Sponsoring Organizations of ~~accounts~~the ~~payable,~~Treadway ~~expense~~Commission. ~~reporting~~Based ~~and~~on ~~inventory~~this assessment, our management determined that ~~and~~our ~~banking~~internal ~~information~~control over financial reporting was not effective as of December 31, 2014.

25In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at December 31, 2014:

~~Our~~· ~~Chief~~Due ~~Executive~~to ~~Officer~~the ~~and~~Company’s ~~Chief~~limited ~~Financial~~resources, ~~Officer are in~~ the ~~process~~Company ofhas ~~determining~~insufficient ~~how~~personnel ~~best~~resources toand ~~change~~technical ~~our~~accounting ~~current~~and ~~system~~reporting ~~and~~expertise ~~implement~~to aproperly ~~more~~address ~~effective~~all ~~system~~of tothe ~~insure~~accounting ~~that~~matters ~~information required~~inherent toin bethe ~~disclosed~~Company’s infinancial ~~this~~transactions. ~~annual~~The ~~report~~Company ondoes ~~Form~~not ~~10-K~~have ~~has~~a ~~been~~formal ~~recorded,~~audit ~~processed~~committee, ~~summarized~~ and ~~reported~~the ~~accurately.~~Board ~~Our management~~does ~~acknowledges~~not ~~the~~have ~~existence~~a offinancial ~~this problem~~expert, ~~and~~thus ~~intends~~the toCompany ~~developed~~lacks ~~procedures~~the toboard ~~address~~oversight ~~them~~role towithin the ~~extent possible given limitations in~~ financial ~~and~~reporting ~~manpower resources~~process. ~~While~~The ~~management~~Company’s issmall ~~working~~size onand asmall ~~plan,~~office nostaff ~~assurance~~prohibits ~~can be made at this point that~~ the ~~implementation~~segregation of ~~such~~duties ~~controls~~ and ~~procedures~~the ~~will be completed in a~~ timely ~~manner~~review orof ~~that~~accounts ~~they~~payable, ~~will~~expense bereporting ~~adequate once~~and ~~implemented~~inventory management.

~~Management~~Our ~~report~~Chief onExecutive ~~internal~~Officer ~~control~~and Chief Financial Officer are ~~over~~in the process of determining how best to change our current system and implement a more effective system to ensure that information required to be disclosed has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this problem, and intends to develop procedures to address them to the extent possible given limitations in financial and ~~reporting~~manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.

~~Our~~(c) ~~management~~Changes isin ~~responsible for establishing and maintaining adequate internal control over financing reporting for our company.~~ Internal ~~control~~Control over ~~financial reporting is defined in Rule~~ ~~13a~~Financial – 15(f) and 15d – 15(f) of the Securities and Exchange Act of 1934 as a process designed by or under the supervision of our principal executive and principal financial officer and effected by board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:Reporting

●There ~~Pertain~~have tobeen ~~the~~no ~~maintenance~~changes ofin ~~records~~our ~~that~~internal incontrols ~~reasonable~~over ~~detail~~financial reporting ~~accurately~~(as ~~and~~such ~~fairly~~term ~~reflect~~is ~~the~~defined ~~transactions~~in Rule 13a-15(f) and ~~disposition~~15d-15(f) ofunder ~~assets~~the ofSecurities Exchange Act) during the ~~company;~~year ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in internal control – integrated framework. Based on our assessment, management concluded that as of December 31, 2012, our internal control over financial reporting is not effective based on those criteria.

In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at December 31, 2012:

· Due to the Company’s limited resources, the Company has insufficient personnel resources and technical accounting and reporting expertise to properly address all of the accounting matters inherent in the Company’s financial transactions. The Company does not have a formal audit committee, and the Board does not have a financial expert, thus the Company lacks the board oversight role within the financial reporting process.

· The Company’s small size and “one-person” office prohibits the segregation of duties and the timely review of accounts payable, expense reporting and inventory management and banking information.

Our Chief Executive Officer and Chief Financial Officer are in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in this annual report on Form 10-K has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this problem, and intends to developed procedures to address them to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented. Failure to develop adequate internal control and hiring of qualified accounting personnel may result in a “material weakness” in the Company’s internal control relating to the above activities.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, the management’s report is not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

Changes in Internal Controls.

During the year ended December 31, 2012, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (f) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

On November 29, 2012, we borrowed $1,000,000 from a lender and in exchange, we issued a 12% promissory note and a mortgage and security agreement. The 12% promissory note, among other matters, accrues interest at 12% per annum, is payable in full on November 29, 2014, and is secured by our corporate office building, located at 1080 NW 163rd Drive, Miami Gardens, FL 33169. Proceeds from the 12% promissory note were used for operating expenses and working capital.None

On January 11, 2013, we received an additional advance of $400,000 pursuant to its existing lending facility with 1080 NW 163rd Drive, LLC. The additional advance of $400,000 was memorialized by a future advance promissory note issued by us, which was consolidated with an initial advance of $1,000,000 from 1080 NW 163rd Drive, LLC. The consolidated promissory note has an aggregate principal balance of $1,400,000. The consolidated promissory note, among other matters, accrues interest at 12% per annum, is payable in full on November 29, 2014, and is secured by the Company’s corporate office building, located at 1080 NW 163rd Drive, Miami Gardens, FL 33169. Proceeds from the additional advance of $400,000 were used for operating expenses and working capital

Part III

Item 10. Directors, ~~executive~~Executive ~~officers~~Officers and ~~corporate~~Corporate governance The following table sets forth certain information with respect to each of our directors, executive officers and key employees as of December 31, 2012. Their ages, positions, dates of initial election or appointment, and the expiration of their terms are as follows:Governance

Name	Age	Position	Period served
Anastasios Kyriakides	64	Director, Chief Executive Officer and Secretary	May 2008 to present
Kenneth A. Hosfeld	61	Director, Vice President	May 2008 to present
Guillermo Rodriguez (Retired)	64	Director, Chief Financial Officer	May 2008 to April 30,2013
Shad Stastney (Resigned)	45	Director	May 2012 to June 6, 2013
Dr. George Gabb	44	Director	May 2011 to present

The following table sets forth certain information with respect to each of our directors, executive officers and key employees as of April 10, 2015. Their ages, positions, dates of initial election or appointment, and the expiration of their terms are as follows:

Unless expressly indicated in the above table, each director and officer will serve in these capacities until their successors are duly elected, qualified and seated in accordance with the Company’s Articles of Incorporation and Bylaws.

Name	Age	Position	Period served
Anastasios Kyriakides	66	Director, Chief Executive Officer and Secretary	May 2008 to present
Kenneth Hosfeld	63	Director, Executive Vice President	May 2008 to present
Nicholas Kyriakides	34	Chief Operating Officer	September 2008 to present
Steven Healy	52	Chief Financial Officer	December 2013 to present
Dr. George Gabb	46	Director	May 2011 to present
Garry Paxinos	57	Chief Technology Officer	December 2011 to present

~~Background of Executive Officers and Directors~~22

~~Anastasios~~Unless ~~Kyriakides,~~expressly ~~Director,~~indicated Chief Executive Officer, Secretary. Mr. Kyriakides has served as a member of the Company’s board of directors and as the Company’s Chief Executive Officer and Secretary since September 2008. Mr. Kyriakides received a Bachelor of Science in ~~business from Florida International University in 1975. In 1977, he received a degree in investment banking from~~ the ~~American~~above ~~Institute of Banking. From 1979 until present~~table, ~~Mr. Kyriakides~~each ~~has consulted for numerous companies in the areas of shipping, travel, banking and~~director ~~electronics. Mr. Kyriakides began his career in the electronics development field when, in 1979, he founded~~ and ~~served~~officer ~~as Chairman~~will ofserve Lexicon Corporation, producer of the LK300, the first hand held electronic language translator which translated words and phrases into 12 different languages. Lexicon was publicly traded on the NASDAQ, under the symbol LEXI, until it was ultimately acquired by Nixdorf Computers of Germany. Mr. Kyriakides was also the founder of Delcor Industries, established in ~~1980~~these ~~in Hollywood,~~capacities Florida. Delcor was an electronics manufacturing facility employing over 150 employees to assemble OEM products for various electronics companies including IBM mainframe and Gable Division. In 1983, Mr. Kyriakides founded the Mylex Corporation to develop and produce the world’s first hand-held optical scanner and VGA card for personal computers. As the President and Chairman, Mr. Kyriakides guided Mylex from its beginning as a private company to its becoming a public company traded on the NASDAQ under the stock symbol MYLX until ittheir ~~was~~successors ~~acquired~~are asduly ~~a wholly owned subsidiary of IBM (NYSE: IBM). In 1983~~elected, ~~Mr. Kyriakides was~~qualified ~~the founder~~ and ~~Chairman~~seated ~~of Tower Bank NA, a full service commercial bank, with three offices, headquartered~~ in ~~Dade~~accordance ~~County, Florida. Mr. Kyriakides also has extensive experience in the cruise line and travel industries. His cruise ship career started~~ with ~~Carnival Cruise line out of~~ the ~~Port of Miami, and continued to a successful startup with Tropicana Cruises; one of the first~~ ~~gaming ships out of the Port of Miami. Mr. Kyriakides founded Regency Cruise Line in 1984, as the world~~Company’s ~~first~~Articles ~~publicly traded company in passenger shipping, and served as its Chairman and Secretary until 1987. Mr. Kyriakides also organized the successful start-up~~ of ~~Seawind~~Incorporation ~~Cruise Line. In his three years with Seawind Cruise Line, Mr. Kyriakides served as its founder, chairman, chief executive officer~~ and ~~secretary~~Bylaws.

27Background of Executive Officers and Directors

~~From~~Anastasios ~~1994 to 1996, Mr.~~ Kyriakides ~~served as the Chairman of Montgomery Ward Travel~~, ~~a company created to provide full travel services to eight million Montgomery Ward customers and credit card holders. Immediately prior to joining the Company~~Director, ~~Mr. Kyriakides served as~~ Chief Executive Officer ~~of Interlink Global Corporation from 1994 until September~~, ~~2008. Interlink Global Corporation provided telecommunications applications utilizing hardware~~ ~~and software that enables its domestic and worldwide users to access the internet as a transmission medium for placing telephone calls~~Secretary.

~~Kenneth~~Mr. Kyriakides ~~Hosfeld,~~has ~~Director,~~served ~~Vice~~as ~~President.~~a ~~Mr. Hosfeld~~member of the Company’s ~~was~~board ~~appointed~~of todirectors ~~serve~~and onas the Company’s ~~board~~Chief ofExecutive ~~directors~~Officer inand Secretary since September 2008. Mr. ~~Hosfeld~~Kyriakides ~~has~~received a ~~over~~Bachelor ~~twenty-two years~~ of ~~international~~Science ~~sales,~~in ~~marketing~~business from Florida International University in 1975. In 1977, ~~and~~he ~~business~~received ~~management~~a ~~experience~~degree in investment banking from the ~~telecommunications~~American ~~industry~~Institute of Banking. ~~Most~~From ~~recently~~1979 until present, Mr. ~~Hosfeld served~~Kyriakides ashas aconsulted ~~member~~for ofnumerous ~~the~~companies ~~board~~in the areas of ~~directors~~shipping, travel, banking and electronics. Mr. Kyriakides began his career in the ~~executive~~electronics ~~vice~~development ~~president~~field ~~for~~when, in ~~Interlink~~1979, ~~Global~~he ~~Corporation~~founded ~~(OTC:~~and ~~ILKG)~~served as Chairman of Lexicon Corporation, aproducer ~~provider~~ of ~~private~~the ~~and~~LK300, ~~public~~the ~~telecommunication~~first ~~network~~hand held electronic language translator which translated words and ~~internet~~phrases ~~services~~into 12 different languages. ~~Prior~~Lexicon towas ~~joining~~publicly ~~Interlink~~traded on the NASDAQ, ~~Mr. Hosfeld~~under ~~co-founded~~the ~~NetExpress.~~symbol HeLEXI, ~~has~~until ~~also~~it ~~served~~was asultimately ~~the~~acquired ~~Regional~~by ~~Director~~Nixdorf Computers of ~~Brazil,~~Germany. Mr. Kyriakides was also the ~~Andinos~~founder of Delcor Industries, ~~and~~established ~~the~~in ~~Caribbean~~1980 ~~for~~in ~~Tellabs~~Hollywood, ~~Inc~~Florida., aDelcor ~~global~~was ~~supplier to~~an ~~the~~electronics ~~dynamic~~manufacturing ~~telecommunications~~facility ~~industry~~employing ~~that~~over ~~designs,~~150 ~~manufactures,~~employees to ~~markets~~assemble ~~and~~OEM ~~services~~products ~~voice,~~for ~~data~~various aelectronics ~~video~~companies ~~transportation tools~~including IBM mainframe and ~~networks~~Gable Division. ~~While~~In ~~with Tellabs~~1983, Mr. ~~Hosfeld~~Kyriakides founded ~~secured~~the ~~that~~Mylex ~~company~~Corporation to develop and produce the world’s first ~~“turn~~hand-~~key”~~held ~~contract~~optical ~~which~~scanner and VGA card for personal ~~involved~~computers. aAs ~~complete,~~the ~~fully~~President ~~managed~~and ~~network~~Chairman, ~~deployment~~Mr. Kyriakides ~~including~~guided ~~all~~Mylex ~~products~~from ~~and~~its ~~services~~beginning ~~and~~as ~~project~~a ~~financing.~~private Hecompany ~~also~~to ~~opened~~its becoming ~~Tellabs’~~a ~~offices~~public incompany ~~Brazil~~traded ~~and~~on ~~regularly~~the ~~exceeded~~NASDAQ ~~revenue~~under ~~targets.~~the ~~Prior~~stock tosymbol ~~that,~~MYLX ~~Kenneth~~until it was ~~Vice~~acquired ~~President~~as ofa ~~Nera~~wholly ~~Latin America,~~owned a subsidiary of ~~Nera~~IBM ~~Telecommunications~~ (~~formerly ABB~~NYSE: IBM). In 1983, aMr. Kyriakides ~~telecommunications~~was the founder and ITChairman ~~solutions~~of ~~provider~~Tower ~~for~~Bank ~~microwave~~NA, ~~satellite~~ a full service commercial bank, ~~wireless~~with ~~broadband~~three ~~access~~offices, headquartered ~~networking~~in ~~and~~Dade ~~broadcasting~~County, Florida. Mr. ~~Hosfeld~~Kyriakides ~~had~~also ~~full~~has ~~production~~extensive ~~and~~experience ~~logistic~~in ~~responsibility for~~ the ~~Latin~~cruise ~~American~~line ~~region,~~and ~~including~~travel ~~responsibilities~~industries. His ~~for~~cruise ~~opening~~ship ~~offices~~career ~~throughout~~started ~~Latin~~with ~~America~~Carnival ~~including~~Cruise ~~such~~line ~~countries as~~out ~~Brazil,~~of ~~Colombia,~~the ~~Mexico~~Port of Miami, and ~~Venezuela,~~continued ~~While~~to a successful startup with Tropicana Cruises; one of the ~~company,~~first gaming ships out of the Port of Miami. Mr. ~~Hosfeld~~Kyriakides ~~was~~founded ~~also~~Regency ~~able~~Cruise toLine ~~penetrate~~in 1984, as the world’s ~~Mexican~~first publicly traded company in passenger shipping, and ~~Chilean~~ ~~markets~~served as its Chairman and Secretary until 1987. ~~Prior~~Mr. Kyriakides also toorganized the successful start-up of Seawind Cruise Line. In his ~~work~~three years with ~~Nera~~Seawind ~~Latin~~Cruise ~~America~~Line, Mr. ~~Hosfeld~~Kyriakides served ~~was~~as ~~responsible~~its ~~for~~founder, ~~similar~~chairman, ~~product~~chief ~~sales~~executive inofficer ~~Africa~~ and ~~in China~~secretary. From 1994 to 1996, Mr. ~~Hosfeld~~Kyriakides ~~speaks~~served ~~over~~as ~~six~~the ~~languages~~Chairman of ~~including~~Montgomery ~~fluent~~Ward ~~Spanish~~Travel, a company created to provide full travel services to eight million Montgomery Ward customers and ~~Portuguese~~credit card holders. Immediately prior to joining the Company, Mr. ~~Hosfeld~~Kyriakides served as Chief Executive ~~Vice~~Officer ~~President~~ of Interlink Global Corporation from 1994 until September, 2008. Interlink Global Corporation provided telecommunications applications utilizing hardware and software that enables its domestic and worldwide users to access the internet as a transmission medium for placing telephone calls.

~~Guillermo~~Kenneth ~~Rodriguez~~Hosfeld, Director, ~~Chief~~ ~~Financial~~Executive ~~Officer~~Vice ~~(Retired April 30,2013)~~President. Mr. Rodriguez was appointed to the Company’s board of directors in September 2008. Mr. Rodriguez was a certified public accountant. He earned his Bachelor’s Degree with a major in accounting and business administration from the University of Miami in Coral Gables, Florida. Mr. Rodriguez earned his Masters of Business Administration from Nova Southeastern University in Davie, Florida. He has extensive accounting and financial reporting experience in banking, real estate brokering, property management and the telecommunications industry. Prior to joining the Company in September 2008, Mr. Rodriguez worked for Interlink Global Corporation from 2005 until September 2008 and as controller and financial officer for Land Cellular Corporation from 2003 until 2005. Prior to that, Mr. Rodriguez served as controller and financial officer for Bremer Real Estate, CSW Associates and Consolidated Bank, N.A. Mr. Rodriguez also worked as an auditor and investigator for the Federal Deposit Insurance Corporation (FDIC). Mr. Rodriguez is fluent in Spanish. Effective April 30, 2013, Mr. Rodriguez retired as CFO of the Company. The Company is currently looking for a new CFO. The Company’s CEO, Anastasios Kyriakides has fulfilled that role for the time being.

DrMr. Hosfeld ~~George~~was ~~Gabb~~appointed to serve on the Company’s board of directors in September 2008. Mr. Hosfeld has over twenty-two years of international sales, marketing, and business management experience in the telecommunications industry. Most recently, Mr. Hosfeld served as a member of the board of directors and the executive vice president for Interlink Global Corporation (OTC: ILKG), a provider of private and public telecommunication network and internet services. Prior to joining Interlink, Mr. Hosfeld co-founded NetExpress. He has also served as the Regional Director of Brazil, the Andinos, and the Caribbean for Tellabs, Inc., a global supplier to the dynamic telecommunications industry that designs, manufactures, markets and services voice, data a video transportation tools and networks. While with Tellabs, Mr. Hosfeld secured that company’s first “turn-key” contract which involved a complete, fully managed network deployment including all products and services and project financing. He also opened Tellabs’ offices in Brazil and regularly exceeded revenue targets. Prior to that, Kenneth was Vice President of Nera Latin America, a subsidiary of Nera Telecommunications (formerly ABB), a telecommunications and IT solutions provider for microwave, satellite, wireless broadband access, networking and broadcasting. Mr. Hosfeld had full production and logistic responsibility for the Latin American region, including responsibilities for opening offices throughout Latin America including such countries as Brazil, Colombia, Mexico, and Venezuela, While with the company, Mr. Hosfeld was also able to penetrate the Mexican and Chilean markets. Prior to his work with Nera Latin America, Mr. Hosfeld was responsible for similar product sales in Africa and in China. Mr. Hosfeld speaks over six languages including fluent Spanish and Portuguese. Immediately prior to joining the Company, Mr. Hosfeld served as Executive Vice President of Interlink Global Corporation from 1994 until September, 2008. Interlink Global Corporation provided telecommunications applications utilizing hardware and software that enables its domestic and worldwide users to access the internet as a transmission medium for placing telephone calls.

~~Mr.~~Nicholas ~~Gabb has over 18 years of experience within the education field. Currently he oversees the Computer Information Systems department at Miami Dade College North Campus (“MDC”)~~Kyriakides, ~~covering~~Chief aTechnical wide variety of programming languages. Mr. Gabb has been with MDC since 1998 and has a total of 18 years of experience within the education field. Prior to his stay at MDC, he held a variety of Director-level academic IT-related positions. In addition to his academic background, Mr. Gabb is a member of the Florida Bar. He holds a B.S. in Psychology, M.S. in Computer Information Systems, and a J.D. from Nova Southeastern University.Officer

~~Shad~~Mr. ~~Stastney~~Kyriakides is a graduate of Florida State University with a bachelor degree in Finance and bachelor degree in Multi Nation Business Operations. Mr. Kyriakides is also a graduate of Nova Southeastern University with a Masters degree in Business Administration. Mr. Kyriakides joined netTALK in 2008 as part of the founding team, and has held a variety of roles at the company over the years. most recently Chief Operating Officer. As Chief Operating Officer, Mr. Kyriakides is responsible for Sales and Operational functions at netTALK. Driving strong integration and alignment between all revenue-related functions, including marketing, sales, customer support, and revenues goals. Bridge the long-term corporate strategy and execution, ensuring that the entire organization has the direction, information resources and support to successfully execute. Mr. Kyriakides is also an adjunct faculty member at Miami Dade College School of Business, where he teaches Principles of Marketing and Customer Relations for Managers. Mr. Kyriakides is the Chair of the Digital Media/Multimedia Technology Advisory Committee at Broward College and a member of the engineering Industry Advisory Board at Miami Dade College School of Engineering + Technology. Prior to netTALK, Mr. Kyriakides was the Director~~(Resigned~~ ~~June~~of 6Business Development at Interlink Global Corporation, ~~2013)~~a provider of integrated data, voice, data center and Internet solutions, with an emphasis on broadband transmission, for national and multinational companies, financial institutions, governmental agencies and other business customers, as well as private and residential customers.

~~Mr.~~Garry ~~Shadron Lee Stastney is a founding partner of Vicis Capital LLC. He graduated from the University of North Dakota in 1990 with a B.A. in Political Theory and History~~Paxinos, ~~and~~Chief ~~from~~Technology Yale Law School in 1994 with a J.D. focusing on corporate and tax law. From 1994 to 1997, he worked as an associate at Cravath, Swaine and Moore in New York, where he worked in the tax group and in the corporate group, focusing on derivatives. In 1997, he joined CSFB’s then-combined convertible/equity derivative origination desk. From 1998 through 2001, he worked in CSFB’s corporate equity derivatives origination group, eventually becoming a Director and Head of the Hedging and Monetization Group, a joint venture between derivatives and equity capital markets. In 2001, he jointly founded Victus Capital Management, LP, and in 2004, he jointly founded Vicis. Mr. Stastney also jointly founded Vicis Capital Management LLC in 2001. Mr. Stastney has been a director of QHP Financial Group, Inc. since February 2010, China Hydro since January 2010, Master Silicone Carbide since September 2008, Amacore Holdings, Inc. since August 2008, Care Media since April 2007, China New Energy since August 2008, Zurvita Holdings, Inc. since March 2010, Age of Learning since March 2010 and OptimizeRX Corporation since July 2010. Mr. Stastney was a director of Medical Solutions Management from October 2007 to January 2009 and MDWerks from May 2008 to August 2009. Mr. Stastney resigned as a Member of the Board of Directors effective June 6, 2013.Officer

28Mr. Paxinos brings upwards of 35 years of experience to netTALK in senior executive positions spanning full-system design and development, consumer electronics, television services, electrical engineering, and technology development. Most recently. Mr. Paxinos was CTO of Axios Digital Solutions, LLC a media and technology consulting company. Through Axios Digital, Mr. Paxinos assisted several startup companies in the TV marketplace targeting competitive Cable and Satellite TV services. Mr. Paxinos previously was Senior Vice President Engineering and Head of Technology at Sezmi, which was an early-stage, privately held company that addressed the need to simplify and unify the consumer home entertainment experience. The company developed products and services based on its innovative and breakthrough approach for digital entertainment management and distribution. Previous to these endeavors, Mr. Paxinos was Senior Vice President and Chief Technologist at U.S. Digital Television, where he was responsible for the design, development and deployment of a pay television and entertainment service leveraging broadcast television stations. Mr. Paxinos has extensive design experience including leadership of the engineering team at Metro Link Inc., where he was co-founder, to design and implement software and systems for military and aerospace applications used on the Boeing 777, Army Land Warrior, AWACS, nuclear power station control systems and other mission critical applications. Mr. Paxinos is actively involved on several international standards committees and conference program committees that help define DTV standards throughout the world. He has been chair of CEA R7.4, the IEEE Consumer Electronics Society’s administrative committee, and is a member of the Board of Directors and Linux International. he has served as the ACM SIGGRAPH Executive Committee as Treasurer and is member of the USACM Public Policy Committee. He is a member of ACM, APS, IEEE and SMPTE.

~~Significant employees~~23

~~Other~~Steven ~~than~~Healy, ~~the executive officers named above~~CPA, ~~the~~Chief ~~Company~~Financial ~~does not have any “significant employees~~Officer.”

~~Family~~Mr. Healy ~~relationship~~is –a ~~NONE~~graduate of the University of Florida with a bachelor degree in accounting. Mr. Healy completed his fifth year CPA qualification requirement at the University of Central Florida and passed the CPA exam in 1989. Mr. Healy began his career with Touche Ross as an auditor. Touche Ross merged with Deloitte Haskin and Sells forming the new company Deloitte & Touche. Mr. Healy left Deloitte & Touche and joined an audit client, United Leisure Industries, Inc., as the accounting manager. United Leisure is a vertically integrated company which manufactures portable spas, spa covers and billiard tables and distributes and sells such products and other leisure products including above ground swimming pools and accessories, throughout the Southeast United States with 35 retail stores, 2 distribution facilities and 4 manufacturing plants. Mr. Healy was promoted to Controller and was with United Leisure from 1993 to 1998. Mr. Healy moved to South Florida and worked as the Chief Financial Officer for two public companies, SystemOne Technologies from 1999 to 2003, a manufacturer of a parts washer utilizing proprietary technology supported by 7 patents and Imperial Industries, Inc., a manufacturer and distributor of building materials and accessories which had 2 manufacturing plants and 13 distribution centers prior to becoming a casualty of the Great Recession. Most recently, Mr. Healy began working for netTALK as the chief financial officer in December 2013.

~~Involvement~~Dr. inGeorge ~~legal~~Gabb, ~~proceedings~~Director.

NoMr. ~~officer,~~Gabb ~~director~~has over 19 years of experience within the education field. Currently he oversees the Computer Information Systems department at Miami Dade College North Campus (“MDC”), ~~promoter~~covering ora ~~significant~~wide ~~employee~~variety of programming languages. Mr. Gabb has been with MDC since 1998 and has a total of ~~involved~~18 inyears of experience within the ~~last~~education ~~five~~field. ~~years~~Prior into ~~any~~his stay at MDC, he held a variety of Director-level academic IT-related positions. In addition to his academic background, Mr. Gabb is a member of the ~~following:~~Florida Bar. He holds a B.S. in Psychology, M.S. in Computer Information Systems, and a J.D. from Nova Southeastern University.

●Family ~~Any~~relationship ~~bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;~~

●Nicholas ~~Any~~Kyriakides ~~conviction~~is inChief aOperating Officer ~~criminal~~and ~~proceeding~~started orwith ~~being~~the ~~subject~~company toSeptember a2008, ~~pending criminal proceeding (excluding traffic violations~~ and ~~other~~is ~~minor~~the ~~offenses);~~CEO’s son.

●Involvement Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoying, barring, suspending or otherwise limiting his involvement in ~~any~~legal ~~type of business, securities or banking activities; and~~proceedings

●No ~~Being~~officer, ~~found~~director, bypromoter aor ~~court~~significant ofemployee ~~competent~~has ~~jurisdiction~~been involved (in ~~a civil action),~~ the ~~Commission~~last orfive ~~the~~years ~~Commodity~~in ~~Futures~~any ~~Trading~~of ~~Commission to have violated or state securities or commodities law, and~~ the ~~judgment has not been reversed, suspended or vacated.~~following:

~~Committees~~● Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; ● Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); ● Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoying, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and ● Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Our business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees. We presently do not have any committees of our board of directors, however, our board of directors intends to establish various committees at some point in the future.Committees

~~Employment~~Our ~~Agreements~~business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees. We presently do not have any committees of our board of directors, however, our board of directors intends to establish various committees at some point in the future.

~~On May 16, 2011, we executed an Amended~~ Employment ~~Agreement~~Agreements ~~with Mr. Kyriakides our Chief Executive Officer and President as follows:~~

~~Salary~~On ~~set~~January at2, ~~$250~~2014,~~000~~ ~~per~~the ~~year~~Company ~~starting~~entered into onemployment ~~January~~agreements 1with the Chief Executive Officer, ~~2012.~~Executive Vice President, Chief Financial Officer, Chief Operating ~~Three~~Officer ~~year~~and ~~term~~Chief ~~with~~Technical ~~automatic~~Officer ~~renewal~~according to the following terms. Stated salary for 2014 and 2015, a term of ~~two~~2 to 5 years and a change in control payment, as defined in the agreements.

~~Change~~Compliance ofwith ~~control~~Section ~~cash~~16(a) ~~payment~~of ~~set~~the atExchange ~~$1,500,000~~Act

~~Currently,~~Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the ~~exception~~SEC initial reports of ~~Mr.~~ownership ~~Kyriakides~~and ~~Employment~~reports ~~Agreement~~of change in ownership of common stock and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all ~~other~~Section ~~employment~~16(a) ~~with~~forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the ~~Company~~year isended atDecember ~~will~~31, 2014, and ~~may~~Forms be5 ~~terminated~~and byamendments ~~either~~thereto furnished to us with respect to the ~~employee~~year orended December 31, 2014, we believe that during the ~~Company~~year atended ~~any~~December ~~time.~~31, We2014, ~~require~~our executive officers, directors ~~each~~and all persons who own more than ten percent of a registered class of our ~~three~~equity ~~executive~~securities ~~officers~~have tocomplied ~~execute~~with all Section 16(a) filing ~~Confidentiality~~requirements, ~~and~~except ~~Non-Competition~~as ~~Agreement.~~follows:

~~Compliance with Section 16(a) of the Exchange Act~~24

Section 16(a) ofBeneficial ~~the~~Ownership ~~Securities~~Reporting Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2012, and Forms 5 and amendments thereto furnished to us with respect to the year ended December 31, 2012, we believe that during the year ended December 31, 2012, our executive officers, directors and all persons who own more than ten percent of a registered class of our equity securities have complied with all Section 16(a) filing requirements.Compliance

29Name of Filer Title # of Late Reports # of Transactions not timely reported # of Failure to File None

Code of Ethics

We have adopted and previously filed a Code of Ethics for our officers, directors and employees.

Material Changes to Nominations by Security Holders of Director Candidates

In the past fiscal year, there has been no material change to the procedures by which security holders may recommend nominees to the small business issuer’s board of directors.

Audit Committee

We do not currently have a standing audit committee. The ~~Company’s~~Board ~~Chief~~of ~~Executive~~Directors ~~Officer~~ is ~~actively~~currently ~~researching~~performing ~~candidates for membership on~~ the ~~Board~~functions of ~~Directors who would be “independent” and who, accordingly, could serve on~~ an audit committee. ~~The~~Also, ~~entire~~we ~~Board~~do ofnot ~~Directors is~~ currently ~~performing~~have ~~the equivalent functions of~~ an “audit committee, financial ~~none~~expert” ofas ~~whom~~defined ~~have~~under ~~been~~Item ~~determined~~407(e) toof beRegulation ~~an “audit committee financial expert~~S-K.”

~~Audit Committee Financial Expert~~ 25

We do not currently have an “audit committee financial expert” as defined under Item 407(e) of Regulation S-K. As discussed above, our Board of Directors plans to form an Audit Committee. In addition, the Board is actively seeking to appoint an individual to the Board of Directors and the Audit Committee who would be deemed an audit committee financial expert.

Item 11. Executive compensation

~~Compensation~~The offollowing ~~our~~table contains compensation information for our executive officers for the period ended December 31, 2014 and December 31, 2013. No other officer received compensation greater than $100,000 for either fiscal year. All of the information included in this table reflects compensation earned by the individuals for services rendered to our Company and all references in the following tables to stock awards relate to awards of common stock granted by us.

The following table contains compensation information for our executive officers for the period ended December 31, 2012 and December 31, 2011. No other officer received compensation greater than $100,000 for either fiscal year. All of the information included in this table reflects compensation earned by the individuals for services rendered to our Company and all references in the following tables to stock awards relate to awards of common stock granted by us.

Name and Position	Year ended Dec 31,	Salary			Common Stock Awards			Total
Anastasios Kyriakides, Director,	2014	$	250,000	(2)	$	64,560	(3)	$	314,560
Chief Executive Officer (1)	2013	$	250,000	(2)	$	0	(3)	$	250,000
Guillermo Rodriguez, Director,	2013	$	21,267	(5)	$	0	(6)	$	21,267
Chief Financial Officer (4)
Kenneth Hosfeld, Director,	2014	$	100,000	(8)	$	23,782	(9)	$	123,782
Executive Vice President (7)	2013	$	96,000		$	0	(9)	$	96,000
Steven Healy, CPA, Chief Financial	2014	$	105,000	(11)	$	3,214	(12)	$	108,214
Officer (10)	2013	$	3,654	(11)	$	0	(12)	$	3,654
Nicholas Kyriakides	2014	$	100,000	(14)	$	23,782	(15)	$	123,782
Chief Operating Officer (13)	2013	$	96,000		$	0	(15)	$	96,000
Garry Paxinos	2014	$	100,000	(17)	$	23,782	(18)	$	123,782
Chief Technology Officer (16)	2013	$	96,000		$	0	(18)	$	96,000

Name and Position	Year ended Dec 31,		Salary			Common Stock Awards			Total
Anastasios Kyriakides, Director,		2012	$	258,600	(2)	$	0	(3)	$	258,600
Chief Executive Officer (1)		2011	$	190,000	(2)	$	0	(3)	$	190,000
Kenneth Hosfeld, Director,		2012	$	96,000	(8)	$	0	(9)	$	96,000
Vice President (7)		2011	$	96,000	(8)	$	0	(9)	$	96,000
Guillermo Rodriguez, Director,		2012	$	65,000	(5)	$	0	(6)	$	65,000
Chief Financial Officer (4)(4b)		2011	$	65,000	(5)	$	0	(6)	$	65,000

(1)

Mr. Kyriakides was appointed to serve as our Chief Executive Officer on September 10, 2008.

(2) Mr. Kyriakides annual salary increased to $250,000 at January 1, 2012 per his amended employment agreement dated May 16, 2011. July 1, 2013, Mr. Kyriakides’ cash salary was decreased to $175,000 per year. The remaining $75,000 is being accrued pro ratably on a monthly basis.

(3) No stock grants given ~~for~~to ~~the~~Mr. ~~years~~Kyriakides ~~ended~~in ~~December~~2013 ~~31,~~and ~~2012~~16.140 ~~and~~million ~~2011~~shares were given in 2014.

	(4)	Mr. Rodriguez was appointed to serve as Chief Financial Officer on September 30, 2008.
	(4b)	Effective April 30, 2013, Mr. Rodriguez retired as CFO of the Company.

(4)

Mr. Rodriguez retired as Chief Financial Officer April 30, 2013.

(5) Mr. Rodriguez’s annual salary iswas $65,000 in 2013.

(6) No stock grants given ~~for~~to ~~the~~Mr. ~~years~~Rodriguez ~~ended~~in ~~December 31, 2012 and 2011~~2013.

(7)

Mr. Hosfeld was appointed to serve as our Vice President on September 30, 2008.

(8) Mr. Hosfeld’s annual salary iswas ~~$96~~increased per his employment agreement dated January 2,~~000~~ 2014.

(9) No stock grants given ~~for~~to ~~the~~Mr. ~~years~~Hosfeld ~~ended~~in ~~December~~2013 ~~31,~~and ~~2012~~5.945 ~~and~~million ~~2011~~shares were given in 2014.

30(10) Mr. Healy was appointed Chief Financial Officer December 2013.

~~Overview~~(11) Mr. Healy’s annual salary was $105,000 in 2014.

~~The~~(12) ~~following~~No isstock agrants ~~discussion~~were ofgiven ~~our~~to ~~program for compensating our named executive officers and directors~~Mr. ~~Currently,~~Healy wein do2013 ~~not have a compensation committee,~~ and ~~as such~~803,500 ~~our~~were ~~board~~given of directors is responsible for determining the compensation of our named executive officers. The primary goal of our executive compensation policy is to attract and retain the most talented and loyal executives possible. Our intent is to ensure that our executives are compensated effectively in ~~a manner consistent with our strategy and competitive practice and to align executive compensation with the achievement of our short and long term business objectives~~2014.

~~Our board~~(13) ofMr. ~~directors~~Kyriakides ~~considers~~was aappointed ~~variety~~to ofChief ~~factors~~Operating inOfficer ~~determining~~January ~~compensation of executives including the executive’s background~~1, ~~training~~ ~~and prior work experience~~2014.

~~Elements~~(14) ofMr. ~~executive~~Kyriakides’ ~~compensation~~annual salary was increased per his employment agreement dated January 2, 2014.

~~Our~~(15) ~~compensation~~No ~~program~~stock ~~for~~grants ~~the~~were ~~named~~given ~~executive~~to ~~officers consists primarily of base salary~~Mr. ~~There~~Kyriakides isin no2013 ~~bonus~~and ~~plan or retirement plan~~5.945 ~~Except~~million ~~for~~shares ~~2012~~were ~~Stock~~given ~~Option Plan described~~ in ~~Item 4 above, we have no long-term incentive plan or other such plans~~2014. ~~The base salary we provide is intended to equitably compensate the named executive officers based upon their level of responsibility, complexity and implementation of our business plan.~~

(16)

Mr. Paxinos was appointed to Chief Technology Officer upon hiring December 2011.

(17)

Mr. Paxinos annual salary was increased per his employment agreement dated January 2, 2014.

(18)

No stock grants were given to Mr. Paxinos in 2013 and 5.945 million shares were given in 2014.

Executive Compensation

The Company does not have a compensation committee, thus, our board of directors is responsible for determining the compensation of our named executive officers. The primary goal of our executive compensation policy is to attract and retain the most talented and loyal executives possible. Our intent is to ensure that our executives are compensated fairly and consistent with our strategy and competitive practice and to align executive compensation with the achievement of our business objectives. Our compensation program for the named executive officers consists primarily of base salary, although, the Company has a Stock Option Plan as described above.

Compensation of Directors

None of the Company’s directors have received any additional cash or equity remuneration since inception for their services as Directors except for Dr. George Gabb, one of the Company’s Board of Directors, who received 75,000 shares of stock valued at $563 during the year ended December 31, 2011 and Shad Stastney, another Director, who received 3,250,000 shares of stock valued at $3,250.

Director Independence

Our board of directors has determined that currently none of it members qualify as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200, except for Dr. George Gabb.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information, as of ~~December~~April 3110, ~~2012~~2015 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

Title	Name of beneficiary	Amount and nature of owner			Percent
Type	Name of Beneficiary	Amount and Nature of Owner			Percent (2)
Common stock	Anastasios Kyriakides		2034,~~126~~383,~~500~~057	(3)		1327.4	%
Common stock	Kenneth A. Hosfeld		28,~~238~~183,~~000~~500			16.5	%
Common stock	~~Guillermo~~Steven ~~Rodriguez (Retired)~~Healy		2803,~~483,000~~500			10.3	%
Common stock	Dr. George Gabb		106,000			0.1	%
Common stock	~~Shad~~Nicholas ~~Stastney (Resigned)~~Kyriakides		38,~~250~~183,~~000~~500			26.5	%
Executive officers and directors (5 persons)			28,203,500			18	%
Common stock	Garry Paxinos		6,128,500			4.9	%
Common stock	Vicis Capital Master Fund		116,859,612	(4)		74	%
Common stock of executive officers and directors			57,387,307			45.7	%
Total Common stock of officers, directors and beneficial owners			145,063,112			92	%
Common stock	Samer Bishay		44,865,170	(4)		35.7	%
Common stock	KBM Worldwide, Inc. (“KBM”)		24,527,356	(5)		16.5	%
Common stock of executive officers, directors and beneficial owners			126,779,833			81.4	%

31(1) Unless otherwise indicated, the address of each shareholder is 1080 NW 163rd Drive, Miami, Florida 33169. Samer Bishay is located in Canada.

(2) Beneficial ownership of shares is determined under Rule 13d-3(d)(1) ~~Unless~~of ~~otherwise~~the ~~indicated~~Exchange Act and generally includes any shares over which a person exercises sole or shared voting or investment power and the number of shares that can be acquired within sixty (60) days upon exercise of an option or conversion of warrants and debentures. Common stock subject to these convertible securities are deemed to be outstanding for the purpose of computing the ownership percentage of the person holding such convertible security, but are not deemed to be outstanding for the ~~address~~purpose of ~~each~~computing ~~shareholder~~the isownership ~~1080~~percentage NWof ~~163rd~~any ~~Drive~~other person. Applicable percentage of ownership is based on 125,676,528 ~~Miami~~of fully diluted shares of Net Talk.com, ~~Florida~~Inc. ~~33169~~common stock being issued and outstanding as of April 10, 2015. ~~Vicis~~Calculations ~~Capital~~do ~~Master~~not ~~Fund~~include outstanding warrants or options, or other rights issued by the Company, unless the reporting person is ~~located~~the inbeneficial ~~New~~owner ~~York~~of the warrants, NYoptions, or other rights.

(~~2) Beneficial ownership of shares is determined under Rule 13d-~~3(d)~~(1)~~ ofIncludes the Exchange Act and generally includes any shares over which a person exercises sole or shared voting or investment power and the number of shares that can be acquired within sixty (60) days upon exercise of an option or conversion of warrants and debentures. Common stock subject to these convertible securities are deemed to be outstanding for the purpose of computing the ownership percentage of the person holding such convertible security34, ~~but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. Applicable percentage of ownership is based on 158~~383,~~173,834~~057 ~~of fully diluted~~ shares of ~~Net Talk.com, Inc.~~ common stock ~~being~~owned ~~issued and outstanding as of December 31, 2012. Calculations do not include outstanding warrants or options, or other rights issued~~ by ~~the~~Kyriakides ~~Company~~Investments, ~~unless the reporting person is the beneficial owner of the warrants, options, or other rights~~LLC.

(34) Includes 2044,~~126~~865,~~500~~170 shares of common stock owned by ~~Kyriakides Investments~~Telestrata, LLC.

(45) Includes: 191,~~995~~318,~~092~~681 shares of common stock, 20,000,000 shares of common stock issuable upon conversion of 12% Redeemable preferred stock. It also includes 76,864,520 shares of common stock issuable upon exercise of Common Stock Purchase Warrants, which may be exercised, at the option of the holder, at an exercise price of $0.50 per share. Vicis Capital LLC serves as the investment advisor to Vicis Capital Master Fund. For purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, Vicis Capital LLC may be deemed to beneficially own, but has disclaimed ownership of, all shares owned by ~~Vicis~~KBM ~~Capital Master Fund. The voting~~ and ~~dispositive power granted to Vicis Capital LLC by Vicis Capital Master Fund may be revoked at any time. Shadron Stastney~~23, ~~a member of Vicis Capital LLC and its chief operating officer~~208,675 ~~together~~shares ~~with~~beneficially ~~John Succo and Sky Lucas, have voting and dispositive control over these securities. No single natural person can exercise voting or investment power with respect to the securities~~ owned by ~~Vicis Capital Master Fund, and investment decisions with respect to these securities are made by a majority of these persons~~KBM. ~~The address for Vicis Capital Master Fund and Mr. Stastney is 445 Park Avenue, Suite 1901, New York, New York 10022.~~

~~There~~Except ~~were~~as nodescribed ~~transactions~~below, ~~since~~there ~~the~~were ~~beginning~~no ofother ~~our last~~transactions ~~fiscal~~since ~~year~~January 1, 2014, and there are no proposed transactions, that involve amounts in excess of the lesser of $50,000 or 1% of the average of our total assets during our two most recently completed fiscal years, to which we were or are to become a party in which any director, executive officer, beneficial owner of more than five (5%) percent of our common stock, or members of their immediate families had, or is to have, a direct or indirect material interest~~, except, during the period ended December 31, 2012 we incurred and paid certain consulting service fees to a related party~~.

~~2012~~During ~~Issuance~~2014, the CEO loaned the Company $575,000 in non-interest bearing demand notes of ~~Non~~which $400,000 was repaid to the CEO as of December 31, 2014. Additionally, the CEO was repaid $87,583 in back-~~Convertible~~pay ~~Debentures~~that was accrued in 2013 and the Company accrued $75,000 relating to the voluntary reduction in the CEO’s cash compensation. As of December 31, 2014, the amount due to the CEO was $250,912.

OnIristel, ~~March~~Inc. 29(“Iristel”), ~~2012,~~a wevendor ~~issued~~that previously provided a ~~face~~significant ~~value~~portion ~~$500~~of netTALK’s telecom service in 2013 and 2014,~~000~~ is owned by Samer Bishay, ~~10%~~who ~~senior~~was President ~~secured~~and ~~debenture~~member of the board of directors of NetTalk.com, ~~due~~Inc. ~~June~~until 30removed from the board of directors by a majority of the Company’s shareholders on November 26, ~~2012~~2014. Mr. Bishay also owns and or controls Telestrata, ~~extended~~LLC to(“Telestrata”), ~~December~~a 31debt and equity holder of NetTalk.com, ~~2013~~Inc., a significant portion of which debt and equity was issued in full settlement of amounts due to Iristel.

~~On April 20, 2012, we issued a face value $500,000, 10% senior secured debenture, due June 30, 2012, extended to December 31, 2013.~~27

On ~~June~~October 2610, ~~2012~~2014, weMr. ~~issued~~Bishay acaused ~~face~~Iristel ~~value~~to ~~$450~~terminate all its contracts with NetTalk.com,~~000~~ Inc. On October 17, ~~10%~~2014, ~~senior secured~~Mr. ~~debenture~~Bishay, ~~due~~purporting ~~June~~to 30act as President of NetTalk.com, ~~2012~~Inc., attempted ~~extended~~to cause NetTalk.com, Inc. to ~~December~~reinstate 31one of its contracts with Iristel, ~~2013~~which he had previously caused Iristel to terminate. The Company continues to deny that that reinstatement was effective.

~~During~~On ~~the~~or ~~year~~about ~~ended~~October ~~December~~24, 312014, ~~2012~~Mr. Bishay, wedespite ~~received~~being ~~advances~~obviously inconflicted, despite acting without authorization and against the ~~total~~wishes ~~amount~~of the board of $1directors,~~150,000,~~ asand ~~part~~despite the absence of athe Company ~~series~~seal, offiled ~~10%~~an ~~senior~~unauthorized ~~secured~~mortgage ~~debentures,~~on ~~due~~certain ~~December~~real 31property of the Company, ~~2013~~in favor of Telestrata, ~~issued~~which tohe ~~our~~owns ~~largest~~and ~~investor~~or controls. The Company is continuing to dispute that mortgage.

~~During~~On ~~the~~November ~~year~~5, ~~ended~~2014, ~~December~~Telestrata ~~31,~~filed ~~2012,~~an weaction ~~received~~against ~~advances~~the company in the ~~total~~United ~~amount~~States District Court for the Southern District of ~~$275~~Florida titled: Telestrata,~~000,~~ ~~represented~~LLC byv. ~~Demand~~NetTalk.com., ~~Notes~~Inc. et al., ~~issued~~1:14-cv-24137. See note 12 to ~~our~~the ~~largest~~financials ~~investor~~statements for further discussion.

32As a continuation of these ongoing attempts to tortiously damage the Company and its shareholders, Mr. Bishay, through Iristel and Telestrata, is attempting to overstate, or completely misstate, the amounts owed by the Company as part of their confirmations for its annual audit. The Company has accrued and recorded the amounts it believes are owed to Iristel. The Company completely denies the validity of any such claims, and intends to vigorously pursue Iristel, Telestrata and Mr. Bishay for the damage any such misstatements may cause.

Phoenix Vitae Holdings, LLC (“PV”), which is owned by the CEO of the Company, purchased the 6%, $3,000,000 secured promissory note from Vicis Capital Master Fund on July 7, 2014. The parties executed a note amendment agreement September 1, 2014 whereby the note is due on demand and interest is accruing at 12% annually. See note 9 to the financial statements for further discussion on the note and terms.

Item 14. Principal Accountant Fees and Services

Pre-Approval Policies and Procedures

~~The~~A majority of the Company's board of directors ~~reviews and~~ approves ~~audit~~all ~~and~~professional ~~permissible non-audit~~ services ~~performed~~for byaudit ~~its~~fees, ~~independent~~audit ~~accountants~~related fees, astax ~~well~~fees asand ~~the~~all other fees ~~charged~~performed ~~for~~by ~~such~~the ~~services~~Company’s independent accountants. In its review of non-audit service fees and its appointment of ~~Thomas~~ ~~Howell~~Fuoco ~~Ferguson~~Group ~~P. A.,~~ as the Company's independent accountants, the board of directors considered whether the provision of such services is compatible with maintaining independence. All of the services provided and fees charged by ~~Thomas~~Fuoco ~~Howell~~Group ~~Ferguson P. A.,~~ were approved by a majority of the board of directors.

Audit Fees

The aggregate fees billed by ~~Meeks~~Zachary ~~International,~~Salum ~~LLC~~Auditors PA for professional services for the audit of the annual financial statements ofincluded in the Company’s ~~and~~annual ~~the~~report on Form 10-K and reviews of the financial statements included in the Company's quarterly reports on Form 10-Q for ~~2012~~2014 was $3087,~~000,~~075 and ~~of which~~ $2461,~~000~~750 ~~was~~for ~~paid~~the toyears ~~Meeks~~ended ~~International~~December 31, ~~LLC~~2014 and $62013,~~000 to~~ ~~Thomas Howell Ferguson P~~respectively. A.

Audit-Related Fees

There were no other fees billed during the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company's financial statements and not reported under "Audit Fees" above.

Tax Fees

~~There~~The ~~were~~aggregate no fees ~~paid~~billed by Zachary Salum Auditors PA for tax orservices ~~consulting~~was ~~services~~$9,675 ~~for~~and ~~the year~~$3,250, ~~ended~~for ~~December~~2014 31and 2013, ~~2012~~respectively.

All Other Fees

There were no other fees billed during the last ~~three~~two years ~~for~~ for products and services provided.

Part IV

Item 15. Exhibits, ~~financial~~Financial ~~statement~~Statement ~~schedules~~Schedules

Exhibit No. Description

Exhibit No.		Description
3.01		Articles of Incorporation of Net Talk.com Inc. (1)
3.02		Articles of Amendment to the Articles of Incorporation of Net Talk.com Inc. (1)
3.03		Articles of Amendment to the Articles of Incorporation of Net Talk.com Inc. (1)
3.04		Articles of Amendment to the Articles of Incorporation of Net Talk.com Inc. (1)
3.05		Bylaws of Net Talk.com
10.01		Redemption and Debt Restructuring Agreement (2)
10.02		Fourth Amended and Restated Agreement (2)
10.03		6% Secured Promissory Note (2)
10.04		Restricted Stock and Warrant Purchase Agreement (3)
10.05		Registration Rights Agreement (3)
10.06		Secured Promissory Note (3)
10.07		Employment Agreements by and between Nettalk.com Inc. and Anastasios Kyriakides (4)
10.08		Employment Agreements by and between Nettalk.com Inc. and Kennett Hosfeld (4)
10.09		Employment Agreements by and between Nettalk.com Inc. and Steven Healy (4)
10.10		Employment Agreements by and between Nettalk.com Inc. and Anastasios Nicholas Kyriakides II (4)
10.11		Employment Agreements by and between Nettalk.com Inc. and Garry Paxinos (4)
10.12		Form of Securities Purchase Agreement (5)
10.13		Form of $83,500 Convertible Promissory Note (5)
10.14		$500,000 Convertible Promissory Note (6)
10.15		Amendment to $500,000 Convertible Promissory Note (6)
31.01		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 14, 2014. (7)
31.02		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 14, 2014. (7)
32.01		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, dated August 14, 2014. (7)
32.02		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, dated August 14, 2014. (7)
101.INS		XBRL Instance Document (7)
101.SCH		XBRL Taxonomy Extension Scheme Document (7)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (7)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (7)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (7)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (7)

~~10.~~(1) ~~Form~~Filed 8as ~~K’s~~an ~~previously~~exhibit ~~filed~~to –the ~~Article~~Company’s ofForm ~~Incorporation,~~S-1 ~~Amendment~~which was tofiled ~~Articles~~with ofthe ~~Incorporation,~~Commission ~~Corporate~~on ByFebruary ~~Laws~~2, ~~issuances~~2009, ~~of Senior debentures~~ and ~~material~~incorporated ~~agreements~~herein ,by ~~previously reported during last two years~~reference.

~~31.1~~(2) ~~Certification~~Previously offiled ~~Principal~~as ~~Executive~~an ~~Officer~~exhibit ~~pursuant~~ to ~~13a-14(a) under~~ the ~~Securities~~Form ~~Exchange Act of 1934~~8-K, asfiled ~~adopted~~with the ~~pursuant~~SEC toon ~~Section~~January ~~302~~27, of2014 ~~the~~and ~~Sarbanes-Oxley~~incorporated ~~Act~~herein ofby ~~2002~~reference.

~~31.2~~(3) ~~Certification~~Previously offiled ~~Principal~~as ~~Financial~~an ~~Officer~~exhibit ~~pursuant~~ to ~~13a-14(a) under~~ the ~~Securities~~Form ~~Exchange Act of 1934~~8-K, asfiled ~~adopted~~with the ~~pursuant~~SEC toon ~~Section~~March ~~302~~24, of2014 ~~the~~and ~~Sarbanes-Oxley~~incorporated ~~Act~~herein ofby ~~2002~~reference.

~~32.1~~(4) ~~Certification~~Previously offiled ~~the~~as ~~Principal~~an ~~Executive~~exhibit ~~Officer pursuant~~ to ~~U.S.C.~~the ~~Section~~Form ~~1350~~10-K, asfiled ~~adopted~~with the ~~pursuant~~SEC toon ~~Section~~May ~~906~~7, of2014 ~~the~~and ~~Sarbanes-Oxley~~incorporated ~~Act~~herein ofby ~~2002~~reference.

~~32.2~~(5) ~~Certification~~Previously offiled ~~the~~as ~~Principal~~an ~~Financial~~exhibit ~~Officer pursuant~~ to ~~U.S.C.~~the ~~Section~~Form ~~1350~~8-K, asfiled ~~adopted~~with the ~~pursuant~~SEC toon ~~Section~~September ~~906~~30, of2014 ~~the~~and ~~Sarbanes-Oxley~~incorporated ~~Act~~herein ofby ~~2002~~reference.

33(6) Previously filed as an exhibit to the Form 8-K, filed with the SEC on September 30, 2014 and incorporated herein by reference.

~~SIGNATURES~~(7) Filed herewith.

~~In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~29

	NET TALK.COM, INC.
Date: September 4, 2013	By: /s/ Anastasios Kyriakides
	Anastasios Kyriakides
	Chief Executive Officer (Principal Executive Officer)
Date: September 4, 2013	By: /s/ Anastasios Kyriakides
	Anastasios Kyriakides
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

SIGNATURES

~~POWER~~In OFaccordance ~~ATTORNEY~~with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Anastasios Kyriakides or either of them acting in the absence of the other as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.

	NET TALK.COM, INC.

Date: April 15, 2015	By: /s/ Anastasios Kyriakides
	Anastasios Kyriakides
	Chief Executive Officer (Principal Executive Officer)

Date: April 15, 2015	By: /s/ Steven Healy, CPA
	Steven Healy, CPA
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

~~Name~~POWER ~~Position~~OF /s/ Anastasios Kyriakides Chief Executive Officer (Principal Executive Officer) Anastasios Kyriakides and Director /s/ Anastasios Kyriakides Chief Executive Officer (Principal Executive Officer) Anastasios Kyriakides and Director /s/ Kenneth Hosfeld Vice President and Director Kenneth HosfeldATTORNEY

34Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Anastasios Kyriakides or either of them acting in the absence of the other as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.

Index to financial statements	Page
Reports of Independent Registered Public Accountant	36
Balance sheets as of December 31, 2012 and 2011	38
Statements of operations for the year ended December 31, 2012, three months ended December 31, 2011and fiscal years ended September 30, 2011 and 2010	39
Statements of cash flows for the year ended December 31, 2012, three months ended December 31, 2011 and fiscal years ended September 30, 2011 and 2010	40
Statements of stockholders’ deficit for the year ended December 31, 2012, three months ended December 31, 2011 and fiscal years ended September 30, 2011 and 2010.	41
Notes to financial statements	42

Name		Position

/s/ Anastasios Kyriakides		Chief Executive Officer (Principal Executive Officer)
Anastasios Kyriakides		and Director

/s/ Kenneth Hosfeld		Executive Vice President and Director
Kenneth Hosfeld

/s/ Dr. George Gabb		Director
Dr. George Gabb

3530

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Index to financial statements	Page

Report of Independent Registered Public Accounting Firm	32
Balance sheets as of December 31, 2014 and 2013	33
Statements of operations for the years ended December 31, 2014 and 2013	34
Statements of cash flows for the years ended December 31, 2014 and 2013	35
Statements of stockholders’ deficit for the years ended December 31, 2014 and 2013	36
Notes to financial statements	37

~~To the Board of Directors and Stockholders of~~31

~~NetTalk.com,~~REPORT ~~Inc.~~OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~Miami~~To ~~Gardens,~~the ~~Florida~~Board of Directors and Stockholders of

~~We have audited the accompanying balance sheet of~~ NetTalk.com, Inc. as of December 31, 2012 and the related statement of operations, stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

WeMiami conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to haveGardens, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.Florida

InWe ~~our~~have ~~opinion,~~audited the ~~financial~~accompanying ~~statements~~balance ~~referred~~sheets ~~to above present fairly, in all material respects, the financial position~~ of NetTalk.com, Inc. atas of December 31, ~~2012~~2014 and 2013, and the ~~results~~related statements of ~~its~~ operations, stockholders’ deficit, and ~~its~~ cash flows for the ~~year~~years then ended,. inThese ~~conformity~~financial ~~with~~statements U.are S.the ~~generally~~responsibility ~~accepted~~of ~~accounting~~the Company’s management. Our ~~principles~~responsibility is to express an opinion on these financial statements based on our audits.

~~The~~We ~~accompanying~~conducted ~~financial~~our ~~statements have~~audits ~~been~~in ~~prepared~~accordance ~~assuming~~with the ~~that~~standards of the Public Company ~~will~~Accounting ~~continue~~Oversight asBoard a(United ~~going concern~~States). AsThose ~~discussed~~standards inrequire ~~Note~~that 2we ofplan ~~the~~and ~~accompanying~~perform the audit to obtain reasonable assurance about whether the financial statements, ~~the~~are free of material misstatement. The Company is ~~has~~not ~~incurred~~required ~~significant~~to ~~recurring~~have, ~~losses~~nor ~~from~~were ~~operations~~we ~~its~~engaged ~~total~~to ~~liabilities~~perform ~~exceeds~~an audit of its ~~total~~ ~~assets,~~internal ~~and~~control isover ~~dependent~~financial onreporting. ~~outside~~Our ~~sources~~audits included consideration of ~~funding~~internal control over financial reporting as a basis for ~~continuation~~designing ofaudit ~~its~~procedures ~~operations.~~that ~~These~~are ~~factors~~appropriate ~~raise~~in the ~~substantial~~circumstances, ~~doubt~~but ~~about~~not for the purpose of expressing an opinion on the effectiveness of the Company’s ~~ability~~internal tocontrol ~~continue~~over financial asreporting. aAccordingly, ~~going~~we ~~concern~~express no such opinion. ~~Management’s~~An ~~plans~~audit inalso ~~regard~~includes ~~to these~~examining, ~~matters~~on ~~are~~a ~~also~~test ~~described~~basis, inevidence ~~Note~~supporting the 2.amounts ~~The~~and disclosures in the financial statements, doassessing ~~not~~the ~~include~~accounting ~~any~~principles ~~adjustments~~used ~~that~~and ~~might~~significant ~~result~~estimates ~~from~~made by management, as well as evaluating the ~~outcome~~overall offinancial ~~this~~statement ~~uncertainty~~presentation. We believe that our audits provide a reasonable basis for our opinion.

~~/s/~~In ~~Thomas~~our ~~Howell~~opinion, the ~~Ferguson~~financial Pstatements referred to above present fairly, in all material respects, the financial position of NetTalk.com, AInc. at December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

~~Tallahassee~~The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the accompanying financial statements, ~~Florida~~the Company has incurred significant recurring losses from operations, its total liabilities exceeds its total assets, and is dependent on outside sources of funding for continuation of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~September~~/s/ 4,Zachary ~~2013~~Salum Auditors P.A.

36South Miami, Florida

~~REPORT~~April OF15, ~~INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~2015

To7900 ~~the~~Red ~~Board~~Road, ofSuite ~~Directors~~26, ~~and~~Miami, ~~Stockholders~~FL of33143

~~NetTalk.com,~~Tel ~~Inc.~~(305) 663-6600 Fax (305) 663-8771

~~Miami Gardens, Florida~~32

~~We have audited the accompanying balance sheet of NetTalk~~netTALK.~~com~~COM, Inc. as of December 31, 2011 and the related statement of operations, stockholders’ deficit, and cash flows for the three month period ended December 31, 2011 and each of the two years in the period ended September 30, 2011.These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

WeBalance conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.Sheets

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NetTalk.com, Inc. at December 31, 2011, and the results of its operations, changes in its stockholder’s deficit and their cash flows for the three months period ended December 31, 2011, and each of the two years in the period ended September 30, 2011, in conformity with U. S. generally accepted accounting principles.

	December 31,			December 31,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	372,284		$	76,791
Restricted cash		115,530			183,930
Accounts receivable, net		82,739			175,157
Inventory		680,963			1,126,300
Prepaid expenses		-			91,842
Total current assets		1,251,516			1,654,020

Property and equipment, net		2,706,426			2,794,148
Intangible assets, net		72,195			116,770
Development costs		377,172			-
Other assets		30,589			27,253

Total assets	$	4,437,898		$	4,592,191

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$	2,149,333		$	2,434,952
Accrued expenses		1,448,642			773,905
Due to Shareholder		250,912			87,583
Deferred revenue		2,056,515			1,857,407
Current portion of long-term debt		4,580,000			1,400,000
Total current liabilities		10,485,402			6,553,847

Long term debt		2,996,155			4,529,278
Total liabilities		13,481,557			11,083,125

Stockholders' deficit:
Common stock, $.001 par value, 300,000,000 authorized, 121,398,391 and 41,324,221 issued and outstanding as of December 31, 2014 and December 31, 2013		121,407			41,333
Additional paid in capital		55,217,688			55,009,280
Accumulated deficit		(64,382,754	)		(61,541,547	)
Total stockholders' deficit		(9,043,659	)		(6,490,934	)

Total liabilities and stockholders' deficit	$	4,437,898		$	4,592,191

~~/s/~~The ~~Meeks~~accompanying ~~International,~~notes ~~LLC.~~are an integral part of the financial statements

~~Tampa, Florida~~33

~~March 19~~netTALK.COM, ~~2012~~Inc.

37Statements of Operations

Nettalk.com Inc.

	Year Ended December 31, 2014			Year Ended December 31, 2013

Net revenues	$	5,063,416		$	6,024,150

Cost of revenues		3,100,906			4,678,863

Gross profit		1,962,510			1,345,287

Operating expenses		4,162,458			4,953,388

Operating loss		(2,199,948	)		(3,608,101	)

Other income (expenses):
Interest expense		(641,259	)		(1,479,186	)
Other income		-			299,457

Total other income (expenses)		(641,259	)		(1,179,729	)

Net loss	$	(2,841,207	)	$	(4,787,830	)

Loss per common share:
Basic and diluted loss per common share	$	(0.04	)	$	(0.08	)
Weight average shares:
Basic and diluted		79,872,477			61,035,259

~~Balance~~The ~~Sheets~~accompanying notes are an integral part of the financial statements

	December 31,			December 31,
	2012			2011
Assets
Current assets:
Cash and cash equivalents	$	96,347		$	1,539,263
Restricted cash		115,259			98,877
Accounts receivable, net		472,233			576,160
Inventory		1,467,774			2,205,255
Prepaid expenses		277,908			3,511
Note receivable		7,000			43,000
Total current assets		2,436,521			4,466,066
Building, telecommunications equipment, land and other property, net		2,980,068			3,000,039
Intangible assets, net		193,007			132,364
Other assets		37,253			39,754
Total assets	$	5,646,849		$	7,638,223
Liabilities, redeemable preferred stock and stockholders' deficit
Current liabilities:
Accounts payable	$	2,211,622		$	888,993
Accrued dividends		1,301,116			701,116
Accrued expenses		477,743			532,159
Deferred revenue		2,246,052			1,683,948
Current portion of senior debentures and demand notes		15,640,336			2,211,483
Total current liabilities		21,876,869			6,017,699
Senior debentures		-			3,783,692
Mortgage payable		1,000,000			-
Total liabilities		22,876,869			9,801,391
Redeemable preferred stock, $.001 par value, 10,000,000 shares authorized, 500 and 300 issued and outstanding as of December 31, 2012 and December 31, 2011.		6,379,016			10,382,957
Stockholders' deficit:
Common stock, $.001 par value, 300,000,000 authorized, 60,251,355 and 39,464,892 issued and outstanding as of December 31, 2012 and December 31, 2011.		60,260			39,465
Additional paid in capital		33,084,420			29,453,120
Accumulated deficit		56,753,716			(42,038,710	)
Total stockholders' deficit		(23,609,036	)		(12,546,125	)
Total liabilities, redeemable preferred stock and stockholders' deficit	$	5,646,849		$	7,638,223

~~The~~netTALK.COM, ~~accompanying notes are an integral part of the financial statements~~Inc.

38Statements of Cash Flows

Nettalk.com, Inc

	Twelve Months Ended December 31,
	2014			2013
Cash flow used in operating activities:
Net loss	$	(2,841,207	)	$	(4,787,831	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization		241,718			298,647
Amortization of debt discount		-			947,279
Changes in assets and liabilities:
Accounts receivables		92,418			297,076
Prepaid expenses and other assets		91,842			186,065
Inventories		445,337			341,474
Other assets		(3,336	)		10,000
Deferred revenues		199,108			(388,645	)
Accounts payable		(285,619	)		223,330
Accrued liabilities		674,737			296,162
Net cash used in operating activities		(1,385,002	)		(2,576,443	)
Cash flow used in investing activities:
Restricted cash		68,400			(68,671	)
Purchase of property and equipment		(109,421	)		(36,489	)
Development costs		(377,172	)
Net cash used in investing activities:		(418,193	)		(105,160	)
Cash flow from financing activities:
Proceeds from promissory and demand notes		1,646,877			2,040,509
Issuance of common stock		288,482			126,955
Proceeds from mortgage payable		-			400,000
Note receivable		-			7,000
Due to shareholder		163,329			87,583
Net cash provided by financing activities		2,098,688			2,662,047
Net increase (decrease) in cash		295,493			(19,556	)
Cash and cash equivalents, beginning		76,791			96,347
Cash and cash equivalents, ending	$	372,284		$	76,791
Supplemental disclosures:
Cash paid for interest	$	168,000		$	166,400
Cash paid for income taxes	$	-		$	-

Non-cash transactions:
As per the redemption agreement
Write-off of accrued dividends				$	1,301,116
Extinguishment of debt, preferred stock and accrued interest				$	1,187,653

~~Statements~~The accompanying notes are an integral part of ~~Operations~~the financial statements

				Three months
	Year ended			ended
	December 31,			December 31,			Year ended September 30,
	2012			2011			2011			2010
Revenues
Sale of DUO products	$	2,067,983		$	756,675			1,676,436			641,837
Renewals and access charges		3,509,282			482,093			729,333			19,289
Other		213,718			59,855			314,696			76,372
Total revenue		5,790,983			1,298,623			2,720,465			737,498
Cost of sales
Cost of DUO products		2,698,971			931,322			1,620,605			797,916
Network and carrier charges		2,924,180			446,110			692,793			401,324
Other		561,637			410,383			784,968			254,092
Total cost of sales		6,184,787			1,787,815			3,098,366			1,453,332
Gross margin		(393,804	)		(489,192	)		(377,901	)		(715,834	)
Advertising and marketing		1,019,882			606,209			1,701,490			357,413
Compensation and benefits		1,692,237			289,652			1,262,994			477,576
Professional fees		884,580			136,118			235,756			255,471
Depreciation and amortization		262,842			60,765			356,688			363,335
Research and development		1,211,711			270,782			903,369			375,197
General and administrative expenses		2,614,408			497,986			1,484,971			547,075
Total operating expenses		7,685,660			1,861,512			5,945,268			2,376,067
Loss from operations		(8,079,464	)		(2,350,704	)		(6,323,169	)		(3,091,901	)
Other income (expenses):
Interest expense		(3,500,512	)		(1,090,735	)		(1,070,522	)		(1,058,363	)
Derivative (expense)		-			-			(17,280,018	)		1,445,632
Debt extinguishment (loss)		(3,135,235	)		-			(1,293,538	)		(3,617,983	)
Interest income		205			1,153			4,160			15,652
Loss on sale of assets					-			(213,478	)		-
		(6,635,542	)		(1,089,582	)		(19,853,396	)		(3,215,062	)
Net loss		(14,715,006	)		(3,440,286	)		(26,176,565	)		(6,306,963	)
Reconciliation of net loss applicable to common stockholders:
Accretion of preferred stock		-			-			(923,778	)		(93,000	)
Preferred stock dividends		-			-			(586,667	)		-
Loss applicable to common stockholders	$	(14,715,006	)	$	(3,440,286	)	$	(27,687,010	)	$	(6,399,963	)
Loss per common shares:
Basic and diluted earnings per common share	$	(0.28	)	$	(0.09	)	$	(1.40	)	$	(0.60	)
Weighted average shares:
Basic and diluted		52,733,460			39,464,892			19,792,214			10,654,797

~~The~~NetTalk.com, ~~accompanying notes are an integral part of the financial statements~~Inc.

39Statement of Stockholders' Deficit

Nettalk.com, Inc.

	Common Stock						Additional			Accumulated			Total
	Shares			Amount			Paid-In Capital			Deficit			Equity
Balance at January 1, 2013		60,251,355		$	60,260		$	33,084,420		$	(56,753,716	)	$	(23,609,036	)
New common shares		1,067,958			1,068			125,887						126,955
Accretion of preferred stock								1,079,015						1,079,015
Write off of preferred stock dividends								1,601,116						1,601,116
Write off of preferred stock								5,000,000						5,000,000
Extinguishment of debt								14,098,847						14,098,847
Cancellation of common stock		(19,995,092	)		(19,995	)		19,995						-
Net loss											(4,787,831	)		(4,787,831	)
Balance at December 31, 2013		41,324,221			41,333			55,009,280			(61,541,547	)		(6,490,934	)
Common Stock issuance related to stock option plan		10,929,000			10,929			120,219						131,148
Common Stock Issuance to Telestrata		25,441,170			25,441			(25,441	)					-
Common Stock Issuance Exercise Warrants		43,704,000			43,704			113,630						157,334
Net loss											(2,841,207	)		(2,841,207	)
Balance at December 31, 2014		121,398,391		$	121,407		$	55,217,688		$	(64,382,754	)	$	(9,043,659	)

~~Statements~~The accompanying notes are an integral part of ~~Cash~~the ~~Flows~~financial statements

				Three months
	Year ended			ended
	December 31,			December 31,			Year ended September 30,
	2012			2011			2011			2010
Cash flow (used) in operating activities:
Net loss	$	(14,715,006	)	$	(3,440,286	)	$	(26,176,565	)	$	(6,306,963	)
Adjustments to reconcile net loss to net cash (used) in operations:
Depreciation		193,249			43,992			139,464			124,709
Amortization		69,593			16,773			217,224			238,627
Debt extinguished		3,135,235			-			1,293,538			3,617,983
Amortization of debt discount		-			932,752			331,605			551,745
Cancellation of shares for services		-			-			(223,361	)		111,286
Derivative value adjustment		3,034,926			-			17,280,018			(1,445,632	)
Warranty expense					-			-			3,650
Bad debt					-			-			21,708
Changes in assets and liabilities:
Accounts receivables		103,927			120,180			(696,302	)		25,610
Prepaid expenses and other assets		(238,397	)		10,309			233,831			(233,644	)
Inventories		737,481			(293,607	)		(1,343,088	)		(450,848	)
Deferred revenues		562,104			661,055			929,984			82,864
Accounts payable		1,322,629			(312,334	)		666,604			269,814
Accrued expenses		545,584			224,245			246,399			510,547
Net cash (used) in operating activities		(5,248,675	)		(2,036,921	)		(7,100,649	)		(2,878,544	)
Cash flow used in investing activities:
Restricted cash		(16,382	)		41,543			1,877,235			(2,017,655	)
Acquisition of corporate offices and operations center and fixed assets		(303,514	)		(48,808	)		(2,608,069	)		(38,012	)
Decrease in deposits		2,501			-			(16,753	)		1,497
Net cash (used) in investing activities:		(317,395	)		(7,265	)		(747,587	)		(2,054,170	)
Cash flow from financing activities:
Notes payables - debentures		2,875,000			-			10,500,000			-
Mortgage payable		1,000,000			-			-			-
Payment on loans from officers								-			(56,300	)
Cash paid for dividends on preferred stock					-			(90,000	)		-
Issuance of common stock (net)		248,154			-			-			5,000,000
Net cash provided from financing activities		4,123,154			-			10,410,000			4,943,700
Net increase (decrease) in cash		(1,442,916	)		(2,044,186	)		2,561,764			10,986
Cash and cash equivalents, beginning		1,539,263			3,583,449			1,021,684			1,010,698
Cash and cash equivalents, ending		96,347		$	1,539,263			3,583,448			1,021,684
Supplemental disclosures:
Cash paid for interest	$	-		$	-		$	149,953		$	-
Cash paid for income taxes	$	-		$	-		$	-		$	-
Cash paid for preferred stock dividends	$	-		$	-		$	90,000		$	125,000

~~The~~NetTALK.COM, ~~accompanying notes are an integral part of the financial statements~~INC.

40Notes to Financial Statements

~~Nettalk.com,~~Note ~~Inc.~~1 – Nature of Operations and Basis of Presentation

~~Statement~~netTALK.COM, INC. (“netTALK” or the “Company”) was incorporated on May 1, 2006 under the laws of ~~Stockholders’~~the ~~Deficit~~State of Florida. We are a telephone company, who provides, sells and supplies commercial and residential telecommunication services, including services utilizing voice over internet protocol (“VoIP”) technology, session initiation protocol (“SIP”) technology, wireless fidelity technology, wireless maximum technology, marine satellite services technology and other similar type technologies. Our main products are the DUO, DUO II and DUO WIFI, they are analog telephone adapters that provide connectivity for analog telephones and faxes to home, home office or corporate local area networks (“LAN”). The DUO WIFI can connect to an internet hotspot without the use of an Ethernet cable. Our DUO, DUO II and DUO WIFI and their related services are a cost effective solution for individuals, small businesses and telecommuters connecting to any analog telephone, fax or private branch exchange (“PBX”). Our DUO, DUO II and DUO WIFI provide one USB port, one Ethernet port and one analog telephone port. The DUO WIFI offers an additional wireless chip that allows it to connect to internet hotspots without the use of an ethernet cable. A full suite of internet protocol features is available to maximize universal connectivity. In addition, analog telephones attached to our DUO. DUO II and DUO WIFI are able to use advanced calling features such as call forwarding, caller ID, 3-way calling, call holding, call retrieval and call transfer.

	Preferred Stock						Common Stock						Additional Paid			Accumulated			Total
	Shares			Amount			Shares			Amount			Capital			Deficit			Equity
Balance at October 1, 2009		-		$	-			9,719,800		$	9,720		$	3,458,825		$	(5,242,577	)	$	(1,774,032	)
Preferred stock to be issued at future date		4,000			2,000,000			-			-			-						2,000,000
Issuance of preferred shares		-			-			-			-			(251,912	)		(689,319	)		(941,231	)
Preferred stock dividends		-			-			-			-			-			(183,000	)		(183,000	)
Stock issuance from stock option plan		-			-			3,709,500			3,710			107,575			-			111,285
Net loss		-			-			-			-			-			(6,306,963	)		(6,306,963	)
Balance at September 30, 2010		4,000			2,000,000			13,429,300			13,430			3,314,488			(12,421,859	)		(7,093,941	)
Cancellation of common shares for services		-			-			(1,000,000	)		(1,000	)		(249,000	)		-			(250,000	)
Accretion of preferred stock		-			-			-			-			(2,782,132	)		-			(2,782,132	)
Reclass of preferred stock to mezzanine and derivative liabilities		(4,000	)		(2,000,000	)														(2,000,000	)
Preferred stock dividends		-			-			-			-			(586,667	)		-			(586,667	)
Settlement shares								750,000			750			366,750						367,500
Reclassification of warrants from liability to equity		-			-			-			-			6,963,800			-			6,963,800
Conversion of convertible notes to common stock		-			-			19,995,092			19,995			13,776,618			-			13,796,613
Inducement warrants to convert debt to equity		-			-			-			-			390,800			-			390,800
Modification of Mezzanine preferred stock and compound embedded derivatives treated as an extinguishment		-			-			-			-			553,391			-			553,391
Settlement of accrued interest		-			-			-			-			416,014			-			416,014
Warrants issued with debt financings		-			-			-			-			6,053,418			-			6,053,418
Stock issuance related to 2010 stock option plan		-			-			6,290,500			6,290			40,895			-			47,185
Net loss		-			-			-			-			-			(26,176,565	)		(26,176,565	)
Balance at September 30, 2011		-			-			39,464,892			39,465			28,258,375			(38,598,424	)		(10,300,584	)
Accretion of preferred stock		-			-			-			-			1,194,745			-			1,194,745
Net loss		-			-			-			-			-			(3,440,286	)		(3,440,286	)
Balance at December 31, 2011		-			-			39,464,892		$	39,465		$	29,453,120		$	(42,038,710	)	$	(12,546,125	)
New common shares		-			-			20,786,463			20,795			227,359			-			248,154
Accretion of preferred stock		-			-			-			-			3,403,941			-			3,403,941
Net loss		-			-			-			-			-			(14,715,006	)		(14,715,006	)
Balance at December 31, 2012		-			-			60,251,355		$	60,260		$	33,084,420		$	(56,753,716	)	$	(23,609,036	)

Note 2 – Going Concern and Management’s Plans

41The accompanying financial statements have been prepared and are presented assuming the Company’s ability to continue as a going concern. The Company has incurred significant recurring losses from operations and is dependent on outside sources of funding for continuation of its operations. Our independent registered public accounting firm issued its report dated April 13, 2015, in connection with the audit of our financial statements as of December 31, 2014, that included an emphasis of matter paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern.

~~NetTALK.COM,~~The ~~INC~~accompanying audited financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

~~Notes~~In order to ~~Financial~~address ~~Statements~~the need to satisfy its continuing obligations and realize its long term strategy, management has been reviewing various strategic alternatives and has taken several steps and is considering additional actions to improve its operating and financial results, which we hope will be sufficient to provide the Company with the ability to continue as a going concern, including the following:

~~Note~~· 1We –restructured ~~Nature~~the Company’s debt resulting in the extinguishment of ~~operations~~ $13,662,615 of debt, $436,234 of accrued interest and ~~basis~~$1,301,116 of ~~presentation:~~accrued dividends.

~~NetTalk.com,~~· ~~Inc. (“NetTalk” or the “Company”) was incorporated on May 1, 2006 under the laws of the State of Florida.~~ We ~~are~~identified akey ~~telephone~~vendors ~~company, who provides, sells~~ and ~~supplies commercial~~developed ~~and~~strategic ~~residential~~alliances ~~telecommunication~~whereby services, including services utilizing voice over internet protocol (“VoIP”) technology, session initiation protocol (“SIP”) technology, wireless fidelity technology, wireless maximum technology, marine satellite services technology and other similar type technologies. Our main products are the ~~DUO,~~Company ~~DUO~~has IIreduced ~~and~~its ~~DUO~~cost WIFI, they are analog telephone adapters that provides connectivity for analog telephones and faxes to home, home office or corporate local area networks (“LAN”). The DUO WIFI can connect to an internet hotspot without the use of anproviding ~~Ethernet~~telecom ~~cable.~~service ~~Our DUO, DUO II~~ and ~~DUO~~extended WIFI and their related services are a cost effective solution for individuals, small businesses and telecommuters connecting to any analog telephone, fax or private branch exchange (“PBX”). Our DUO, DUO II and DUO WIFI provide one USB port, one Ethernet port and one analog telephone port. The DUO WIFI offers an additional wireless chip that allows it to connect to internet hotspots without the ~~use~~due ofdates ~~an ethernet cable. A full suite~~ of ~~internet~~certain ~~protocol~~promissory ~~features~~notes ~~is available~~ to ~~maximize universal~~March ~~connectivity. In addition~~1, ~~analog telephones attached to our DUO~~2016. ~~DUO II and DUO WIFI are able to use advanced calling features such as call forwarding, caller ID, 3-way calling, call holding, call retrieval and call transfer.~~

~~Note~~· 2We –are ~~Going~~seeking ~~concern~~other revenue streams utilizing our relationships with telecom providers and ~~management’s plans:~~suppliers and our communication infrastructure and telephony switch to provide telecom service routing customer calls.

~~The~~· ~~presentation~~We ofeliminated ~~financial~~26 ~~statements in~~employees ~~accordance~~reducing ~~with~~payroll ~~generally~~cost ~~accepted~~and ~~accounting principles contemplates that operations will be sustained for a reasonable period. However,~~ we ~~have~~cut ~~incurred~~other ~~operating~~general ~~losses of $14,715,006~~ and ~~$28,389,302~~administrative costs during ~~the~~2013 ~~years~~by ~~ended December 31, 2012 and 2011, respectively. The company is also highly leverage with~~ $~~15.6 million senior debentures and demand notes and $~~1~~.4 million in mortgage debt. In addition~~, ~~during these periods~~164, ~~we used cash of $5,248,675 and $7,577,533, respectively, in support of our operations~~000. As more fully discussed in Note 6, we have material redemption requirements associated with our senior debentures and demand notes, during the year ended December 31, 2013. Since our inception, we have been substantially dependent upon funds raised through the sale of preferred stock and warrants to sustain our operating and investing activities. These are conditions that raise substantial doubts about our ability to continue as a going concern for a reasonable period.

IfIn ~~future~~addition, ~~defaults~~we ~~occur~~are ~~under~~seeking ~~the~~financing ~~senior~~from ~~debentures~~other ~~or mortgage agreement~~sources, including the ~~Company~~possibility ~~does~~of ~~not~~an ~~anticipate~~infusion ~~having~~of ~~sufficient~~equity, ~~cash~~to ~~and~~generate ~~cash~~additional ~~equivalents~~funds tofor ~~repay~~operations, including the ~~debt~~retention ~~under~~of ~~these~~an ~~agreements~~investment ~~should~~banker ~~it be accelerated and would be forced~~ to ~~restructure~~seek ~~these~~funding ~~agreements~~ and~~/or~~ ~~seek~~evaluate ~~alternative~~other ~~sources~~strategic ~~of financing~~alternatives. There ~~can~~ beis no ~~assurances~~assurance that ~~restructuring of~~ the ~~debt~~above oractions ~~alternative financing~~ will beallow ~~available on acceptable terms or at all. In~~ the ~~event of an acceleration of the~~ Company~~’s obligations under the senior debentures or mortgage agreement and the Company’s~~ ~~failure~~ to ~~pay~~continue ~~the~~as ~~amounts~~a ~~that~~going ~~would then become due, the senior debenture lender and mortgage agreement lender could seek to foreclose on the Company’s assets~~concern.

InBased ~~order~~upon ~~for~~ the ~~Company~~steps tooutlined ~~meet~~above ~~the~~being successful, ~~debt~~we ~~repayment~~believe ~~requirements under~~that ~~the~~our ~~senior~~cash ~~debentures~~on hand and ~~mortgage~~developing ~~agreement,~~additional ~~the~~revenue ~~Company~~streams will ~~need~~provide tosufficient ~~raise~~cash ~~additional~~to ~~capital~~meet ~~by refinancing its debt,~~current ~~raising~~obligations ~~equity~~for ~~capital~~our oroperations ~~selling~~to ~~assets.~~allow ~~Uncertainty in future credit markets may negatively impact~~ the Company’s ~~ability~~ to ~~access~~continue ~~debt~~as ~~financing~~a orgoing toconcern. ~~refinance~~There ~~existing~~can ~~indebtedness~~be inno ~~the~~assurance ~~future~~that onthe ~~favorable~~actions will ~~terms,~~be orsuccessful atand ~~all.~~any Ifsuch ~~additional~~new ~~capital is~~financing ~~raised~~or ~~through~~equity ~~the~~infusion ~~issuance~~will ofbe ~~debt~~available ~~securities~~ or ~~other~~that ~~debt~~we ~~financing,~~could ~~the~~obtain ~~terms~~any of such ~~debt may include different financial~~arrangements ~~covenants,~~on ~~restrictions~~terms ~~and~~suitable ~~financial ratios other than what the Company currently operates under. Any equity financing transaction could result in additional dilution~~ to ~~the Company’s existing stockholders~~us.

InNote ~~January~~3 ~~2013~~– ~~the~~Significant ~~company received $400,000~~Accounting of funding from an additional advance on a promissory note from the mortgage from 1080 NW 163 Drive, LLC. Notwithstanding the additional funding, our ability to continue as a going concern for a reasonable period is dependent upon achieving our management’s plan for the company generating profitable operations. We cannot give any assurances regarding the success of management’s plan. Our financial statements do not include any adjustments relating to recoverability of recorded assets or liabilities that may be necessary should we be unable to continue as a going concern.Policies

~~Note~~The 3following –is ~~Summary~~a summary of ~~Significant~~significant accounting policies ~~Accounting~~used ~~Policies:~~in preparing the Company’s financial statements and recent accounting pronouncements that may impact our financial statements.

~~Change in Fiscal Year~~37

OnUse ~~May 26, 2011, the Company’s Board~~ of Directors approved a change in the Company’s fiscal year end from September 30, to December 31, effective December 31, 2011. Unless otherwise noted, all references to “years” of “fiscal” refer to the twelve-month fiscal year, which prior to October 1, 2011 ended on September 30. As a result of this change, the financial statements include the Company’s financial results for the three month transition period of October 1, 2011 to December 31, 2011.Estimates

42The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Significant estimates inherent in the preparation of our financial statements include developing fair value measurements upon which to base our accounting for acquisitions of intangible assets and issuances of financial instruments, including our common stock. Our estimates also include developing useful lives for our tangible and intangible assets and cash flow projections upon which we determine the existence of, or the measurements for, impairments, allowance for billing adjustments, doubtful accounts and allocation of prices between device and telecom services.

~~Use~~Our ofestimates ~~Estimates~~and assumptions are based on experience, historical trends identified by management, telecommunications industry trends and the overall economic condition in the United States and abroad. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.

~~The~~Risk ~~preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates~~ and assumptions that affect the amounts reported in the financial statements and footnotes. Significant estimates inherent in the preparation of our financial statements include developing fair value measurements upon which to base our accounting for acquisitions of intangible assets and issuances of financial instruments, including our common stock. Our estimates also include developing useful lives for our tangible and intangible assets and cash flow projections upon which we determine the existence of, or the measurements for, impairments. In all instances, estimates are made by competent employees under the supervision of management, based upon the current circumstances and the best information available.Uncertainties

~~Risk~~Our future results of operations and ~~Uncertainties~~financial condition will be impacted by the following factors, among others: dependence on the worldwide telecommunication markets characterized by intense competition and rapidly changing technology, on third-party manufacturers and subcontractors, on third-party distributors in certain markets, on the successful development and marketing of new products in new and existing markets. Generally, we are unable to predict the future status of these areas of risk and uncertainty.

~~Our~~Revenue future results of operations and financial condition will be impacted by the following factors, among others: dependence on the worldwide telecommunication markets characterized by intense competition and rapidly changing technology, on third-party manufacturers and subcontractors, on third-party distributors in certain markets, on the successful development and marketing of new products in new and existing markets. Generally, we are unable to predict the future status of these areas of risk and uncertainty.Recognition

Revenue ~~recognition~~is generated from product sales, telecom services, shipping and handling charges and leasing cell tower and co-location rack space in our operations center. All revenues are recognized in accordance with ASC 605, Revenue Recognition and SAB 104 as follows: when evidence of an arrangement exists, in the case of products, when the product is shipped to a customer, or in the case of telecom services, when the service is used by the consumer, when the fee is fixed or determinable and amounts are collectible from the customers.

WeRevenue ~~derive~~is ~~revenue~~recognized ~~from~~for ~~(i)~~a ~~product~~device ~~sales~~sale ~~and~~when ~~(ii)~~the ~~telecom~~product ~~services.~~is ~~All~~shipped ~~revenues~~and ~~are~~the ~~recognized~~customer inis ~~accordance~~invoiced ~~with~~for ~~ASC~~retail ~~605,~~sales ~~Revenue Recognition~~ and ~~SAB 104 as follows:~~ when ~~evidence of an arrangement exists, in~~ the ~~case~~customer ofcompletes ~~products, when~~ the ~~product~~transaction isfor ~~shipped~~internet tosales. aRevenue for ~~customer, or in the case of~~ telecom ~~services, when the~~ service is ~~used~~recognized byprorata ~~the~~monthly ~~consumer,~~as ~~when~~ the ~~fee~~service is ~~fixed~~used ~~or determinable~~ and ~~finally~~revenue ~~when~~for weshipping ~~have concluded that amounts are collectible from the customers. Shipping~~ costs billed to customers are included as a component of product sales. The associated cost of shipping is included as a component of cost of product sales.

~~Operating~~Cash ~~revenue consist of customer equipment sales of our main product the NetTalk DUO (“DUO”), telecommunication service revenues~~ and ~~shipping~~Cash ~~and handling revenues.~~Equivalents

~~Our~~We ~~DUO~~consider ~~provides~~all ~~for~~highly ~~revenue~~liquid ~~recognition~~cash ~~from the sale of the~~balances ~~device~~ and ~~from~~debt ~~the~~instruments ~~sale~~with ofan ~~telephone~~original ~~service.~~maturity ~~The~~of ~~initial~~three ~~year~~months ofor ~~telephone~~less ~~service~~to isbe ~~included~~cash onequivalents. ~~the~~We ~~sale~~maintain ~~price~~cash atbalances ~~time~~only ~~of sale~~in ~~and~~domestic ~~billed~~bank ~~subsequently~~accounts, ~~thereafter.~~which ~~Therefore~~at times, ~~revenue~~may ~~recognition~~exceed onFDIC ~~our~~limits ~~DUO~~of is$250,000. ~~fully~~Our ~~recognized~~cash atbalances ~~the~~occasionally ~~time~~exceed ofthe ~~our~~FDIC ~~customer equipment~~limits ~~sale,~~during the ~~one~~ year ~~telephone~~and ~~service~~exceeded ~~is amortized over 12 month cycle. Subsequent renewals of~~ the ~~annual~~FDIC ~~telephone~~limit ~~service~~at ~~are amortized~~December ~~over~~31, ~~the~~2014 ~~corresponding~~by 12approximately ~~months cycle~~$109,000.

~~International calls are billed as earned from our customers. International calls are prepaid and customers account is debited as minutes are used and earned.~~Inventory

~~Cash~~Inventories are stated at the lower of cost or market. Cost is determined using the first-in first-out method. Obsolete inventory is reserved for if necessary and ~~Cash~~there is ~~Equivalents~~zero reserve at December 31, 2014 and 2013.

WeProperty ~~consider all highly liquid cash balances~~ and debt instruments with an original maturity of three months or less to be cash equivalents. We maintain cash balances only in domestic bank accounts, which at times, may exceed FDIC limits. Our cash balances did not exceed the FDIC limits at December 31, 2012 and 2011.Equipment

~~Inventory~~Property and equipment includes acquired assets which consist of network equipment, computer hardware, furniture and purchased and internally developed software. All of our equipment is stated at cost with depreciation calculated using the straight line method over the estimated useful lives of related assets, which range from three to thirty-five years. The costs of repairs and maintenance is charged to operating expenses unless it increases the assets useful life more than one year.

~~Inventories~~Intangible ~~are recorded at average cost or market, whichever is lower.~~Assets

	December 31,
Inventory	2012		2011
Productive material and supplies	$	869,740		1,186,916
Finished goods		598,034		1,018,339
Total	$	1,467,774	$	2,205,255

~~During~~Impairments ~~the year ended December 31, 2012~~ and ~~2011, in accordance with our lower of cost or market analyses, we did not record lower of cost or market adjustment to our finished goods inventories.~~Disposals

OfWe evaluate our ~~$598,034~~tangible and definite-lived intangible assets for impairment annually or more frequently in the presence of ~~finished~~circumstances ~~goods~~or ~~inventory~~trends atthat ~~December~~may 31be indicators of impairment. Our evaluation is a two-step process. The first step is to compare our undiscounted cash flows, as projected over the remaining useful ~~2012~~lives of the assets, ~~$140~~to their respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows,~~200~~ isas ~~held~~a onsecond ~~consignment~~step, atwe ~~one~~compare the carrying values to the related fair values and, if lower, record an impairment adjustment. For purposes of ~~our~~fair ~~distributors~~value, we generally use replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates for intangible assets.

~~Of our $1,018,339 of finished goods inventory at December 31, 2011, $170,402 was held on consignment at one of our distributors.~~38

43Research and Development and Software Costs

~~Telecommunications~~The ~~Equipment~~Company develops software for both internal and ~~Other~~external use. The following describes netTALK’s policies and procedures regarding expensing versus capitalizing ~~Property~~software development costs.

~~Property,~~We ~~equipment~~capitalize ~~and~~costs ~~telecommunication~~of ~~equipment~~software ~~includes~~to be sold, ~~acquired~~leased ~~assets~~or ~~which~~marketed ~~consist~~in ofaccordance ~~network~~with ~~equipment,~~FASB ~~computer~~ASC ~~hardware,~~985-20. ~~furniture~~We expense research and ~~software.~~development ~~All~~costs ofas ~~our~~they ~~equipment~~are isincurred. ~~stated~~We ataccount ~~cost~~for ~~with~~our ~~depreciation~~software ~~calculated~~development ~~using~~costs ~~the~~as ~~straight~~costs ~~line~~incurred ~~method~~internally ~~over~~in ~~the~~creating ~~estimated~~a ~~useful~~computer ~~lives~~software ofproduct ~~related~~and ~~assets,~~are ~~which~~charged ~~range~~to expense ~~from~~when ~~three~~incurred toas ~~five~~research ~~years.~~and ~~The~~development ~~costs~~until ~~associated~~technological ~~with major~~feasibility ~~improvements~~has ~~are~~been ~~capitalized~~established ~~while~~for the ~~cost~~product. Technological feasibility is established upon completion of ~~maintenance~~a ~~and~~detail ~~repairs~~program design or completion of a working model. Capitalization of costs stops when the product is ~~charged~~available for general release to ~~operating~~customers ~~expenses~~at which point the capitalized costs are amortized over the software’s useful life.

~~Intangible~~We ~~Assets~~capitalize costs for internally developed software in accordance with FASB ASC 350-40. We expense research and development costs as they are incurred Costs incurred in the preliminary project stage are expensed as incurred. Preliminary project stage includes conceptual formulations and evaluation of alternatives, determination of existence of needed technology and final selection of alternatives. Costs incurred in the application development stage are capitalized as incurred and includes design of chosen path, configuration, coding, installation of hardware, and testing. Capitalization stops after software implementation at which point the capitalized costs are amortized over the software’s useful life.

~~Our~~During ~~intangible~~the ~~assets~~year ~~were~~ended ~~recorded~~December at31, ~~our acquisition cost~~2014, ~~which~~we ~~encompassed~~capitalized ~~estimates~~development costs of ~~their relative fair values~~$475,259, ascompleted ~~well~~projects asand ~~estimates~~recorded offixed ~~the~~assets ~~fair value~~ of ~~consideration~~$90,581 ~~that~~and ~~we issued. We amortize our intangible assets using the straight~~wrote-~~line~~off ~~method~~projects ~~over lives~~ that were ~~are~~abandoned ~~predicated~~of on$7,606 ~~contractual~~resulting ~~terms~~in ora ~~over~~balance ~~periods we~~of ~~believe~~$377,172 ~~the~~in ~~assets~~other ~~will have utility~~assets.

~~Impairments and Disposals~~Reclassifications

WeCertain ~~evaluate~~reclassifications ~~our~~have ~~tangible~~been ~~and~~made definite-lived intangible assets for impairment annually or more frequently in the presence of circumstances or trends that may be indicators of impairment. Our evaluation is a two-step process. The first step is to ~~compare~~prior ~~our~~year ~~undiscounted cash flows, as projected over the remaining useful~~financial ~~lives~~statements ofin ~~the~~order ~~assets,~~ to ~~their~~conform ~~respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows, as a second step, we compare the carrying values~~ to the ~~related~~current ~~fair~~year’s ~~values and, if lower, record an impairment adjustment~~presentation. ~~For purposes of fair value, we generally use replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates for intangible assets.~~

~~Research~~Share-Based ~~and~~Payment ~~Development and Software Costs~~Arrangements

WeNetTalk ~~expense~~adopted ~~research~~a ~~and~~2010 ~~development costs,~~Stock asOption ~~these~~Plan, ~~costs~~a ~~are~~2011 ~~incurred.~~Stock WeOption Plan ~~account~~and ~~for~~a ~~our~~2012 ~~offering-related~~Stock ~~software~~Option ~~development~~Plan ~~costs~~(the as"Plans") ~~costs~~which are ~~incurred~~intended ~~internally in~~to ~~creating~~advance athe ~~computer~~interests ~~software~~of ~~product~~the ~~which~~Company’s ~~are~~shareholders by ~~charged~~enhancing tothe ~~expense~~Company’s ~~when~~ability ~~incurred~~to asattract, ~~research~~retain and ~~development~~motivate ~~until~~key ~~technological feasibility~~individuals ~~has~~by ~~been~~providing ~~established~~such ~~for~~persons ~~the~~with ~~product.~~equity ownership ~~Technological~~opportunities ~~feasibility~~and isperformance-based ~~established~~incentives, ~~upon~~thereby ~~completion~~better aligning the interests of aour ~~detail~~employee ~~program~~and consultants ~~design~~with ~~or,~~those inof ~~its~~the ~~absence,~~Company. ~~completion~~All of athe ~~working~~Company’s ~~model.~~employees, ~~Thereafter~~officers, ~~all~~and ~~software~~directors, ~~production~~and ~~costs~~those ~~shall~~Company’s beconsultants and ~~capitalized~~advisors ~~and~~(i) ~~subsequently reported~~that atare ~~the~~natural ~~lower~~persons ofand ~~unamortized~~(ii) ~~cost~~who orprovide ~~net~~bona ~~realizable~~fide ~~value.~~services ~~Capitalized~~to ~~costs~~the ~~are~~Company ~~amortized~~not ~~based~~connected onto ~~current~~a ~~and~~capital ~~future~~raising ~~revenue~~transaction ~~for~~or ~~each~~the ~~product~~promotion ~~with~~or ancreation ~~annual~~of ~~minimum~~a ~~equal~~market tofor the ~~straight-line~~Company’s ~~amortization~~securities, are ~~over~~eligible ~~the~~to ~~remaining~~be ~~estimated~~granted ~~economic life~~options ofor restricted stock awards under the ~~product~~Plans. ~~Research~~The shares are compensatory in nature and ~~development~~are ~~costs~~fully ~~reported~~vested inupon ~~our~~issuance. ~~financial~~We ~~statements~~value the ~~relate~~shares toconsistent ~~pre–marketing~~with ~~costs~~fair value at the time of ~~new upcoming~~issuance ~~products.~~including adjustments for certain restrictions and limitations.

	Year ended		Period ended		Fiscal year ended
	12/31/2012		12/31/2011		09/30/2011		09/30/2010
Components of Research and development:
Product development and engineering	$	88,917	$	8,650	$	405,645	$	119,933
Payroll and benefits		1,122,794		262,132		497,724		255,264
Total	$	1,211,711	$	270,782	$	903,369	$	375,197

~~Reclassifications~~Fair Value of Financial Instruments

~~Certain~~A ~~reclassifications~~financial ~~have~~instrument’s ~~been~~categorization within ~~made~~the tovaluation ~~prior~~hierarchy ~~years~~is ~~financial statements~~based inupon ~~order~~the tolowest ~~conform~~level of input that is significant to the ~~current~~fair ~~year’s~~value ~~presentation~~measurement. The ~~reclassification~~three levels ~~had~~of novaluation ~~impact~~hierarchy onare ~~net~~defined ~~earnings~~as ~~previously reported.~~follows:

~~Share~~Level 1 -~~Based~~ ~~Payment~~inputs ~~Arrangements~~to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

WeLevel ~~apply~~2 ~~the~~- ~~grant~~inputs ~~date fair value method~~ to ~~our~~the ~~share –~~valuation ~~based~~methodology ~~payment~~include ~~arrangements~~quoted ~~with~~prices ~~employees and~~for ~~consultants.~~similar ~~Share~~assets –and ~~based~~liabilities ~~compensation~~in ~~cost~~active ~~to employees is measured at the grant date~~markets, ~~fair value is based on the value of the award,~~ and isinputs ~~recognized~~that ~~over~~are ~~the~~observable ~~service~~for ~~period. Share – based~~the ~~payments~~asset toor ~~non~~liability, –either ~~employees~~directly ~~are~~or ~~recorded~~indirectly, atfor ~~fair~~substantially ~~value on~~ the ~~measurement~~full ~~date~~term ~~and~~of ~~reflected in expense over~~ the ~~service period~~financial instrument.

~~2010~~Level ~~Stock~~3 ~~Option~~- ~~Plan~~inputs to the valuation methodology are unobservable and significant to the fair value measurement.

OnFinancial ~~November 15~~instruments, ~~2009,~~as ~~NetTalk~~defined ~~adopted~~in the Accounting ~~2010~~Standards ~~Stock~~Codification ~~Option Plan~~ (~~the "Plan"~~“ASC”) ~~which~~825 isFinancial ~~intended~~Instruments, toconsist ~~advance~~of ~~the~~cash, ~~interests~~evidence of ~~the~~ownership ~~Company’s~~in ~~shareholders~~an entity, byand ~~enhancing~~contracts ~~the~~that ~~Company’s~~both ~~ability~~(i) toimpose ~~attract,~~on ~~retain~~one ~~and~~entity ~~motivate~~a ~~persons~~contractual ~~who~~obligation ~~make~~to ~~(or~~deliver ~~are~~cash ~~expected~~or toanother ~~make)~~financial ~~important~~instrument ~~contributions~~ to ~~the~~a second ~~Company~~entity, byor ~~providing~~to ~~such~~exchange ~~persons~~other ~~with~~financial ~~equity~~instruments ~~ownership~~on ~~opportunities~~potentially ~~and~~unfavorable ~~performance-based~~terms ~~incentives,~~with ~~thereby better aligning~~ the ~~interests~~second ofentity, ~~such~~and ~~persons~~(ii) ~~with~~conveys to ~~those~~that ofsecond ~~the~~entity ~~Company’s~~a ~~shareholders.~~contractual ~~All~~right of(a) ~~the~~to ~~Company’s employees,~~receive ~~officers,~~cash ~~and~~or ~~directors,~~another ~~and~~financial ~~those~~instrument ~~Company’s~~from ~~consultants~~the ~~and~~first ~~advisors~~entity, or (ib) ~~that~~to exchange ~~are~~other ~~natural~~financial ~~persons~~instruments ~~and~~on ~~(ii)~~potentially ~~who provide~~favorable ~~bona~~terms ~~fide~~with ~~services to~~ the ~~Company~~first ~~not~~entity. ~~connected~~Accordingly, toour afinancial ~~capital~~instruments consist ~~raising~~of ~~transaction~~cash orand ~~the~~cash ~~promotion~~equivalents, oraccounts ~~creation~~receivable, ofaccounts apayable, ~~market for~~accrued ~~the~~liabilities, ~~Company’s~~secured ~~securities~~convertible debentures, ~~are~~ ~~eligible~~and toderivative befinancial ~~granted~~instruments. ~~options~~The orcarrying ~~restricted~~amounts ~~stock~~of ~~awards~~debt ~~under~~obligations ~~the~~approximate ~~Plan.~~their ~~The~~fair ~~maximum~~values ~~aggregate~~as ~~number~~the ofterms ~~shares~~are ~~of the~~comparable ~~Company’s~~to ~~common~~terms ~~stock~~currently ~~that~~offered ~~may~~by belocal ~~issued~~lending ~~under~~institutions ~~the~~for ~~Plan~~arrangements iswith ~~10,000,000~~similar ~~shares~~terms ofto ~~the~~industry ~~Company’s~~peers ~~common~~with ~~stock~~comparable credit characteristics.

4439

OnWe ~~July~~carry ~~26,~~cash ~~2010,~~and wecash ~~issued 3~~equivalents,~~709,500~~ ~~shares~~accounts ofreceivable, ~~common~~accounts ~~stock~~payable toand ~~our~~accrued ~~employees~~liabilities asat ~~part~~historical ofcosts ~~our~~since ~~2010~~their ~~Stock~~respective ~~Option~~estimated ~~Plan.~~fair ~~The~~values ~~shares~~approximate carrying ~~are~~values ~~compensatory~~due into ~~nature~~their ~~and~~current ~~are fully vested~~nature. We ~~have~~also ~~valued~~carry ~~the~~convertible ~~shares~~debentures ~~consistent~~and ~~with~~redeemable ~~fair~~preferred ~~value~~stock at ~~the time of issuance adjusted for ownership restrictions~~historical cost.

OnDerivative ~~May~~financial 23instruments, ~~2011~~as defined in ASC 815-10-15-83, we“Derivatives ~~issued~~and 3Hedging”,~~890,000~~ ~~shares~~ consist of ~~common~~financial ~~stock~~instruments toor ~~our~~other ~~employees~~contracts asthat ~~part~~contain ofa notional ~~our~~amount ~~2010~~and ~~Stock~~one ~~Option~~or ~~Plan~~more underlying (e.g. ~~The~~interest ~~shares~~rate, ~~are~~security ~~compensatory~~price inor ~~nature~~other variable), require no initial net investment and ~~are~~permit ~~fully~~net ~~vested~~settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, Wederivative ~~have~~financial ~~valued~~instruments ~~the~~are ~~shares~~initially, ~~consistent~~and ~~with~~subsequently, measured at fair value atand ~~the~~recorded ~~time~~as ofliabilities ~~issuance~~or, ~~adjusted~~in ~~for~~rare instances, ~~ownership restrictions~~assets.

OnCertain ~~July~~risks ~~26 2011, we issued 2,400,500 shares of common stock to our employees as part of our 2010 Stock Option Plan. The shares are compensatory in nature~~ and ~~are fully vested. We have valued the shares consistent with fair value at the time of issuance adjusted for ownership restrictions.~~concentration

~~Summary~~Our primary manufacturer accounted for approximately 23% of our ~~2010~~cost ~~Stock~~of ~~Option~~goods ~~Plan~~sold ~~Issuances:~~for the years ended December 31, 2014 and 2013, respectively. Also, our primary manufacturer accounted for approximately 17% and 2% of outstanding accounts payable at December 31, 2014 and 2013, respectively.

July 26, 2010			3,709,500
May 23, 2011			3,890,000
July 26, 2011			2,400,500
Total			10,000,000

~~2011~~One ~~Stock~~of ~~Option~~our ~~Plan~~customers presently operates under a consignment agreement. Under the agreement we sell and ship merchandise to our customer, and collect payments upon the sale of our product to the ultimate (final) consumer.

OnRedeemable ~~June~~Preferred ~~15, 2011, NetTalk adopted the 2011~~ Stock Option Plan (the "Plan") which is intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of such persons with those of the Company’s shareholders. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plan. The maximum aggregate number of shares of the Company’s common stock that may be issued under the Plan is 20,000,000 shares of the Company’s common stock.

OnRedeemable ~~January~~preferred 6,stock ~~2012,~~is weinitially ~~issued~~evaluated ~~3,483,500~~for ~~shares~~possible ofclassification ~~common~~as liabilities under ASC 480 Distinguishing Liabilities from Equity. Redeemable preferred stock tothat ~~our~~does ~~employees~~not, asin its ~~part~~entirety, ofrequire ~~our~~liability ~~2011~~classification ~~Stock~~is ~~Option~~evaluated ~~Plan.~~for ~~The~~embedded ~~shares~~features ~~are~~that ~~compensatory~~may inrequire ~~nature~~bifurcation and ~~are~~separate ~~fully~~classification as ~~vested~~derivative liabilities under ASC 815. We ~~have~~In ~~valued~~all instances, the ~~shares~~classification ~~consistent~~of ~~with~~the ~~fair~~redeemable ~~value~~preferred atstock ~~the~~host ~~time~~contract that does not require liability classification is evaluated for equity classification or mezzanine classification based upon the nature of ~~issuance~~the ~~adjusted~~redemption features. Generally, any feature that could require cash redemption for ~~ownership~~matters ~~restrictions~~not within our control, irrespective of probability of the event occurring, requires classification outside of stockholders’ equity.

OnLoss ~~May~~per ~~28,~~Common 2012, we issued 15,488,000 shares of common stock to our employees as part of our 2011 Stock Option Plan. The shares are compensatory in nature and are fully vested. We have valued the shares consistent with fair value at the time of issuance adjusted for ownership restrictions.Share

OnBasic ~~July~~loss ~~25,~~per ~~2012,~~common weshare ~~issued~~represents ~~1,028,500~~our ~~shares~~loss applicable to common shareholders divided by the weighted average number of common ~~stock~~shares tooutstanding ~~our~~during ~~employees~~the ~~and~~period. ~~vendors~~Diluted asloss ~~part~~per ofcommon share ~~our~~gives ~~2011~~effect ~~Stock~~to ~~Option~~all ~~Plan~~potentially dilutive securities. ~~The~~We ~~shares~~compute ~~are~~the ~~compensatory~~effects inon ~~nature~~diluted ~~and~~loss ~~are~~per common share arising from ~~fully~~warrants ~~vested.~~and Weoptions ~~have~~using ~~valued~~the treasury stock method or, in the ~~shares~~case ~~consistent~~of ~~with~~liability ~~fair~~classified ~~value~~warrants, atthe reverse treasury stock method. We compute the ~~time~~effects ofon ~~issuance~~diluted ~~including~~loss ~~and~~per ~~adjusted~~common ~~for~~share ~~ownership~~arising from convertible securities using the if-converted method. ~~restrictions~~The effects are all anti-dilutive and are excluded.

~~Summary~~Patent ~~of 2011 Stock Option Plan Issuances:~~Costs

January 6, 2012			3,483,500
May 28, 2012			15,488,000
July 25, 2012			1,028,500
Total			20,000,000

45Advertising Costs

~~2012~~Advertising ~~Stock~~costs ~~Option~~are ~~Plan~~expensed as incurred. Advertising expense for the years ended December 31, 2014 and 2013, was $145,453 and $373,308, respectively.

OnIncome July 25, 2012, NetTalk adopted the 2012 Stock Option Plan (the "Plan") which is intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of such persons with those of the Company’s shareholders. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plan. The maximum aggregate number of shares of the Company’s common stock that may be issued under the Plan is 20,000,000 shares of the Company’s common stock.Taxes

OnWe ~~July~~record ~~25,~~United ~~2012~~States federal, westate ~~issued~~and ~~471~~foreign income taxes currently payable,~~500~~ ~~shares of~~as ~~common~~well ~~stock~~as deferred taxes due to ~~our~~temporary ~~employees~~differences between reporting income and ~~vendors~~expenses asfor ~~part~~financial ofstatement ~~our~~purposes ~~2012~~versus ~~Stock~~tax ~~Option~~purposes. ~~Plan~~Deferred tax assets and liabilities reflect the temporary differences between the financial statement and income tax basis of assets and liabilities. ~~The~~Deferred tax ~~shares~~assets and liabilities are ~~compensatory~~measured using enacted tax rates expected to apply to table income in ~~nature~~the ~~and~~years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or ~~fully~~expense ~~vested~~in the period that includes the enactment date. We ~~have~~file ~~valued~~a United States federal income tax return. As income tax returns are generally not filed until well after the ~~shares~~closing ~~consistent~~process ~~with~~for ~~fair~~the ~~value~~December 31, 2014 financial statements is complete, the amounts recorded at December 31, 2014 reflect estimates of what the ~~time~~final amounts will be when the actual income tax returns are filed for that calendar year. In addition, estimates are often required with respect to, among other things, the appropriate state income tax rates to use in the various states that we and our subsidiaries are required to file, the potential utilization of ~~issuance~~operating ~~adjusted~~loss carryforwards and valuation allowances required, if any, for ~~ownership~~tax ~~restrictions~~assets that may not be realizable in the future.

~~Financial~~We ~~Instruments~~recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

WeRecent ~~carry~~Accounting cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical costs since their respective estimated fair values approximate carrying values due to their current nature. We also carry convertible debentures and redeemable preferred stock at fair values.Pronouncements

~~Derivative~~In ~~financial~~April ~~instruments~~2013, asthe ~~defined~~FASB inissued ~~ASC~~ASU ~~815~~2013-~~10-15-83 Derivatives~~04, ~~and Hedging~~Liabilities, ~~consist~~(“ASU 2013-04”). ofASU ~~financial~~2013-04 ~~instruments~~provides orguidance ~~other~~for ~~contracts~~the ~~that~~recognition, ~~contain~~measurement, aand ~~notional~~disclosure ~~amount~~of ~~and~~obligations ~~one~~resulting orfrom ~~more underlying~~joint ~~(e.g.~~and ~~interest~~several ~~rate,~~liability ~~security~~arrangements ~~price~~for orwhich ~~other~~the ~~variable),~~total ~~require~~amount noof ~~initial~~the ~~net~~obligation ~~investment~~is ~~and~~fixed ~~permit~~at ~~net~~the ~~settlement~~reporting date. ~~Derivative financial~~ASU ~~instruments~~2013-04 ~~may~~was effective befor ~~free-standing~~the orCompany’s ~~embedded~~fiscal inyear ~~other~~beginning ~~financial~~January ~~instruments. Further~~1, ~~derivative~~2014 ~~financial~~and ~~instruments are~~subsequent ~~initially,~~interim ~~and~~periods. ~~subsequently,~~The ~~measured~~adoption atof ~~fair~~ASU ~~value~~2013-04 did ~~and~~not ~~recorded~~have asa ~~liabilities~~material ~~or,~~effect inon ~~rare~~the ~~instances,~~Company’s ~~assets~~financial statements.

~~Certain~~In ~~risks~~July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a similar Tax Loss, or a Tax Credit Carryforward Exists , (“ASU 2013-11). ASU 2013-13 is intended to end inconsistent practices regarding the presentation of a unrecognized tax benefits when a net operating loss (“NOL”), a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from the dis- allowance of a tax position. ASU 2013-11 will be effective for the Company’s fiscal year beginning January 1, 2014 and ~~concentration~~subsequent interim periods. The adoption of ASU 2013-11 is not expected to have a material effect on the Company’s financial statements.

~~Our~~In ~~manufacturing~~May ~~partner~~2014, ~~accounted~~the FASB issued standard ASU 2014-09, Revenue from Contracts with Customers, that provides a single, comprehensive revenue recognition model for ~~approximately~~all ~~44%~~contracts ofwith ~~our~~customers. The ~~cost~~standard ofis ~~goods~~principle-based ~~sold~~and provides a five-step model to determine the measurement of revenue and 0%timing of when it is recognized. The core principle is that a company will recognize revenue to reflect the transfer of ~~outstanding~~goods ~~accounts~~or ~~payable~~services to customers at ~~year~~an ~~ended~~amount that the company expects to be entitled to in exchange for those goods or services. This standard is effective for our interim and annual reporting periods beginning after December 15, 312016 and allows for either full retrospective adoption or modified retrospective adoption. We will adopt this guidance on January 1, ~~2012~~2017, and are currently evaluating the impact on our financial statements.

~~One~~Note of4 ~~our~~– ~~customers~~Accounts ~~presently operates under a “Consignment Agreement”. Under the agreement we sell and ship merchandise to our customer and collect payments upon sale of our product to ultimate (final) consumer.~~Receivable

Redeemable Preferred Stock

Trade accounts receivable consisted of the following at:
	December 31,
	2014			2013

Accounts receivable, gross	$	137,411		$	304,501
Allowance for returns and doubtful accounts		(54,672	)		(129,344	)
Accounts receivable, net	$	82,739		$	175,157

Loss per common share

Inventories, recorded at lower of cost or market, are as follows:
	December 31,
	2014		2013

Raw materials	$	-	$	721,914
Finished goods		680,963		404,386
Total	$	680,963	$	1,126,300

~~Basic~~Inventory ~~loss~~is ~~per~~recorded ~~common~~at ~~share represents our loss applicable to common shareholders divided by~~ the ~~weighted~~lower ~~average number~~ of ~~common~~cost ~~shares~~or ~~outstanding during the period~~market. ~~Diluted~~Of ~~loss per common~~our ~~share~~$680,963 ~~gives~~of ~~effect~~finished togoods ~~all~~inventory ~~potentially~~at ~~dilutive~~December ~~securities.~~31, We2014; ~~compute~~$35,711 ~~the~~is ~~effects~~held on ~~diluted~~consignment ~~loss~~at ~~per~~one ~~common~~of ~~share~~our ~~arising~~distributors. ~~from warrants~~Of ~~and~~our ~~options~~$404,386 of ~~using~~finished ~~the~~goods ~~treasury~~inventory ~~stock~~at ~~method~~December or31, in2013; ~~the~~$105,658 ~~case~~was ofheld ~~liability~~on ~~classified~~consignment ~~warrants,~~at ~~the~~one ~~reverse~~of ~~treasury~~our ~~stock method~~distributors. WeDuring ~~compute~~ the ~~effects~~year ended onDecember ~~diluted~~31, ~~loss~~2014 ~~per~~and ~~common~~2013, ~~share~~there ~~arising~~were ~~from~~no ~~convertible securities using the if~~write-~~converted~~downs ~~method. The~~of ~~effects,~~obsolete ~~are all anti-dilutive and are excluded~~inventory.

46Note 6 – Property and Equipment

~~Recent~~Property ~~accounting~~and ~~pronouncements~~equipment consisted of the following at:

	Estimated	December 31,
	Useful Life	2014			2013

Telecommunication equipment	7	$	373,089		$	356,154
Computer equipment	5		171,659			169,754
Building	35		2,448,364			2,448,364
Building improvements	10		86,442			86,442
Office equipment and furnishing	7		48,212			48,212
Purchased and developed software	3		124,728			34,147
Land			270,000			270,000
			3,522,494			3,413,073
Less: accumulated depreciation			(816,068	)		(618,925	)
Property and equipment, net		$	2,706,426		$	2,794,148

~~Note 4 – Building, Telecommunications Equipment, Land and Other Property:~~41

Telecommunications equipment and other property consist of the following:		December 31, December 31,
	Life	2012			2011
Telecommunication equipment	7	$	356,154		$	335,340
Computer equipment	5		166,408			121,944
Building	35		2,448,364			2,448,364
Building improvement	10		81,342			-
Office equipment and furnishing	7		48,212			29,914
Purchased software	3		34,147			25,787
Land			270,000			270,000
			3,404,627			3,231,349
Less accumulated depreciation			(424,559	)		(231,310	)
Total		$	2,980,068		$	3,000,039

Depreciation expense was $197,143 and $194,366 for the years ended December 31, 2014 and 2013, respectively. Our telecommunications equipment is deployed in our Network Operations Center (“NOC”) as is most of the computer equipment. Other computer and office equipment and furnishings are deployed at our corporate offices which is in the same building as the NOC.

~~Depreciation~~Note ~~expenses~~7 ~~amounted~~- toIntangible ~~$193,249 and $151,142 for the years ended December 31, 2012 and 2011, respectively.~~Assets

~~Our~~Intangible ~~telecommunications~~assets ~~equipment~~consisted ~~is deployed in our Network Operations Center (“NOC”) as is most~~ of the ~~computer~~following ~~equipment. Other computer and office equipment and furnishings are deployed~~ at ~~our corporate offices.~~:

Note 5 - Intangible Assets:

	Estimated	December 31,
	Useful Life	2014			2013
Trademarks National and International	5	$	332,708		$	332,708
Employment agreements	3		225,084			225,084
Knowhow and specialty skills	3		212,254			212,254
Workforce	3		54,000			54,000
Patents	20		93,747			93,747
Finance cost	2		83,280			83,280
			1,001,073			1,001,073
Less: accumulated amortization			(928,878	)		(884,303	)
Intangible assets, net		$	72,195		$	116,770

Intangible assets consist of following:	Life	December 31, December 31,
		2012			2011
Trademarks	5	$	332,708		$	332,708
Employment agreements	3		225,084			225,084
Knowhow and specialty skills	3		212,254			212,254
Workforce	3		54,000			54,000
Patents	20		102,942			27,942
Finance Cost	2		55,236
			982,224			851,988
Less accumulated amortization			(789,217	)		(719,624	)
		$	193,007		$	132,364

Amortization expense amounted to $44,575 and $104,281 for the years ended December 31, 2014 and 2013, respectively.

~~Amortization~~Note ~~expenses~~8 ~~amounted~~– toShare-Based ~~$69,593 and~~Payment ~~$176,279 for the years ended December 31, 2012 and 2011, respectively.~~Arrangements

~~Note~~NetTalk 6adopted –a ~~Securities~~2010 Stock Option ~~Agreement~~Plan, a 2011 Stock Option ~~Secured~~Plan ~~Convertible~~and ~~Debentures~~a 2012 Stock Option Plan (the "Plans") which are intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, ~~Senior~~retain ~~Debentures~~and motivate key individuals by providing such persons with equity ownership opportunities and ~~Demand~~performance-based ~~Notes~~incentives, :thereby better aligning the interests of our employee and consultants with those of the Company. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plans. The shares are compensatory in nature and are fully vested upon issuance. We value the shares consistent with fair value at the time of issuance including adjustments for certain restrictions and limitations.

~~Mortgage~~Share–based ~~promissory~~compensation ~~note:~~cost to employees is recorded as compensation expense and is recognized over the service period. Share–based payments to non–employees are recorded as consulting expense and is recognized over the service period.

OnIn ~~November~~the ~~29,~~first ~~2012~~quarter of 2014, wethe ~~borrowed~~Company $1issued 10,~~000~~929,000 ~~from~~share aof ~~lender~~common ~~and~~stock inunder ~~exchange,~~ the ~~Company~~2011 ~~issued~~Stock aOption ~~12%~~Plan ~~promissory~~to ~~note~~management and ~~a mortgage and security agreement~~employees. The ~~12%~~compensation ~~promissory~~expense related ~~note,~~to ~~among~~these ~~other~~shares ~~matters,~~is ~~accrues interest at 12% per annum~~$131,148. isAdditional ~~payable~~paid in ~~full~~capital ~~on November~~was ~~29,~~credited ~~2014~~for $120,219 and iscommon ~~secured~~stock bywas ~~our~~credited ~~corporate~~for ~~office building~~$10, ~~located at 1080 NW 163rd Drive, Miami Gardens, FL 33169~~929.

47Note 9 – Debt Restructuring, Promissory Notes and Mortgage Note Payable

AtDebt ~~December 31, 2012, principal repayments requirements on mortgage payable were as follows:~~Restructuring

For the year ended December 31,:
2013	$	0
2014	$	1,000,000
	$	1,000,000

The Company executed a redemption and debt restructuring agreement with Vicis Capital Master Fund ("Vicis") to, among other things, extend the term of its loans to September 30, 2014 with two additional one year extensions if accrued interest is paid in full, and reduce the overall loan with Vicis from approximately $17,000,000 to $3,000,000. This $3,000,000 secured promissory note was purchased by Phoenix Vitae Holdings, LLC as described below. The restated loan accrued interest at six percent (6%) per annum. In addition, pursuant to the redemption and restructuring agreement, all shares and derivative securities held by Vicis including the 500 shares of series A convertible redeemable preferred stock, 19,995,092 shares of the Company’s common stock, and common stock purchase warrants exercisable for 76,864,250 shares of common stock have been returned to the Company and cancelled. The holders received no additional consideration to effect the modification.

OnThe ~~January~~approximately 11$14, ~~2013~~000,000 weextinguishment of ~~received~~debt anwas ~~additional~~recorded ~~advance~~as ofan ~~$400,000 pursuant~~equity totransaction ~~its~~and ~~existing~~the ~~lending~~cancelled ~~facility~~securities ~~with~~have ~~1080~~been NWreflected ~~163rd~~as ~~Drive,~~a ~~LLC.~~reduction ~~The additional advance~~ of ~~$400,000~~the ~~was~~related ~~endorsed by a promissory~~shares ~~note~~of ~~which~~preferred ~~was~~and ~~consolidated~~common ~~with~~stock ~~the~~and ~~initial~~other ~~advance~~securities as of $1December 31,~~000,000~~ ~~from~~2013. ~~the~~The ~~mortgage~~result onwas ~~1080~~a NWdecrease ~~163rd~~to ~~Drive,~~common ~~LLC.~~stock ~~The~~of ~~consolidated~~$19,995 ~~promissory~~and ~~mortgage~~an ~~note~~increase ~~has~~to anadditional ~~aggregate~~paid-in ~~principal~~capital ~~balance~~ of $114,~~400~~098,~~000,~~847 ~~accrues~~from ~~interest~~the atextinguishment ~~12%~~of ~~per~~debt, ~~annum~~$5,000,000 isfrom ~~payable~~the inwrite-off ~~full~~of onpreferred ~~November~~stock ~~29, 2014,~~ and ~~is secured by our corporate office building~~$1,601,116 ~~located~~from atthe ~~1080~~write-off NWof ~~163rd~~preferred ~~Drive,~~stock ~~Miami Gardens, FL 33169~~dividends.

~~Securities~~Phoenix ~~Option~~Vitae ~~Agreement~~Holdings, LLC (“PV”), which is owned by the CEO of the Company, purchased the 6%, $3,000,000 secured promissory note from Vicis Capital Master Fund July 7, 2014. PV extended the interest payment date for the initial interest payment from June 30, 2014 to September 1, 2014. On September 1, 2014, a note amendment agreement was entered into whereby the note is due on demand and the interest rate and terms are as follows: Interest on the principal amount (or any balance thereof) outstanding from time to time under this Note shall accrue at a fixed rate per year equal to nine percent (9%) during the period from July 1, 2014 through August 31, 2014; and provided further, that interest shall accrue at a fixed rate per year equal to twelve percent (12%); from and after September 1, 2014 until the Note is paid in full (in each case, computed on the basis of a 360-day year).

On June 30, 2012, we executed a Securities Option Agreement with Vicis Capital Master Fund (“Vicis”) whereby Vicis grants us an option to purchase and redeem all securities and debentures held by Vicis. The option becomes exercisable on the date that all principal and accrued interest on all debentures has been paid in full, and may be exercised at any time after initial exercise date through and including December 31, 2013 (expiration date). Upon exercise of the “option” the redemption price for the securities shall be an amount equal to $16,000,000 minus the sum of principal and accrued interest paid on all debentures held by Vicis. Upon exercise of the option, any and all unpaid dividends on the securities shall be surrendered and cancelled without payment of additional consideration.42

~~Extension~~Promissory ofNotes ~~Maturity~~and ~~Dates~~Mortgage ~~of Outstanding Non-Convertible Debentures:~~Payable

On June 30, 2012, we entered into an agreement to modify our outstanding debentures solely to extend their maturity dates that originally ranged from June 30, 2012 to July 1, 2013 to December 31, 2013. There were no other material modifications to the debentures and the holders received no additional consideration to effect the modification. As a result of these modifications, we evaluated each debenture to determine whether the maturity extension constituted a substantial modification. Under current accounting standards, from a debtor’s perspective, a modification of a debt instrument is deemed equivalent to the exchange of debt instruments if the present value of the cash flows under the terms of the modified arrangement are at least 10 percent different from the present value of the remaining cash flows under the terms of the original debt instrument. In cases where the difference in cash flows exceeds this level, extinguishment accounting is prescribed. As a result of our calculations, we concluded that the present values, using the effective interest rates on the issuance dates, of our face value $5,266,130, $2,000,000, and $3,500,000 debentures exceeded the substantive threshold. Accordingly, the debentures were adjusted to their respective fair values of $6,150,160, $2,313,888, and $3,852,748 and a corresponding charge to income in the amount of $3,135,235 representing the extinguishment loss.

Long term debt consisted of the following at:
	December 31,
	2014			2013
$3,000,000, 6% secured promissory note to related party, due on demand	$	3,000,000		$	3,000,000
$1,400,000, 12% mortgage note payable, due November 29, 2015		1,400,000			1,400,000
$300,000, 5% secured convertible note, due December 1, 2013		-			300,000
$200,000, 5% secured convertible note, due January 15, 2014		-			200,000
$2,766,155, 5% secured promissory note, due March 1, 2016		2,766,155			-
$175,000, 6% promissory note, due June 30, 2017		175,000			175,000
$500,000 12% convertible promissory note, due August 21, 2016		55,000			-
$83,500 8% convertible promissory note, due September 11, 2015		83,500			-
$43,000 8% convertible promissory note, due November 19, 2015		43,000			-
$53,500 8% convertible promissory note, due December 29, 2015		53,500			-
$854,278, demand notes, due on demand		-			854,278
		7,576,155			5,929,278
Less current portion		(4,580,000	)		(1,400,000	)
Long-term debt	$	2,996,155		$	4,529,278

~~The~~2014 ~~fair~~Issuance ~~values~~ of ~~the~~Promissory ~~debentures were determined based upon their future cash flows, discounted at a credit-risk adjusted market interest rate of 7.4%.~~Notes

~~2012~~Effective ~~Issuance~~March 11, 2014, netTALK and Telestrata LLC (“Telestrata”), a Colorado limited liability company executed a restricted stock and warrant purchase agreement, pursuant to which, in part, Telestrata purchased: (a) 25,441,170 shares of ~~Non-Convertible~~the ~~Debentures~~Company’s common stock and ~~Demand~~(b) ~~Notes~~a common stock purchase warrant entitling Telestrata to purchase shares of common stock of the Company equal to 20% of the then outstanding shares of common stock of netTALK.

OnSubject ~~March~~to 29repayment obligations of the Company as provided below, ~~2012~~Telestrata received credit of $4,571,940 weto ~~issued~~acquire ashares ~~face~~and ~~value~~warrant as follows: (a) $500,000, ~~10%~~in ~~senior~~the ~~secured~~form ~~debenture,~~of ~~due~~the ~~June~~conversion 30and cancellation of two promissory notes issued to Samer Bishay in May and July 2013, ~~2012~~(b) $837,373 ~~extended~~in loans to ~~December~~the ~~31,~~Company received in the third and fourth quarters of 2013 and (c) the satisfaction by Telestrata of $2,734,566 of liabilities of the Company.

On ~~April~~March 3011, ~~2012~~2014, wethe ~~issued~~Company executed a ~~face~~secured ~~value~~promissory note with Telestrata for $~~500~~4,~~000~~071,940. 10Interest accrues at 5% ~~senior~~and the note and interest are payable March 1, ~~secured~~2016 ~~debenture~~subject to accelerated repayment terms as defined in the promissory note agreement. The principal balance of the note increased based on additional payments, ~~due~~as defined in the promissory note agreement. As of June 30, ~~2012~~2014, ~~extended~~the Company received $250,000 of additional cash payments and $250,000 of additional indirect cash payments for telecom service received from an affiliate of Telestrata. This affiliate is owned by the previous President of the Company. These amounts were added to ~~December~~the 31original principal balance resulting in a new principal balance of $4,571,940 ~~2013~~less the discount of up to $1,805,785. The promissory note provides for a discount of up to a maximum of $1,805,785 if the Company makes timely principal and interest payments as required by the promissory note. Advanced payments are required based on certain conditions with qualified financing as defined in the Secured Promissory Note.

On June 26, 2012, we issued a face value $450,000, 10% senior secured debenture, due June 30, 2012, extended to December 31, 2013.

Reconciliation of Telestrata Promissory Note at:
	December 31,
	2014
Original secured promissory note due to Telestrata	$	4,071,940
Less promissory note discount		(1,805,785	)
Increase in principal from additional cash payment		250,000
Increase in principal from indirect cash payment for telecom service		250,000
Revised secured promissory note due to Telestrata	$	2,766,155

~~During~~On August 21, 2014, the ~~year~~Company ~~ended~~issued a ~~December~~Convertible ~~31,~~Promissory ~~2012,~~Note we(“Note ~~received~~1”) ~~advances~~ to a third party accredited investor, in the ~~total~~aggregate principal amount of five hundred thousand dollars ($1500,~~150,~~000) for an aggregate purchase price of up to four-hundred and fifty thousand dollars ($450,000) (“Aggregate asPurchase ~~part~~Price”). The investor paid initial consideration of a$50,000 ~~series~~and may, at its discretion, pay additional consideration, up to an amount equal to the Aggregate Purchase price. The principal sum due to investor shall be prorated based upon the amount of consideration actually paid by investor to the Company (plus an approximate 10% ~~senior~~original ~~secured~~issue ~~debentures,~~discount ~~due~~that is ~~December~~prorated ~~31,~~based ~~2013,~~upon ~~issued~~the amount of consideration actually paid by investor to ~~our~~the ~~largest~~Company) such that the Company is only required to repay the amount actually funded by investor.

~~During the year ended December 31, 2012, we received advances in the total amount of $275,000, represented by Demand Notes, issued to our largest investor.~~43

48Note 1 is convertible, at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share, at a conversion price equal to the lesser of $0.17 or 60% of the lowest trade price in the 25 trading days previous to the conversion date. The Company has the right, in its discretion, to enforce a “Conversion Floor” equal to $0.10 per share, which, if enforced by the Company, shall require the Company to make whole any loss suffered by investor in the form of cash payment, as further described in the Amendment to the Note.

~~The~~Note ~~carrying~~1 ~~values~~has ~~our~~a ~~senior~~maturity ~~debentures~~date ~~and~~of ~~demand~~August ~~notes~~21, ~~consisted~~2016. If the Company ofrepays any then outstanding principal amount due to investor prior to the date 90 days following asthe issue date (the “Interest Date”) of ~~December~~the 31Note, ~~2012~~the ~~and~~interest ~~December~~on 31such amount shall be 0%. If the Company repays any then outstanding principal amount due to investor after the Interest Date, ~~2011:~~such amount shall be charged with a one-time 12% interest charge.

	December 31,		December 31,
	2012		2011
$2,000,000 face value 12% debenture, due December 31, 2013	$	2,398,153	$	941,762
$3,500,000 face value 12% debenture, due December 31, 2013		3,993,053		2,211,483
$5,266,130 face value 12% debenture, due December 31, 2013		6,374,130		2,841,930
$ 500,000 face value 10% debenture, due December 31, 2013		500,000		-
$ 500,000 face value 10% debenture, due December 31, 2013		500,000		-
$ 450,000 face value 10% debenture, due December 31, 2013		450,000		-
$1,150,000 advances on 10% debenture, due December 31, 2013		1,150,000		-
$ 275,000 demand notes, due on demand		275,000		-
Total	$	15,640,336	$	5,995,175

On September 24, 2014, the Company entered into a Securities Purchase Agreement (“SPA”) with a third party accredited investor pursuant to which the Company issued an 8% Convertible Promissory Note (“Note 2”) to the investor in the principal amount of eighty-three thousand five hundred dollars ($83,500) for a purchase price of eighty-three thousand five hundred dollars ($83,500).

AtNote ~~December~~2 31is convertible, ~~2012~~at the option of the holder, ~~principal~~into ~~repayments~~shares ~~requirements~~of the Company common stock, par value $0.001 per share, based on ~~senior~~the ~~debentures~~conversion ~~and~~price ~~demand~~equal ~~notes~~to ~~were~~65% multiplied by the average of the lowest five (5) trading prices for the Company’s common stock during the ten (10) days prior to the date of conversion, as ~~follows:~~further described in the Note, substantially in the form attached hereto as Exhibit 10.2. Interest accrues at 8% per annum and is due at maturity date which is September 11, 2015.

~~For~~On ~~year~~November ~~ended~~19, ~~December 31~~2014, ~~2013:~~the ~~senior~~Company ~~debentures~~entered ~~and~~into ~~demand~~a ~~notes~~SPA with a third party accredited investor pursuant to which the Company issued an 8% Convertible Promissory Note (“Note 3”) to the investor in the principal amount of forty-three thousand dollars ($43,000) 15for a purchase price of forty-three thousand five hundred dollars ($43,~~640,336~~000).

~~2011~~Note ~~Issuance~~3 is convertible, at the option of ~~Non-Convertible~~the ~~Debentures~~holder, into shares of the Company common stock, par value $0.001 per share, based on the conversion price equal to 65% multiplied by the average of the lowest five (5) trading prices for the Company’s common stock during the ten (10) days prior to the date of conversion, as further described in Note 3. Interest accrues at 8% per annum and is due at maturity date which is November 19, 2015.

On ~~August~~December 829, ~~2011 and September 30~~2014, ~~2011,~~the weCompany ~~issued~~entered ~~face~~into ~~value~~a Securities ~~$2,000,000~~Purchase ~~12%~~Agreement ~~debentures,~~with ~~due~~a ~~July~~third 1,party ~~2013,~~accredited ~~and~~investor ~~face~~pursuant ~~value~~to ~~$3,500,000~~which ~~10%~~the ~~debentures,~~Company ~~due~~issued ~~June~~an ~~30,~~8% ~~2012,~~Convertible ~~respectively,~~Promissory ~~for aggregate~~Note ~~cash~~(“Note of4”) ~~$5,500,000.~~to ~~Concurrent with these financing transactions we also issued~~ the investor ~~warrants~~in tothe ~~purchase~~principal anamount ~~aggregate~~ of ~~18,000,000~~fifty-three ~~shares~~thousand offive ~~our~~hundred ~~common~~dollars ~~stock for~~ ($~~0.50~~53,500) for ~~periods~~a purchase price of fifty-three thousand five ~~years~~hundred dollars ($53,500).

WeNote ~~allocated~~4 ~~the~~is ~~gross~~convertible, ~~proceeds~~at ~~from~~the option of the ~~financing~~holder, ~~transactions~~into shares of the Company common stock, par value $0.001 per share, based on the conversion price equal to 65% multiplied by the ~~debentures~~average ~~and~~of the lowest five (5) trading prices for the ~~warrants~~Company’s ~~based~~common ~~upon~~stock ~~their~~during ~~relative~~the ~~fair~~ten ~~values,~~(10) days prior to the date of conversion, as ~~reflected~~further described in ~~the~~Note ~~following~~4. ~~table:~~Interest accrues at 8% per annum and is due at maturity date which is December 29, 2015.

August 8, 2011 Financing Arrangement	Fair Values		Relative Fair Values
$2,000,000 face value of debentures	$	2,127,063	$	721,642
Warrants to purchase 8,000,000 shares of common stock		3,768,000		1,278,358
	$	5,895,063	$	2,000,000

Notes 1, 2, 3 and 4 were offered and sold to accredited investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933.

September 30, 2011 Financing Arrangement	Fair Values		Relative Fair Values
$3,500,000 face value of debentures	$	3,560,675	$	1,695,404
Warrants to purchase 10,000,000 shares of common stock		3,790,000		1,804,596
	$	7,350,675	$	3,500,000

During 2014, the CEO (and shareholder) loaned the Company $575,000 in non-interest bearing demand notes of which $400,000 was repaid to the CEO as of December 31, 2014. Additionally, the CEO was repaid $87,583 in back-pay that was accrued in 2013 and the Company accrued $75,000 relating to the voluntary reduction in the CEO’s cash compensation. As of December 31, 2014, the amount due to the CEO was $250,912.

~~The~~2013 ~~fair~~Issuance ~~value~~ of ~~the~~Promissory debentures was computed based upon the present value of all future cash flows, using a credit risk adjusted discount rates ranging from 7.63% to 7.86%. This discount rate was developed based upon bond curves of companies with similar high risk credit ratings plus a range of 0.25% to 0.36% risk free rate based upon yields for zero coupon government securities with maturities consistent with those of the debentures. The fair value of the warrants was determined using the Binomial Lattice technique. The effective volatility and risk free rates resulting from the calculations were 55.15% — 129.86% and 0.07% — 1.11%, respectively.Notes

~~June~~During 30the first and second quarters of 2013, ~~2011~~the ~~Financing~~Company received advances of $175,000 ~~Debt~~from ~~Settlement~~a third party. These advances are evidenced by a promissory note, ~~and~~accrues ~~Accrued~~interest ~~Interest~~at 6% per year, and ~~Settlement~~matures June 30, 2017.

On ~~June~~May 3031, ~~2011~~and July 15, we2013, ~~issued~~the ~~face~~Company ~~value~~issued ~~$5,266,130,~~to ~~12%~~Samer ~~debentures~~Bishay, ~~due~~previous ~~July~~President 1,of ~~2013~~the ~~and~~Company, ~~warrants~~two to5% ~~purchase~~secured ~~21,064,520~~convertible ~~shares~~promissory ofnotes ~~our~~with ~~common~~face ~~stock~~values ~~for~~of $~~0.50~~300,000 ~~per~~and ~~share~~$200,000, ~~which~~respectively. These ~~expire~~promissory ~~five~~notes ~~years~~were ~~from the~~due ~~issuance~~December ~~date~~1, ~~for~~2013 ~~$2,500,000~~and ~~cash~~January 15, ~~settlement~~2014. ~~of $2~~Also,~~500,000~~ induring ~~bridge~~the ~~financing~~third and ~~settlement~~fourth quarters of 2013 the Company received $~~266~~837,~~130~~373 in ~~accrued~~ non-interest on ~~the~~bearing ~~former~~notes ~~convertible~~due ~~debentures.~~on ~~See~~demand ~~discussion~~from ona ~~the~~previously ~~conversion~~major ofvendor ~~the~~owned ~~convertible~~by ~~debentures,~~Samer ~~below~~Bishay. ~~The~~On ~~cash~~March ~~and advance~~11, ~~settlement~~2014 ~~were~~these ~~accounted~~promissory ~~for~~notes asand ~~financing~~demand ~~transactions.~~notes ~~The~~were ~~settlement~~extinguished ofand replaced with the ~~accrued~~Telestrata ~~interest~~promissory ~~was~~note ~~accounted~~described ~~for~~above which asmatures anMarch ~~extinguishment of~~1, ~~debt~~2016.

4944

~~The~~Mortgage debentures were allocated $5,000,000 face value and $266,130 to the financing and extinguishment, respectively. Applying that same relationship, we allocated 20,000,000 and 1,064,520 warrants to the financing and extinguishment, respectively.Payable

WeOn ~~allocated~~November 29, 2012, the ~~gross~~Company ~~proceeds~~borrowed $1,000,000 from ~~the~~a lender ~~financing~~and ~~transaction to~~in exchange, the ~~debentures~~Company issued a 12% promissory note and ~~the~~a ~~warrants~~mortgage ~~based~~and ~~upon~~security ~~their~~agreement. ~~relative~~The ~~fair~~12% ~~values~~promissory note, among asother ~~reflected~~matters, accrues interest at 12% per annum, is payable in ~~the~~full ~~following~~on ~~table:~~November 29, 2015, and is secured by our corporate office building, located at 1080 NW 163rd Drive, Miami, FL 33169.

	Fair Values		Relative Fair Values
$5,000,000 face value of debentures	$	5,340,195	$	2,029,536
Warrants to purchase 20,000,000 shares of common stock		7,816,000		2,970,464
	$	13,156,195	$	5,000,000

On January 11, 2013, we received an additional advance of $400,000 pursuant to its existing lending facility with 1080 NW 163^rd Drive, LLC. The additional advance of $400,000 was endorsed by a promissory note which was consolidated with the initial advance of $1,000,000 from the mortgage on 1080 NW 163^rd Drive, LLC. The consolidated promissory mortgage note has an aggregate principal balance of $1,400,000, accrues interest at 12% per annum, is payable in full on November 29, 2015, and is secured by our corporate office building, located at 1080 NW 163rd Drive, Miami, FL 33169. On March 2, 2015, the due date of the aggregate principle balance of $1,400,000 was extended to November 29, 2015.

~~The~~On ~~fair~~October ~~value~~27, 2014, Company was notified that Samer Bishay, previous President of the ~~debentures~~Company, ~~was~~on ~~computed~~or ~~based~~about ~~upon~~October ~~the present~~24th, ~~value~~2014, ofthrough ~~all~~counsel ~~future~~for ~~cash~~Telestrata, ~~flows~~LLC, ~~using~~an aentity with ~~credit~~which ~~risk~~he ~~adjusted~~is ~~discount~~affiliated, ~~rate~~unilaterally filed a mortgage in the amount of approximately $74.~~75%.~~5 ~~This~~million, ~~discount~~encumbering ~~rate~~certain ~~was developed~~real ~~based~~property ~~upon~~of ~~bond~~the ~~curves~~Company. The Company's Board of ~~companies~~Directors ~~with~~(the ~~similar~~"Board"), ~~high~~through ~~risk~~a ~~credit~~unanimous ~~ratings~~written ~~plus~~consent aexecuted September 02, 2014, by all directors including Mr.~~50%~~ ~~risk~~Bishay, ~~free~~authorized ~~rate~~the ~~based~~company ~~upon~~to ~~yields~~undertake ~~for~~such ~~zero~~action only under certain conditions, ~~coupon~~including ~~government~~the ~~securities~~condition ~~with~~that ~~maturities~~only ~~consistent~~the ~~with~~Chief ~~those~~Financial Officer of the ~~debentures~~Company could execute and authorize any such filing. ~~The~~Such written ~~fair~~consent ~~value~~has not been revoked, modified or superseded by any subsequent valid action of the ~~warrants~~Board, ~~was~~and ~~determined using~~accordingly, the Company ~~Binomial~~is ~~Lattice~~working ~~valuation~~with ~~technique.~~counsel ~~The~~to ~~effective~~rescind ~~volatility~~such unauthorized encumbrance and ~~risk~~pursue ~~free~~any ~~rate~~causes ~~used~~of inaction the ~~calculation~~Company ~~were~~or ~~113.8%~~its shareholders ~~and~~may 1have against Mr.~~70%,~~ ~~respectively~~Bishay.

~~For~~As ~~purposes~~a result of ~~the~~this ~~extinguished~~unauthorized ~~instrument~~encumbrance, at wethis ~~recorded~~time the ~~allocated~~ ~~face~~Company ~~value~~is ofunable ~~the~~to ~~debentures~~refinance ~~and~~ the ~~allocated~~mortgage ~~number~~payable ofalthough ~~warrants~~we atwere ~~their~~able ~~fair~~to ~~values.~~extend ~~The difference between these amounts and~~ the ~~carrying~~maturity ~~value~~date of the ~~settled~~mortgage payable ~~obligation~~to ~~was~~November ~~recorded as an extinguishment loss in our income~~29, ~~as follows:~~2015.

	Extinguishment Calculation
$266,130 face value of debentures	$	284,238
Warrants to purchase 1,064,520 shares of common stock		416,014
		700,252
Carrying value of settled obligation		266,130
Extinguishment loss	$	434,122

Note 10 – Revenue and Cost of Revenue

~~The~~Revenues ~~fair~~and ~~value~~cost of ~~the~~revenues ~~debentures~~consisted ~~and~~of the ~~warrants were determined in the same manner as those allocated to the financing and as described above.~~following:

The total carrying value of the debentures arising from the financing and the extinguishment transactions amounted to $2,313,774. This discounted balance is subject to amortization through charges to interest expense over the term to maturity using the effective interest method. Amortization commenced on July 1, 2011.

	Twelve Months Ended December 31,
	2014		2013
Revenues:
Sales of devices	$	675,128	$	1,667,456
Renewals and access charges		4,140,533		4,128,681
Other		247,755		228,013
Total		5,063,416		6,024,150

Cost of revenues:
Cost of sales of devices		1,125,144		1,885,102
Cost of renewals and access charges		1,869,001		2,767,955
Other		106,761		25,806
Total		3,100,906		4,678,863

Gross profit	$	1,962,510	$	1,345,287

~~2011~~Note ~~Conversion~~11 of– ~~All~~Redeemable ~~Outstanding Convertible~~Preferred ~~Debentures:~~Stock

OnEffective ~~June~~December 3031, ~~2011~~2013, the ~~holder~~Company ofexecuted ~~all~~a ~~of our secured convertible~~redemption ~~debentures~~and ~~issued~~debt inrestructuring ~~connection~~agreement with ~~2010~~Vicis ~~Convertible~~Capital ~~Debenture~~Master ~~Exchange~~Fund (see discussion below) converted said debentures for an aggregate of 19,995,092 shares of common stock, which was in accordance with the contractual conversion price. On the date of the conversion, the compound embedded derivatives associated with the secured convertible debentures were adjusted to ~~fair value resulting in a credit to derivative income in the amount of $2~~,~~514,209.~~ ~~Following~~among ~~the~~other ~~derivative adjustment~~things, ~~the~~extinguish ~~adjusted carrying value of the compound embedded derivative (~~$85,~~797~~000,~~840)~~000 ~~and carrying value~~ of ~~the~~series ~~secured~~A convertible ~~notes ($4,998,773) were combined~~ inredeemable ~~the~~preferred ~~amount~~stock of ~~$13,796,613~~which ~~and~~500 ~~reclassified~~shares towere ~~stockholders~~issued, ~~equity~~outstanding toand ~~give~~have ~~effect~~been ~~to the issuance of the common shares~~cancelled.

~~Further,~~Note on12 ~~the~~– ~~June~~Commitment 30, 2011 conversion date we issued the holders of the secured convertible debentures warrants to purchase 1,000,000 shares of our common stock as conversion inducement consideration. These warrants have a five year term and a strike price of $0.50 per common share. The warrants meet all conditions for equity classification. The fair value of the warrants, determined using the Noreen Wolfson dilution adjustment model for the Black Scholes Merton valuation technique, amounted to $390,800 which has been recorded in expense. The volatility and risk free rate used in the Black Scholes Merton calculation were 113.8% and 1.70%, respectively.Contingencies

50The Company hired a consultant effective October 1, 2014 to assist management with strategic planning and raising capital.

~~2010~~Employment ~~Convertible~~Agreements ~~Debenture Exchange:~~

~~Our~~On ~~convertible~~January ~~debentures~~2, ~~were~~2014, ~~issued~~the onCompany ~~February 24, 2010~~entered ininto ~~connection~~employment ~~with~~agreements ~~an exchange agreement~~ with ~~our~~the ~~creditors~~Chief ~~that~~Executive ~~provided for~~Officer, ~~among~~Executive ~~other~~Vice ~~things~~President, ~~the~~Chief ~~consolidation~~Financial ofOfficer, ~~our~~Chief ~~previous~~Operating ~~secured~~Officer ~~convertible debt instruments, originally issued in connection with our 2008 Convertible Debenture Financing~~ and ~~2009~~Chief ~~Convertible Debenture~~Technical ~~(see~~Officer ~~discussion~~according ~~below),~~to ~~and included~~ the ~~capitalization~~following ~~of $798,773 of accrued interest~~terms. ~~The~~Stated ~~newly~~salary ~~issued~~for ~~convertible debentures~~2014 ~~bore~~and ~~interest at 12%~~2015, ~~which~~a ~~was~~term ~~payable at the earlier~~ of ~~the~~2 ~~maturity~~to ~~date~~5 oryears ~~the~~and a ~~date~~change ~~that~~in ~~the~~control ~~debentures were converted~~payment, if ~~ever.~~as ~~Such~~defined ~~interest was payable at the Company’s option~~ in ~~cash or common stock at $0.25 per common share. The principal amount of~~ the ~~debentures was convertible into common stock at $0~~agreements.~~25. Accordingly, the convertible debenture was indexed to 19,995,092 shares of our common stock.~~

~~Our~~The ~~accounting~~Company ~~for~~has ~~the~~entered ~~aforementioned~~into ~~exchange transaction required~~contracts uswith tovarious ~~consider~~telecom ~~whether~~vendors ~~the exchange resulted~~ in ~~a substantial modification to~~ the ~~original~~fourth ~~convertible~~quarter ~~debentures~~of ~~based~~2014 ~~upon~~and ~~either cash flows or~~ the ~~fair~~first ~~value~~quarter of ~~the~~2015 ~~embedded~~with ~~conversion~~an ~~feature,~~annual ~~wherein~~commitment ~~is generally defined as a change greater than 10%. In all instances, our calculations indicated that the exchange~~ of ~~convertible debentures resulted in changes that were substantial~~approximately ~~to either cash flows~~$281,000 ~~the~~and ~~embedded conversion option, or both. As~~ a ~~result,~~total wecommitment ~~were~~of ~~required~~approximately ~~to extinguish the prior debt instruments and reestablish the new convertible debentures at fair value~~$437,500 ~~with~~as ~~the~~defined ~~difference reflected~~ in ~~our~~the ~~expenses~~agreement.

~~The~~During ~~following~~the ~~table~~middle ~~reflects~~of 2013, the ~~components~~Company encountered severe financial ofdifficulties. ~~our~~As ~~extinguishment~~a ~~calculations~~result, the Company became delinquent on ~~February~~filing 24and paying certain taxes. As of the date of this filing, ~~2010:~~the Company is working to complete all filing obligations required by federal, state, county, city or locality jurisdictions. As of December 31, 2014, the Company has accrued $665,000 for taxes, penalties and interest which is recorded in accrued expenses.

	Convertible Debenture Due
	June 30, 2011			July 20, 2011			September 30 2011			Total
Fair value of new debenture	$	7,767,450		$	1,490,256		$	3,196,102		$	12,453,808
Carrying value of old debentures:
Debentures		1,713,124			152,755			267,000			2,132,879
Accrued Interest		546,000			87,166			165,607			798,773
Compound embedded derivative		3,723,200			750,000			1,632,400			6,105,600
Deferred finance costs		(85,372	)		(23,933	)		(92,122	)		(201,427	)
		5,896,952			965,988			1,972,885			8,835,825
Extinguishment loss	$	1,870,498		$	524,268		$	1,223,217		$	3,617,983

Legal Proceedings

~~The~~On ~~fair~~September ~~values~~21, of2012, ~~the~~NetTalk.com, ~~Secured~~Inc. ~~Convertible~~filed ~~Debentures~~a ~~were~~complaint ~~determined~~in ~~based~~United ~~upon~~States ~~their~~District ~~respective~~Court ~~discounted~~for ~~cash~~the ~~flow,~~Southern ~~using~~District ~~observable~~of ~~market rates~~Florida, ~~plus~~Civil ~~the~~Action ~~fair~~No.: ~~value of the embedded conversion~~9:12-cv-810220-CIV-MIDDLEBROOK/BRANNON, ~~options.~~against ~~Observable~~MAGICJACK ~~market~~VOCALTECLTD, ~~rates~~MAGIJACK onHOLDINGS ~~the~~CORPORATION ~~exchange~~f/k/a ~~date~~YMAX ~~ranged~~HOLDINGS ~~from~~CORPORATION ~~7.91% for one-year~~ and 8DANIEL BORISLOW.~~47%~~ ~~for~~In ~~two~~the ~~years and were derived from~~complaint ~~publicly~~we ~~available~~allege ~~surveys~~patent ofinfringement ~~corporate~~by ~~bond~~the ~~curves~~defendants ~~for~~and ~~issuers~~are ~~with~~seeking ~~similar~~injunctive ~~risk~~relief ~~characteristics~~and astwo ~~ours.~~hundred ~~The~~million ~~fair~~dollars ~~value of our~~($200,000,000) ~~compound~~in ~~embedded~~damages ~~derivatives~~as ~~were~~a ~~determined~~result ~~using~~of the ~~Monte~~alleged ~~Carlo~~patent ~~Simulations~~infringement ~~model.~~by ~~See Note 8~~defendants. ~~The~~There ~~compound~~can ~~embedded~~be ~~derivatives were~~no ~~adjusted~~assurances as to ~~fair value on~~ the ~~exchange~~outcome ~~date,~~of ~~immediately~~this ~~before the exchange transaction, which amount is included in our derivative income (expense)~~litigation.

The fair value of the new convertible debentures was allocated to the debt balance, the compound embedded derivative and paid-in capital. Paid-in capital arises in this transaction, because the allocation resulted in premiums which, under accounting principles, are considered equity components. The following table summarizes the allocation on the exchange date:45

	Convertible Debenture due
	June 30, 2011		July 20, 2011		September 30 2011		Total
Convertible debentures	$	3,146,000	$	587,166	$	1,265,607	$	4,998,773
Compound embedded derivative		4,505,072		880,749		1,878,161		7,263,982
Paid-in capital		116,378		22,341		52,334		191,053
	$	7,767,450	$	1,490,256	$	3,196,102	$	12,453,808

As a result of this action, MAGICJACK/ VOCALTEC LTC filed a document with the United States Patent Office (“USPTO”) requesting reexamination of netTALK patent 8,243,722. The USPTO granted the reexamination petition and the claim against MAGICJACK/VOVALTEC LTD was stayed pending the outcome of the USPTO reexamination.

~~Our~~In ~~accounting~~December ~~for~~2013, ~~the~~netTALK ~~original~~received ~~debenture~~a USPTO Notice of Intent ~~financings~~to isIssue asEx ~~follows:~~Parte Reexamination Certificate (“NIRC”) for netTALK’s U.S. Patent Number 8,243,722.

~~2008~~In ~~Convertible~~January ~~Debenture~~2014, ~~Financing~~netTALK petitioned the courts to restart the aforementioned lawsuit against MAGICJACK VOCALTECLTD, MAGIJACK HOLDINGS CORPORATION f/k/a YMAX HOLDINGS CORPORATION and DANIEL BORISLOW.

On ~~September~~February 1027, ~~2008~~2014, wenetTALK ~~issued~~received athe ~~$1,000,000~~reexamination ~~face value, 12%~~certificate ~~secured~~which ~~convertible~~restated ~~debenture~~that ~~(T-1),~~all ~~due~~three ~~September~~claims ~~10, 2010 and Series B warrants indexed to 4,000,000 shares~~ of ~~our common stock in exchange for~~ the ~~Interlink~~‘722 ~~Asset~~Patent ~~Group,~~are ~~discussed~~deemed inallowable ~~Note~~by 3.the Also on September 30, 2008, we issued a $500,000 face value 12% secured convertible debenture (T-2), due September 10, 2010 and Series B warrants indexed to 2,000,000 shares of our common stock for net cash proceeds of $472,800USPTO. The ~~warrants~~three ~~have~~claims ~~a term~~ of ~~five years. These financial instruments were issued to~~ the ~~same~~ ~~creditor~~‘722 ~~under~~Patent ~~contracts~~were ~~that~~minimally ~~are~~amended ~~substantially~~during ~~similar, unless otherwise mentioned in~~ the ~~following discussion~~proceeding.

51On February 27, 2015, by stipulation of the parties, the district court dismissed all claims and counterclaims in netTALK v. magicJack (Case No. 9:12-cv-810220, Dkt. #158.)

~~The~~On ~~principal~~March ~~amount~~20, of2014 ~~the~~a ~~debentures~~claim was ~~initially~~filed ~~payable on~~by ~~September 10~~Billsoft, ~~2010~~Case ~~and~~No. ~~the~~14CV01827. The ~~interest~~claim ~~was~~states ~~payable~~the ~~quarterly,~~Company onindebted ato ~~calendar~~Billsoft ~~quarter~~in ~~basis. While~~ the ~~debenture~~amount ~~was~~of ~~outstanding~~$16, ~~the~~776 ~~investor~~pursuant ~~had~~ the ~~option~~terms toof ~~convert~~said ~~the~~Contract ~~principal~~including ~~balance~~$1,192 for attorney and ~~not~~court ~~the~~fees ~~interest,~~incurred ~~into~~by ~~shares~~Billsoft for a total of ~~our~~$17,968. ~~common~~The ~~stock~~Company athas reached a ~~conversion~~settlement agreement on April ~~price~~24, 2014 to make monthly payments of $~~0.25~~1,000 ~~per~~until ~~common~~the ~~share.~~debt ~~Each~~is ~~such~~satisfied. ~~debenture~~The ~~was~~balance ~~exchanged~~due onat ~~February~~December 2431, ~~2010~~2014 ~~for~~is a$10,969 ~~new~~which is ~~debenture~~recorded ~~issued~~in byaccounts ~~the Company~~payable.

~~2009~~On ~~Convertible~~July ~~Debenture~~30, ~~Financings~~2014, Active Media Services, Inc. filed a complaint against the Company in the United States District Court for Southern District of New York. The Complaint seeks 374,803.43 in damages based on the theory of breach of contract. On September 9, 2014 the Company answered the complaint and the parties are presently engaged in discovery. As of the filing date of this Report, the Company is evaluating whether a loss is probable or if there is a reasonable possibility that a loss may had been incurred and whether an accrual is necessary.

WeOn ~~entered~~July ~~into~~30, ~~several~~2014, ~~Securities~~the ~~Purchase~~Company ~~Agreements~~was served with a complaint from ~~Debt~~QVC, ~~Opportunity~~Inc. ~~Fund~~that was filed in the United States District Court, ~~LLP~~for ~~(“DOF”)~~the ~~during~~Eastern District of Pennsylvania, Case No.: 2:14-cv-04406-LS, alleging breach of contract by the ~~year~~Company ~~ended~~and ~~September~~seeking 30damages of no less than $95,798. As ~~2009~~of the filing date of this Report, the parties have settle the case for $99,870 and the first installment has been paid according to the settlement agreement. As of December 31, 2014, the amount settled has been accrued by the Company and is recorded in accounts payable.

On ~~January~~February 3027, ~~2009~~2015, wethe ~~issued~~Company ~~(a)~~was ~~12%~~served ~~Senior~~with ~~Secured~~a ~~Convertible~~complaint ~~Debentures~~from Northern Communication Services, Inc. that was filed in the ~~aggregate~~Circuit ~~principal~~Court ~~amount~~ of ~~$600,000~~the ~~with~~11th aJudicial ~~maturity~~Circuit ~~date~~In ofand ~~January~~For Miami-Dade 30County, ~~2011~~Florida, ~~convertible~~Case ~~into~~No.: ~~shares~~14029771CA01 Civil Division, alleging breach of ~~common stock~~contract atby athe ~~conversion~~Company ~~price~~and seeking damages of ~~$0.25;~~no ~~and~~less ~~(b)~~than $43,110. ~~Series~~As Cof ~~Warrants~~the todate ~~purchase~~of 2this filing,~~400,000~~ ~~shares~~the ofparties ~~our~~have ~~common~~settled ~~stock~~the atcase anfor ~~exercise~~43,110 and the first installment ~~price~~has ofbeen ~~$0.50~~paid ~~for~~according ~~net~~to ~~cash~~the ~~proceeds~~settlement agreement. As of ~~$507~~December 31,~~900.~~ ~~The~~2014, ~~warrants~~the ~~have~~amount asettled ~~term~~has ofbeen ~~five~~accrued ~~years~~by the Company and is recorded in accounts payable.

On ~~February~~March 625, ~~2009~~2015, wethe ~~issued~~Company (received a) ~~12%~~collection ~~Senior~~letter from ~~Secured~~Canadian ~~Convertible Debentures~~Credit inCorporation ~~the~~threatening ~~aggregate~~litigation ~~principal~~for ~~amount~~breach of ~~$500,000~~contract ~~with~~by athe ~~maturity~~Company ~~date~~and seeking damages of ~~January~~no ~~30,~~less ~~2011~~than $29,687. As ~~convertible~~of ~~into~~the ~~shares~~date of ~~common stock~~this atfiling, athe ~~conversion~~Company ~~price~~is ofevaluating ~~$0.25;~~whether ~~and~~a ~~(b) Series~~loss Cis ~~Warrants~~probable toor ~~purchase~~if ~~2,000,000~~there ~~shares~~is ofa ~~our~~reasonable ~~common~~possibility that ~~stock~~a atloss anmay ~~exercise price~~had ofbeen $0incurred.50 ~~for~~As ~~net~~of ~~cash~~December ~~proceeds~~31, of2014, the amount claimed, $~~443~~29,~~250.~~687, ~~The~~has ~~warrants~~been ~~have~~accrued aby ~~term~~the ofCompany ~~five~~and ~~years~~is recorded in accounts payable.

On ~~July~~April 203, ~~2009~~2015, wethe ~~issued~~Company (received a) ~~12%~~collection ~~Senior~~letter ~~Secured Convertible~~from ~~Debentures~~Receivables inControl ~~the~~Corporation ~~aggregate~~threatening ~~principal~~litigation ~~amount~~for breach of ~~$500,000~~contract ~~with~~by athe ~~maturity~~Company ~~date~~and seeking damages of ~~July~~no ~~20,~~less ~~2011~~than $247,500. As ~~convertible~~of ~~into~~the ~~shares~~filing date of ~~common stock~~this atreport, athe ~~conversion~~parties ~~price~~have ofsettle ~~$0.25;~~the ~~and~~case ~~(b) Series~~for C$10,000 ~~Warrants~~and tothe ~~purchase~~first ~~2,000,000~~installment ~~shares~~has been ofpaid ~~our~~according ~~common~~to ~~stock~~the atsettlement anagreement. ~~exercise price~~As of ~~$0.50~~December ~~for~~31, ~~net~~2014, ~~cash~~the ~~proceeds~~amount ofsettled ~~$446,250.~~has ~~The~~been ~~warrants~~accrued ~~have~~by athe ~~term~~Company ofand is ~~five~~recorded ~~years~~in accounts payable.

On ~~September~~November 255, ~~2009~~2014, weTelestrata, ~~issued~~LLC (a“Plaintiff”) filed ~~12%~~an ~~Senior~~action ~~Secured~~against ~~Convertible Debentures~~the company in the ~~aggregate~~United ~~principal~~States ~~amount~~District Court for the Southern District of $1Florida titled: Telestrata,~~100~~ LLC v. NetTAlk.com.,~~000~~ ~~with~~Inc. aet ~~maturity~~al., ~~date~~1:14-cv-24137. The Complaint makes claims derivatively on behalf of ~~July~~the ~~20,~~Company’s ~~2011~~shareholders for an injunction ordering the Company’s management to: (1) turn over to the Company all documents, ~~convertible~~data ~~into~~and ~~shares~~other ofproperty; (2) ~~common~~prohibiting current management from accessing the Company’s computer systems; (3) prohibiting current management from ~~stock~~representing atthey aare ~~conversion~~employed ~~price~~with the Company; (4) suspending Takis Kyriakides from his position as chairman of ~~$0.25~~the board of directors; and (b5) ~~Series~~ Cpreventing ~~Warrants~~the Company and its employees from disclosing any information to ~~purchase~~current ~~4,400,000~~management. ~~shares~~The Complaint also makes derivative claims for breach of ~~our~~fiduciary ~~common~~duty ~~stock~~against atcurrent anmanagement ~~exercise~~and seeks a declaratory judgment that holding ~~price~~the ofemployment ~~$0.25~~agreements ~~for~~between ~~net~~the ~~cash~~Company ~~proceeds~~and ofTakis $1Kyriakides,~~000~~ Kenneth Hosfeld,~~000.~~ ~~The~~Nick ~~warrants~~Kyriakides, ~~have~~Steven aHealy, ~~term~~and ofGarry ~~five~~Paxinos are ~~years~~void.

~~Each~~The ~~debenture~~Complaint ~~bore~~makes ~~interest~~direct atclaims against the Company and its management for: (1) a ~~rate~~declaratory judgment stating the amount of ~~12%~~shares ~~per~~owned ~~annum~~by ~~from~~current management is inaccurate; (2) an accounting; ~~the~~(3) ~~date~~breach of ~~issuance~~contract ~~until~~for ~~paid~~an inunspecified ~~full.~~amount ~~Each~~of ~~such~~damages; ~~debenture~~(4) ~~was~~fraudulent ~~exchanged~~inducement onfor ~~February~~an ~~24,~~unspecified ~~2010~~amount ~~for~~of adamages ~~new~~(5) an ~~debenture~~equitable ~~issued~~lien; and conspiracy. The Company will respond to the Complaint as required by the ~~Company~~ Court. ~~(see~~The ~~discussion~~Company ~~above)~~denies all such claims and intends to vigorously defend this action.

~~Midtown~~On ~~Partners~~January ~~& Co.~~14, ~~LLC (“Midtown Partners”)~~2015, a ~~NASD registered broker dealer, acted as~~ the ~~placement agent for the~~ Company infiled ~~connection~~a ~~with~~motion ~~the~~to ~~January 30, July 20, and September~~dismiss ~~25,~~the ~~2009~~derivative ~~Convertible~~claims ~~Debt~~based ~~Offerings~~on ~~(“2009~~Telestrata ~~Convertible~~not ~~Debt~~filing ~~Offerings”).~~a Wedemand ~~paid~~on ~~Midtown Partners cash commissions equal to $198,000 and we issued Series BD Common Stock Purchase Warrants to Midtown Partners entitling Midtown Partners to purchase 1,720,000 shares of~~ the ~~Company’s~~board ~~common stock at an initial exercise price~~ of ~~$0.50~~directors ~~per share~~ and ~~440,000~~its ~~shares~~derivative ofand ~~the Company’s~~direct ~~common stock at an initial exercise price $0.25 per share. Since the Series BD warrants offered full ratchet anti-dilution~~claims ~~protection,~~being ~~any~~in ~~previously~~conflict ~~issued and outstanding warrants~~ with aeach ~~conversion price greater than $0~~other.25 ~~automatically~~This ~~had~~motion ~~their~~is ~~conversion price~~fully ~~ratchet~~briefed ~~down~~and tooral ~~$0.25~~argument ashas ~~subsequent~~been ~~issuances~~ordered ~~were~~for ~~made~~April ~~with~~27, ~~a conversion price of $0~~2015.~~25.~~

On ~~September~~or ~~22,~~about ~~2009~~December we24, ~~voided~~2014, ~~and~~the ~~reissued~~Company ~~warrants~~filed inan ~~connection~~action ~~with~~against ~~our~~Telestrata, ~~financing~~LLC ~~transactions.~~seeking ~~The~~to ~~cancellation~~quiet title on its property and ~~reissuance~~for slander of ~~warrants~~title ~~was~~based ~~treated~~on asTelestrata placing a ~~modification~~mortgage ~~under~~on ~~ASC~~the ~~470-50~~property ~~Modifications and~~without ~~Extinguishments~~the ~~although~~Company’s authorization. Telestrata has filed a motion to consolidate this action with the ~~change~~Telestrata inDerivative ~~cash~~Litigation. ~~flow~~This ~~was~~motion ~~<10%~~is sofully ~~extinguishment~~briefed ~~accounting~~and ~~was~~the ~~not~~Company ~~applicable~~is awaiting the Court’s decision on this issue.

~~Cancelled and re-issued warrants were as follows:~~46

Original Warrants	Indexed Shares		Strike Price		Reissued Warrants	Indexed Shares		Strike Price
C-1 warrants		2,400,000	$	0.50	C-3 warrants		2,400,000	$	0.50
C-2 warrants		2,000,000	$	0.50	C-4 warrants		2,000,000	$	0.50
BD-1 warrants		480,000	$	0.50	BD-4 warrants		240,000	$	0.25
					BD-5 warrants		240,000	$	0.50
BD-2 warrants		400,000	$	0.50	BD-6 warrants		200,000	$	0.25
					BD-7 warrants		200,000	$	0.50
BD-3 warrants		200,000	$	0.50	BD-8 warrants		200,000	$	0.25
BD-4 warrants		200,000	$	0.50	BD-9 warrants		200,000	$	0.50

We are aggressively defending all of the lawsuits and claims described above. While we do not believe these aforementioned claims will have a material adverse effect on our financial position, given the uncertainty and unpredictability of litigation there can be no assurance of no material adverse effect. The Company is engaged in other legal actions and claims arising in the ordinary course of business, none of which are believed to be material to the Company.

52Note 13 - Related Parties

~~Accounting~~During ~~for~~2014, the ~~Financing~~CEO ~~Arrangements:~~(and shareholder) loaned the Company $575,000 in non-interest bearing demand notes of which $400,000 was repaid to the CEO as of December 31, 2014. Additionally, the CEO was repaid $87,583 in back-pay that was accrued in 2013 and the Company accrued $75,000 relating to the voluntary reduction in the CEO’s cash compensation. As of December 31, 2014, the amount due to the CEO was $250,912. During 2013, amounts totaling $137,185 were advanced to the Company as a short term loan from the CEO. As of December 31, 2013, all loans from the CEO have been repaid by the Company.

WeDuring ~~have evaluated~~ the ~~terms~~year ~~and~~ended ~~conditions~~December of31, ~~the secured convertible~~2013 ~~debentures under~~ the ~~guidance~~Company ofincurred ~~ASC 815, Derivatives~~ and ~~Hedging.~~paid Weconsulting ~~have~~service ~~determined~~fees ~~that, while the anti-dilution protections preclude treatment~~ of ~~the embedded conversion option as conventional~~$62,100 ~~the~~to ~~conversion option is exempt from classification as~~ a ~~derivative~~ because it otherwise achieves the conditions for equity classification (if freestanding) provided in ASC 815. We have further determined that the default redemption features described above are not exempt for treatment as derivative financial instruments, because they are not clearly and closely related ~~in terms of risk to the host debt agreement~~party. On the inception date of the arrangements through June 30, 2010, we determined that the fair value of these compound derivatives is de minus. However, we are required to re-evaluate this value at each reporting date and record changes in its fair value, if any, in income. For purposes of determining the fair value of the compound derivative, we have evaluated multiple, probability-weighted cash flow scenarios. These cash flow scenarios include, and will continue to include fair value information about

~~our~~Iristel, ~~common stock~~Inc. ~~Accordingly~~(“Iristel”), ~~fluctuations~~a invendor ~~our~~that ~~common stock~~previously ~~value~~provided ~~will~~a ~~significantly~~significant ~~influence~~portion ~~the~~of ~~future~~netTALK’s ~~outcomes~~telecom ~~from~~service ~~applying~~in ~~this~~2013 ~~technique.~~and ~~As discussed above~~2014, ~~the~~is ~~embedded~~owned ~~conversion options~~by ~~did~~Samer ~~not require treatment as derivative financial instruments; however~~Bishay, wewho ~~were~~was ~~required to evaluate the feature as embodying~~President ~~a beneficial conversion feature under ASC 470-20, Debt with Conversion~~ and ~~Other~~member ~~Options.~~of ~~A beneficial conversion feature (“BCF”) is present when~~ the ~~fair~~board ~~value~~ of ~~the~~directors ~~underlying common share exceeds the effective conversion price~~ of ~~the~~NetTalk.com, ~~conversion option~~Inc. ~~The~~ ~~effective~~until ~~conversion~~removed ~~price~~from ~~is calculated as~~ the ~~basis~~board inof ~~the~~directors ~~financing arrangement allocated to the hybrid convertible debt agreement, divided~~ by ~~the~~a ~~number~~majority of ~~shares into which~~ the ~~instrument~~Company’s shareholders ison ~~indexed.~~November ~~Because the two hybrid debt contracts dated September 10~~26, ~~2008~~2014. ~~were~~Mr. ~~issued~~Bishay asalso ~~compensation~~owns ~~for the Interlink Asset Group~~ and asor ~~further~~controls ~~discussed~~Telestrata, inLLC Note 3 we concluded that they should be combined for accounting purposes and the accounting resulted in no beneficial conversion feature. The financings issued in 2009 were found to have a BCF which gives effect to the (i“Telestrata”), ~~the~~a ~~trading~~debt ~~market price on the contract dates~~ and ~~(ii) the effective conversion~~ ~~price~~equity ofholder ~~each issuance after allocation~~ of ~~proceeds to all financial instruments sold based upon their relative fair values~~NetTalk.com, ~~Notwithstanding~~Inc., ~~the~~ ~~BCF~~a ~~was~~significant ~~limited~~portion toof ~~the~~which ~~value~~debt ~~ascribed~~and toequity ~~the~~was ~~remaining~~issued ~~hybrid~~in ~~contract~~full ~~(using~~settlement ~~the~~of ~~relative~~amounts ~~fair value approach). Accordingly,~~due ~~the BCF allocated~~ to ~~paid-in capital from the 2009 financings amounted to $872,320 for the year ended September 30, 2009~~Iristel.

WeOn ~~evaluated~~October ~~the~~10, ~~terms~~2014, ~~and~~Mr. ~~conditions~~Bishay ofcaused ~~the~~Iristel ~~Series~~to ~~B, Series~~terminate Call ~~and~~its ~~Series~~contracts BDwith ~~warrants~~NetTalk.com, ~~under~~Inc. ~~the~~On ~~guidance~~October of17, ~~ASC 480~~2014, ~~Distinguishing Liabilities from Equity (“ASC 480”)~~Mr. ~~The~~Bishay, ~~warrants embody~~purporting ato ~~fundamental~~act ~~change-in-control~~as ~~redemption~~President ~~privilege wherein the holder may redeem the warrants in the event~~ of aNetTalk.com, ~~change~~Inc., inattempted ~~control~~to ~~for~~cause aNetTalk.com, ~~share of assets or consideration received in such a contingent event~~Inc. ~~This~~to ~~redemption~~reinstate ~~feature~~one ~~places the warrants within the scope~~ of ~~ASC~~its ~~480-10,~~contracts aswith ~~put warrants and~~Iristel, ~~accordingly,~~which ~~they~~he ~~are~~had ~~classified~~previously incaused ~~liabilities~~Iristel ~~and measured at inception~~to ~~and on an ongoing basis at fair value~~terminate. ~~Fair~~The ~~value~~Company ofcontinues ~~the warrants was measured using the Black-Scholes-Merton valuation technique and in applying this technique we were required~~ to ~~develop~~deny ~~certain~~that ~~subjective~~that ~~assumptions~~reinstatement ~~which~~was ~~are listed in more detail below~~effective.

~~Premiums~~On onor ~~the~~about ~~secured~~October ~~convertible~~24, ~~debentures~~2014, ~~arose~~Mr. ~~from~~Bishay, ~~initial recognition~~despite atbeing ~~fair value~~obviously conflicted, ~~which~~despite isacting ~~higher~~without ~~than~~authorization ~~face~~and ~~value.~~against ~~Discounts~~the ~~arose~~wishes ~~from~~of ~~initial~~the ~~recognition~~board atof ~~fair value~~directors, ~~which~~and isdespite ~~lower than~~the ~~face~~absence ~~value.~~of ~~Premiums~~the Company ~~and~~seal, ~~discounts~~filed ~~are~~an ~~amortized~~unauthorized ~~through~~mortgage ~~credits~~on ~~and~~certain ~~debits~~real toproperty ~~interest~~of ~~expense~~the ~~over~~Company, ~~the~~in ~~term~~favor of ~~the~~Telestrata, ~~debt~~which he owns and ~~agreement~~or controls. The Company is continuing to dispute that mortgage.

~~Direct~~On ~~financing~~November ~~costs~~5, ~~were~~2014, ~~allocated~~Telestrata tofiled ~~the~~an ~~financial~~action ~~instruments issued~~against ~~(hybrid debt and warrants) based upon their relative fair values. Amounts related to~~ the ~~hybrid debt are recorded as deferred~~ ~~finance~~company ~~costs~~in ~~and~~the ~~amortized~~United ~~through~~States ~~charges~~District toCourt ~~interest~~for ~~expense over~~ the ~~term~~Southern District of ~~the~~Florida ~~arrangement~~titled: ~~using~~Telestrata, ~~the~~LLC ~~effective~~v. ~~interest~~NetTalk.com., ~~method~~Inc. ~~Amounts~~et ~~related to the warrants were charged directly to income because the warrants were classified in liabilities~~al., ~~rather than equity, as described above~~1:14-cv-24137. ~~Direct~~See ~~financing~~footnote ~~costs~~12 ~~are~~for ~~amortized~~further ~~through charges to interest expense over the term of the debt agreement~~discussion.

~~Note~~As 7a –continuation ~~Redeemable~~of ~~Preferred~~these ongoing attempts to tortiously damage ~~Stock~~the Company and ~~Stock~~its ~~Option~~shareholders, ~~Agreement:~~Mr. Bishay, through Iristel and Telestrata, is attempting to overstate, or completely misstate, the amounts owed by the Company. The Company has accrued and recorded the amounts it believes are owed to Iristel. The Company completely denies the validity of any such claims, and intends to vigorously pursue Iristel, Telestrata and Mr. Bishay for the damage any such misstatements may cause.

~~Securities~~The ~~Option~~Chief ~~Agreement:~~Operating Officer is related to the CEO and was promoted to COO January 1, 2014 by the Board of Directors.

OnPhoenix ~~June~~Vitae 30Holdings, ~~2012,~~LLC ~~we executed Securities~~(“PV”), ~~Option~~which ~~Agreement~~is ~~with~~owned ~~Vicis~~by ~~Capital~~the ~~Master~~CEO ~~Fund~~of ~~(“Vicis”)~~the ~~whereby~~Company, ~~Vicis~~purchased ~~grants~~the us6%, an$3,000,000 ~~option~~secured topromissory ~~purchase~~note ~~and~~from ~~redeem all~~Vicis ~~securities~~Capital ~~and~~Master ~~debentures~~Fund ~~then~~on July ~~held~~7, ~~by Vicis~~2014. The ~~option~~parties ~~becomes~~executed ~~exercisable~~a onnote ~~the~~amendment ~~date~~agreement ~~that~~September ~~all~~1, ~~principal~~2014 ~~and~~whereby ~~accrued~~the ~~interest on~~note ~~all~~is ~~debentures~~due ~~has~~on ~~been~~demand ~~paid in full,~~ and ~~may~~interest is beaccruing ~~exercised~~ at ~~any~~12% ~~time~~annually. ~~after~~See ~~initial~~footnote ~~exercise~~8 ~~date~~for ~~through~~further ~~and~~discussion ~~including~~on ~~December 31,~~the ~~2013~~note ~~(expiration~~and ~~date)~~terms.

Upon exercise of the “option” the redemption price for the securities shall be an amount equal to $16,000,000 minus the sum of principal and accrued interest paid on all debentures then outstanding.47

InNote ~~addition,~~14 ~~upon~~– ~~exercise~~Income ~~of the option, any and all unpaid dividends on the securities shall be surrendered and cancelled without payment of additional consideration.~~Taxes

53Income tax provision consisted of the following at:

Redeemable preferred stock consists of the following as of:	December 31, 2012			December 31, 2011
	December 31,
Series A Convertible Preferred Stock, par value $0.001 per share, stated value $10,000 per share; 500 shares issued and outstanding at December 31, 2012; redemption value $5,000,000, and 500 shares issued and outstanding at December 31, 2011; redemption value $5,000,000.
	2014			2013
Initial carrying value	$	13,246,609		$	13,246,609
Federal statutory rate		34.0	%		34.0	%
Accumulated accretion		(6,867,593	)		(2,863,652	)
State rate, net of federal benefit		3.6	%		3.6	%
Carrying values	$	6,379,016		$	10,382,957
Derivative income		0.0	%		0.0	%
Change in valuation allowance		(37.6	)%		(37.6	)%
Effective tax rate		0.0	%		0.0	%

~~Our~~Deferred ~~Series~~tax Aassets ~~Convertible~~and ~~Preferred~~liabilities ~~Stock~~reflects ~~became~~the ~~mandatorily redeemable~~net ~~for~~tax ~~cash~~ effect of ~~$5,000,000~~temporary ondifferences ~~June~~between ~~30, 2011. On that date, after negotiations with our preferred investors, we modified~~ the ~~underlying~~carrying ~~Certificate~~amount of ~~Designation~~assets ~~solely to extend the mandatory redemption date to July 1, 2013 (extended to December 31, 2013). In considering all facts~~ and ~~circumstances,~~liabilities ~~including~~for ~~the~~financial ~~changes~~reporting inpurposes ~~future cash flows~~ and ~~the~~amounts ~~fair value of the embedded~~used ~~conversion feature, we concluded that the modification to the Series A Convertible Preferred Stock was substantial, thus warranting accounting analogous to extinguishment accounting~~ for ~~debt~~income ~~wherein~~tax ~~the fair value of the amended contracts replace the carrying value of the original contracts~~purposes. ~~The~~Significant ~~difference~~components ~~between those two amounts in the case~~ of ~~preferred~~our ~~stock~~deferred istaxes ~~recorded~~are inas ~~stockholders equity.~~follows:

We first accreted the Series A Convertible to the June 30, 2011 redemption date with a charge to paid-in capital (in the absence of accumulated earning) in the amount of $2,442,686. The accretion adjustment resulted in a carrying value of our redeemable preferred stock in the amount of $5,000,000. We then adjusted the compound embedded derivative that had been carried in liabilities at fair value on the modification date, which resulted in a reduction credit of $2,500,000 and was recorded in income. The derivative fair value adjustment resulted in a carrying value of $8,800,000. Therefore, the combined carrying value of the Series A Convertible Preferred immediately preceding the modification amounted to $13,800,000. We computed the fair value using a combination of the forward cash flow, at risk adjusted discount rates, plus the fair value of the embedded conversion feature using Monte Carlo Simulation (“MCS”) techniques. The value of the preferred stock on this basis amounted to $13,246,609. As a result, our calculation of the extinguishment resulted in a credit to paid-in capital in the amount of $553,391.

	December 31,
	2014			2013
Property and fixed assets		(84,432	)		(27,090	)
Reserves and accruals		11,208			8,554
Net operating loss carry forwards		8,106,367			3,421,711
		8,033,143			3,403,175
Valuation allowance		(8,033,143	)		(3,403,175	)
Net deferred taxes, after valuation allowance		-			-

~~The~~Our ~~discount~~valuation ~~rate~~allowance ~~that~~increased ~~we used to present value future cash flows from the modified preferred stock amounted to 7.75%. This rate was developed using bond curves for companies with similar high-risk credit ratings~~$629,968 ~~plus~~during ~~a risk free rate of 0.50% representing~~ the ~~yield on zero coupon government securities with two year~~ ~~remaining~~period ~~terms.~~ended ~~Material~~December ~~inputs into the MCS included volatilities ranging from 89.9% to 105.3%~~31, ~~a market interest rate equal to the contractual coupon of 12%, and credit adjusted yields ranging from 7~~2014.~~19% to 7.75%.~~

OnBased ~~February~~on ~~24,~~our ~~2010,~~prior weearnings ~~designated~~and ~~500~~insufficiency ~~shares~~ of ~~our authorized~~income ~~preferred~~to ~~stock~~be asutilized ~~Series~~in Acarry ~~Convertible~~back ~~Preferred~~years ~~Stock;~~and ~~par~~future ~~value~~taxable ~~$0.001 per share~~income, we ~~stated~~have ~~value~~concluded ~~$10,000~~that ~~per~~it ~~share (“Preferred Stock”). The Preferred Stock~~ is ~~redeemable~~more ~~for~~likely ~~cash~~than onnot ~~June~~that these ~~30,~~net ~~2011~~deferred attax ~~the~~assets ~~stated~~will ~~value,~~not ~~plus~~be ~~accrued and unpaid dividends~~utilized. ~~Dividends~~ ~~accrue~~Therefore, ~~whether~~a orvaluation ~~not~~allowance ~~declared,~~has atbeen aset ~~rate~~up ofto ~~12%~~reduce ofdeferred ~~the~~tax assets ~~stated~~to ~~value~~zero. ~~The~~As ~~Preferred~~of ~~Stock~~December is31, ~~convertible~~2014, ~~into~~we ~~common stock~~have atan ~~the~~estimated ~~holder’s~~net ~~option~~operating atloss ~~$0.25~~carry ~~based~~forwards ~~upon~~amounting ~~the~~to ~~stated value (20~~$39,~~000~~500,000 ~~linked common shares). Such conversion rate~~that isare available, subject to ~~adjustment~~limitations, ~~for~~to ~~traditional~~offset ~~reorganizations~~future ~~and~~taxable ~~recapitalization~~income ~~and~~through ~~in the event that we sell common stock or other equity-linked instruments below the conversion price~~2032. ~~Holders~~The ofcompany ~~the~~is ~~Preferred~~also ~~Stock~~not ~~are~~taking ~~entitled to a preference equal to the~~any ~~stated~~uncertain ~~value,~~tax ~~plus~~position ~~accrued~~in ~~and unpaid dividends. While~~ the ~~Preferred~~calculation ~~Stock~~of iscurrent ~~outstanding,~~or ~~holders~~deferred ~~vote the number of indexed common shares~~taxes.

WeThe ~~sold~~company ~~300~~files ~~shares~~income tax returns for United States Federal taxes and State of ~~Series~~Florida Atax ~~Preferred~~purposes. onThe ~~February~~company ~~24,~~is ~~2010, with~~not ~~warrants~~currently tounder ~~purchase~~any 12tax examination,~~000,000~~ ~~shares~~but the statute of ~~our~~limitations has ~~common~~not ~~stock~~yet ~~for~~expired. ~~proceeds~~The ofcompany ~~$3,000,000.~~generally Weremains ~~sold~~subject ~~200~~to ~~shares~~examination of ~~Series~~its AFederal ~~Preferred~~income tax returns for 2011 and subsequent onyears ~~October~~as ~~25,~~the ~~2010,~~Internal ~~with~~Revenue ~~warrants~~Service has a three year window to ~~purchase~~assess/collect 8taxes. In addition,~~000,000~~ ~~shares~~the company also remains subject to examination of ~~our~~its ~~common~~State ~~stock~~of Florida tax returns for ~~proceeds~~2011 ofand ~~$2,000,000~~subsequent years.

~~Our~~Note ~~accounting~~15 ~~for~~– ~~the~~Subsequent Preferred Stock and warrant financing transaction required us to evaluate the classification of the embedded conversion feature and the warrants. As a prerequisite to establishing the classification of the embedded conversion option, we were required to determine the nature of the hybrid Preferred Stock contract based upon its risks as either a debt-type or equity-type contract. The presence of the mandatory cash redemption and the requirement to accrue dividends were persuasive evidence that the Preferred Stock was more akin to a debt than an equity contract, with insufficient evidence to the contrary (e.g. voting privilege). Given that the embedded conversion feature, when evaluated as embodied in a debt-type contract, did not meet the definition for an instrument indexed to a company’s own stock, the embedded conversion feature required bifurcation and classification in liabilities, at fair value. Similarly, the warrants did not meet the definition for an instrument indexed to a company’s own stock, resulting in their classification in liabilities, at fair value.Events

54On January 2, 2015, the Company repaid the CEO a short term loan of $175,000. On February 9, 2015, the Company issued 1,409,456 shares of common stock in exchange for professional fees. On March 2, 2015, the due date of the mortgage note payable of $1,400,000 was extended to November 29, 2015.

~~The~~On ~~following~~March ~~table~~27, ~~reflects~~2015, the ~~allocation of~~Company was upgraded to the ~~purchase~~OTCQB ~~price~~venture stage onmarketplace ~~the~~for ~~financing~~early ~~date:~~stage and developing U.S. and international companies. The Company settled its dispute with two vendors in March 2015.

Allocation:	October 25, 2010		February 24, 2010
Redeemable preferred Stock	$	624,000	$	—
Warrants		936,000		5,062,800
Compound embedded derivative		440,000		4,260,000
Derivative loss, included in derivative income (expense)		—		(6,322,800	)
	$	2,000,000	$	3,000,000

Warrants issued with the February 24, 2010 financing were valued on the financing date using the Black-Scholes-Merton valuation technique. Significant assumptions were as follows: Market value of underlying, using the trading market of $0.58; expected term, using the contractual term of 5.0 years; market volatility, using a peer group of 90.20%; and, risk free rate, using the yield on zero coupon government instruments of 2.40%. Warrants issued with the October 25, 2010 financing were valued on the financing date and subsequently using Binomial Lattice. Significant assumptions were as follows: Market value of the underlying, using the trading market of $0.26; market volatility, using a peer group ranged from 76.06% to 99.78% with an equivalent volatility of 89.40%; and risk free rate using the yield on zero coupon government instruments ranging from 0.12% to 2.01% with an equivalent rate of 0.66%. The implied expected life of the warrant is 4.7 years.

The compound embedded derivative was valued using the Monte Carlo Simulations (“MCS”) technique. The MSC technique is a generally accepted valuation technique for valuing embedded conversion features in hybrid convertible notes, because it is an open-ended valuation model that embodies all significant assumption types, and ranges of assumption inputs that management of the Company believe would likely be considered in connection with the arms-length negotiation related to the transference of the instrument by market participants. However, there may be other circumstances or considerations, other than those addressed herein, that relate to both internal and external factors that would be considered by market participants as it relates specifically to the Company and the subject financial instruments.

Given its redeemable nature, we are required to classify our Series A Preferred Stock outside of stockholders’ equity. Further, the inception date carrying value is subject to accretion to its ultimate redemption value over the term to redemption, using the effective method. During the period from its issuance to September 30, 2010, we accreted $224,969, which was reflected as a charge to paid-in capital in the absence of accumulated earnings.

Note 8 – Derivative Financial Instruments:

On June 30, 2011, our investors agreed to modifications of our Series A Preferred Stock and our Series D Warrants that provided for reclassification of the derivatives to stockholder’s equity or, in the case of the preferred stock, redeemable preferred stock. The components of our derivative liabilities consisted of the following at June 29, 2011 (the last closing prices available prior to the modifications) and September 30, 2010:

	June 29, 2011
Derivative Financial Instrument	Indexed Shares		Fair Value		September 30 2010
Compound Derivative Financial Instruments:
February 24, 2010 Secured Convertible Debentures		19,995,092	$	8,797,840	$	2,276,794
February 24, 2010 Series A Convertible Preferred Stock		12,000,000		5,280,000		1,404,000
October 24, 2010 Series A Convertible Preferred Stock		8,000,000		3,520,000		—
February 24, 2010 Series D warrants, issued with the preferred financing (Note 7)		12,000,000		2,064,000		858,000
February 24, 2010 Series D warrants, issued with the exchange (Note 7)		16,800,000		2,889,600		1,201,200
October 25, 2010 Series D warrants, issued with the financing (Note 7)		8,000,000		1,736,000		—
Financing warrants issued to brokers		2,160,000		—		165,628
Total		78,955,092	$	24,287,440	$	5,905,622

On January 11, 2011, certain warrants previously issued to brokers and that were linked to 2,160,000 shares of our common stock were modified to remove provisions that could result in adjustments to the exercise prices if we sold common shares or common share linked contracts at a per share price that was less than the exercise price of these warrants. As a result of this modification, these warrants no longer require liability classification and measurement at fair value. On the modification date we adjusted these warrants to their fair values with a charge to income and reclassified the balance, amounting to $274,200 to paid-in capital. On June 30, 2011, warrants linked to 36,800,000 shares of our common stock were modified to remove provisions that could result in adjustments to the exercise prices if we sold common shares or common share linked contracts at a per share price that was less than the exercise price of these warrants. As a result of this modification, these warrants no longer require liability classification and measurement at fair value. On the modification date we adjusted these warrants to their fair values with a charge to income and reclassified the balance, amounting to $6,689,600 to paid-in capital.

The following table reflects the activity in our derivative liability balances from October 1, 2010 to December 31, 2011:

	Compound			Warrants			Total
Balances at October 1, 2010	$	3,680,794		$	2,224,828		$	5,905,622
Issuances		936,000			440,000			1,376,000
Conversion and redemption		—			—			—
Unrealized derivative (gains) losses		618,764			(512,988	)		105,776
Balances at December 31, 2010		5,235,558			2,151,840			7,387,398
Reclassifications		—			(274,200	)		(274,200	)
Unrealized derivative (gains) losses		17,376,491			4,883,960			22,260,451
Balances at March 31, 2011		22,612,049			6,761,600			29,373,649
Conversion and redemption		(8,797,840	)		—			(8,797,840	)
Reclassifications		(8,800,000	)		(6,689,600	)		(15,489,600	)
Unrealized derivative (gains) losses		(5,014,209	)		(72,000	)		(5,086,209	)
Balances at December 31, 2011	$	—		$	—		$	—

Effective on January 1, 2011, we changed our method for valuing our derivative warrants from a Black-Scholes Merton Model, adjusted to give effect to the anti-dilution features (the Noreen Wolfson Model) to Binomial Lattice. Binomial Lattice was considered by our management to be more appropriate because it both provides for early exercise scenarios and incorporates the down-round anti-dilution protection possibilities that could arise in early exercise scenarios.

The following table reflects the activity in our derivative liability balances from October 1, 2009 to December 31, 2012:

	Compound			Warrants			Total
Balances at October 1, 2009	$	—		$	1,327,272		$	1,327,272
Accounting change		1,865,600			—			1,865,600
Effect of exchange transaction		1,158,382			—			1,158,382
Issuances		4,260,000			5,062,800			9,322,800
Conversion and redemption		—			—			—
Unrealized derivative (gains) losses		(3,603,188	)		(4,165,244	)		(7,768,432	)
Balances at December 31, 2012	$	3,680,794		$	2,224,828		$	5,905,622

Effective on October 1, 2009, we adopted Emerging Issues Task Force Consensus No. 07-05 Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF 07-05”). EITF 07-05 amended previous guidance related to the determination of whether equity-linked contracts, such as our convertible debentures, meet the exclusion to bifurcation and derivative classification of the respective embedded conversion feature. Under EITF 07-05, the embedded conversion option was no longer exempt from bifurcation and derivative classification because the conversion option was subject to adjustments that are not allowable under the new standard. We have accounted for the change as a change in accounting principle where the derivative liability in the amount of $1,865,600 was established and the cumulative effect, which amounted to $872,319, was charged to our opening accumulated deficit on October 1, 2009.

As more fully discussed in Note 6, on February 24, 2010, we exchanged our convertible debentures for newly issued convertible debentures. This amount represents the change in the fair value of the compound embedded derivatives between the old and new debentures, which in part arose from the capitalization of accrued interest and in part arose from other changes to the debentures. As further noted in Note 6, the exchange transaction gave rise to the extinguishment of the old debentures, and therefore the compound derivative, due to the substantive nature of these changes. Since an extinguishment is recorded by replacing the carrying value of the old debentures with the fair value of the new debentures, with a charge to expense for the difference, this amount is included in the extinguishment loss that we recorded in connection with the exchange.

Fair Value Considerations

We adopted the provisions of ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) with respect to our financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments which are required to be measured at fair value on a recurring basis under of ASC 815 are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because we believe that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving such types of derivatives while the financial instruments were outstanding. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk free rates. On June 29, 2011, we valued the compound embedded derivatives at intrinsic value since there was no or no material remaining time value associated with mature or near mature financial instruments.

	June 29,		September 30,	June 30,
	2011		2010	2010
Quoted market price of our common stock	$	0.69	$0.25	$0.18
Contractual conversion rate	$	0.25	$0.25	$0.25
Implied expected term (years)		NA	0.59—0.92	0.96—1.18
Market volatility:
Range of volatilities		NA	134%-160%	113%-127%
Equivalent volatility		NA	145%—152%	118%-125%
Market-risk adjusted interest rate:
Range of rates		NA	12.0%	12.0%
Equivalent market-risk adjusted interest rate		NA	12.0%	12.0%
Credit-risk adjusted yield rate:
Range of rates		NA	7.5%-8.0%	8.0%-8.8%
Equivalent credit-risk adjusted yield rate		NA	7.7%	8.4%
Risk-free rates using yields on zero coupon US Treasury Security rates:
Range of rates		NA	0.27%-0.64%	0.32%-1.00%

The warrants are valued using the Binomial Lattice Valuation technique on June 30, 2011 and Black-Scholes-Merton (“BSM”) valuation methodology on September 30, 2010, adjusted to give effect to the anti-dilution features, because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions were as follows as of June 30, 2011 and September 30, 2010:

June 29, 2011 (Assumptions for	Series D	BD	BD
BD Warrants are January 11, 2011)	Warrants	Warrants	Warrants
Contractual strike price	$0.50	—	—
Adjusted strike price (for anti-dilution)	$0.69	—	—
Term to expiration	3.6-4.3	—	—
Implied expected life	3.6-4.3	—	—
Volatility range	94%-114%	—	—
Effective volatility	107%-107%	—	—
Risk-free rate ranges	0.02%-1.47%	—	—
Effective risk free rates	0.42%-0.51%	—	—

September 30, 2010	Series D Warrants			BD Warrants	BD Warrants
Contractual strike price	$	0.50		$0.25	$0.50
Adjusted strike price	$	0.43		$0.23	$0.43
Volatility		107.9	%	111.5%-116.7%	111.5%-116.7%
Term to expiration		4.40		3.33—4.00	3.33—4.00
Risk-free rate		1.27		0.64-1.27	0.64-1.27
Dividends		—		—	—

Note 9 – Commitment and Contingencies:

On May 16, 2011, we executed an Amended Employment Agreement with Mr. Kyriakides our Chief Executive Officer and President as follows:

Salary set at $199,000 per year and $250,000 starting on January 1, 2012.

Three year term with automatic renewal of two years.

Change of control cash payment set at $1,500,000

On April 4, 2012, MagicJack Vocaltec Ltd. filed a complaint in United States District Court For the Southern District of Florida, Civil Action No.: 9:12-cv-80360-DMM, against the Company, alleging patent infringement, seeking injunctive relief and damages as a result of the alleged patent infringement. The Company answered the complaint, denying all of its material allegations, asserting a number of affirmative defenses, and seeking counterclaims for declaratory relief. The Company’s patent counsel has provided an opinion that the NetTalk DUO does not infringe their patent. MagicJack Vocaltec Ltd. and NetTalk filed a Joint Stipulation and motion for the dismissal. Effective November 2012, the federal court has dismissed the entire case with prejudice, including all claims, counterclaims, defenses and causes of action.

On September 21, 2012, NetTalk.com, Inc. filed a complaint in United States District Court For the Southern District of Florida, Civil Action No.: 9:12-cv-81022-CIV-MIDDLEBROOK/BRANNON, against MAGICJACK VOCALTECLTD, MAGIJACK HOLDINGS CORPORATION f/k/a YMAX HOLDINGS CORPORATION and DANIEL BORISLOW, In the complaint, we allege patent infringement by the defendants, seeking injunctive relief and damages as a result of the alleged patent infringement by defendants.

On September 14, 2012, a supplier filed a complaint in the United States District Court for the Southern District of Florida, Case No.: 1:12-cv-23366-FAM, alleging breach of contract by the Company and seeking damages of not less than $473,319 due to such alleged breach. The supplier alleges in the complaint that Net Talk failed to pay for component parts manufactured for the Company’s products. The Company filed an answer to the complaint denying the supplier’s allegations and asserting affirmative defenses.

NetTalk reached a settlement with the supplier and as of December 31, 2012 we are in full compliance with said settlement.

On November 26, 2012, a supplier to the Client, Broadvox, LLC (“Broadvox”), filed a complaint in the Court of Common Pleas, Cuyahoga County, Ohio, Case No.: CV-12-796095, alleging breach of contract by the Company and seeking damages of not less than $111,701 due to such alleged breach. The Company and Broadvox entered into a settlement agreement providing for the payment of all past due amounts.

A Statement of Claim was served by DACS Marketing & Sponsorship Inc. on NetTalk.com Inc. on June 20, 2012. The claim is for $125,834.21 for amounts DACS claims is owing to it pursuant to its agreement as well as $126,000 for general damages for breach of contract.

A Statement of Defence was delivered on August 31, 2012, denying all claims.

The following offers to settle have been made by the parties but to date, the parties have not accepted any proposed offers:

1. November 7, 2012, NetTalk offered to settle the action by payment to DACS of $5,000.

2. December 18, 2012, DACS offered to settle the action by NetTalk paying to DACS the sum of $85,000.

3. December 27, 2012, NetTalk offered to settle the action by payment to DACS of $10,000.

To date, we have heard nothing further from the lawyer for DACS.

Note 10 - Related party:

During the year ended December 31, 2012 we incurred and paid consulting service fees of $62,100 to a related party.

Note 11 – Income taxes:

Our income tax provision (benefit) for the year ended December 31, 2012, three months ended December 31, 2011 and fiscal years ended September 30, 2011 and 2011 consisted of the following:

Our effective tax rate differs from statutory rates, as follows:

	12/31/2012			12/31/2011			09/30/2011			09/30/2010
Federal statutory rate		34.0	%		34.0	%		34.0	%		34.0	%
State rate, net of federal benefit		3.6	%		3.6	%		3.6	%		3.6	%
Derivative income		0.0	%		4.3	%		4.3	%		4.3	%
Change in valuation allowance		(37.6	)%		(41.9	)%		(41.9	)%		(41.9	)%
Effective tax rate		0.0	%		0.0	%		0.0	%		0.0	%

Deferred tax assets and (liabilities) reflects the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of our deferred taxes are as follows:

	12/31/2012			12/31/2011			09/30/2011			09/30/2010
Property and fixed assets	$	(58,032	)	$	(34,102	)	$	(37,723	)	$	(62,704	)
Reserves and accruals		8,554			8,554			8,554			8,554
Net operating loss carry forwards		12,355,046			7,069,018			5,786,123			2,902,843
		12,305,568			7,043,470			5,756,954			2,848,693
Valuation allowance		(12,305,568	)		(7,043,470	)		(5,756,954	)	$	(2,848,693	)
Net deferred taxes, after valuation allowance	$	-		$	-		$	-		$	-

Our valuation allowance increased $5, 262,098 and $1,286,506 during the period ended December 31, 2012 and December 31, 2011, respectively.

Based on our prior earnings and insufficiency of income to be utilized in carry back years and future taxable income, we have concluded that it is more likely than not that these net deferred tax assets will not be utilized. Therefore, a valuation allowance has been set up to reduce deferred tax assets to zero. As of December 31, 2012, we have net operating loss carry forwards amounting to $35,490,620 that are available, subject to limitations, to offset future taxable income through 2031. The company is also not taking any uncertain tax position in the calculation of current or deferred taxes.

The Company files income tax returns for U. S. Federal and State of Florida purposes. The Company is not currently under any tax examination, but the statute of limitations has not yet expired. The company generally remains subject to examination of its U. S. Federal income tax returns for 2009 and subsequent years as the Internal Revenue Service has a three year window to assess/collect taxes. In addition, the company also remains subject to examination of its State of Florida tax returns for 2009 and subsequent years.

Note 12 – Subsequent Events:

On January 11, 2013, we received an additional advance of $400,000 pursuant to the existing lending facility with 1080 NW 163rd Drive, LLC. The additional advance of $400,000 was endorsed by a promissory note which was consolidated with the initial advance of $1,000,000 from the mortgage on 1080 NW 163rd Drive, LLC. The consolidated promissory mortgage note has an aggregate principal balance of $1,400,000, accrues interest at 12% per annum, is payable in full on November 29, 2014, and is secured by our corporate office building, located at 1080 NW 163rd Drive, Miami Gardens, FL 33169.

On February 15, 2013 and April 10, 2013 we received additional advances of $100,000 and $75,000 from 1080 NW 163rd Drive, LLC. These advances are not evidenced by a formal promissory note. The additional advances of $100,000 and $75,000 accrue interest at 8% per year, and were payable in full on June 9, 2013. These notes are now in default.

On February 19, 2013, August 9, 2013, August 14, 2013 and September 3, 2013, the Company’s CEO advanced the Company $25,000, $5,000, $20,000 and $25,000 respectively. These advances are not evidenced by a formal promissory note. These advances were for working capital and bear no interest and are due on demand.

On April 22, 2013 and May 3, 2013 we received advances from Vicis in the amount of $50,000 and $25,000, respectively, both due on demand. These advances are not evidenced by a formal promissory note.

On May 31, 2013, we issued a $300,000 face value, 5% Secured Convertible Promissory Note, due December 1, 2013. This note is convertible into shares of the Company’s common stock at a rate of $0.08 per share, for a total of 3,750,000 common shares. This note has a second priority security interest, junior in priority only to the holder of the first priority interest, to all real property of the Company and any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefore or for any right to payment.

On July 15, 2013, we issued a $200,000 face value, 5% Secured Convertible Promissory Note, due January 15, 2014. This note is convertible into shares of the Company’s common stock at a rate of $0.08 per share, for a total of 2,500,000 common shares. This note has a second priority security interest, junior in priority only to the holder of the first priority interest, to all real property of the Company and any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment.

On July 7, 2013, August 9, 2013, August 9, 2013, August 15, 2013 and August 22, 2013 we received $111,000, $111,000, $55,000, $75,000 and $125,000 respectively, for working capital from an outside party. These notes are due on demand and carry a 0% interest rate. Interest will be imputed on these notes at current market rates.

Filing Compare · NET TALK.COM, INC.