UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q





(Mark
One)


[X]
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(D) OF THESECURITIES
      EXCHANGE ACT OF 1934.





For the
quarterly period ended May 31, 2009.





[  
      ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(D) OF THESECURITIES
      EXCHANGE ACT OF 1934.





For the
transition period fromto.





Commission
file number 0-4465





Pervasip
Corp.





(Exact
name of registrant as specified in its charter)





New
      York
                    13-2511270(State
      or other jurisdiction
                    (I.R.S.
      Employerof
      incorporation or organization)
                    Identification
      No.)


75
      South Broadway, Suite 400, White Plains, New York
                    10601(Address
      of principal executive offices)
                    (Zip
      Code)







Registrant’s
telephone number, including area code:914-620-1500


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





Indicate by check whether the
registrant (1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities and 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 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. (Check one):




Large Accelerated
      Filero
                Non-Accelerated FileroAccelerated
      Filero
                Smaller Reporting Companyx





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes__  NoX




State the number of shares outstanding
of each of the issuer’s classes of common equity as of the latest practicable
date:  26,577,379 shares of common
stock, par value $.10 per share, as of June 30, 2009.









PART 1. FINANCIAL
INFORMATION
 Item
1.  Financial
Statements
  Pervasip
Corp. and Subsidiaries
 Condensed
Consolidated Balance Sheets
  May
      31, 2009
                                      
                                      
                                      Nov.
      30, 2008Assets
                                      
                                      (Unaudited)Current
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      72,746
                                      
                                      
                                      $
                                      130,338Restricted
      cash
                                      
                                      
                                      124,596
                                      
                                      
                                      
                                      7,085Accounts
      receivable, net
                                      
                                      
                                      305,002
                                      
                                      
                                      
                                      205,294Prepaid
      expenses and other current assets
                                      
                                      
                                      46,385
                                      
                                      
                                      
                                      459,511Total
      current assets
                                      
                                      
                                      548,729
                                      
                                      
                                      
                                      802,228Property
      and equipment, net
                                      
                                      
                                      542,342
                                      
                                      
                                      
                                      610,606Deferred
      finance costs, net
                                      
                                      
                                      398,874
                                      
                                      
                                      
                                      547,940Other
      assets
                                      
                                      
                                      168,753
                                      
                                      
                                      
                                      192,659Total
      assets
                                      
                                      $
                                      1,658,698
                                      
                                      
                                      $
                                      2,153,433Liabilities
      and Stockholders’ Equity DeficiencyCurrent
      liabilities:Current
      maturities of long-term debt and capital lease obligations
                                      
                                      $
                                      91,407
                                      
                                      
                                      $
                                      93,549Accounts
      payable and accrued expenses
                                      
                                      
                                      2,066,721
                                      
                                      
                                      
                                      2,083,182Total
      current liabilities
                                      
                                      
                                      2,158,128
                                      
                                      
                                      
                                      2,176,731Long-term
      debt and capital lease obligations, less current
maturities
                                      
                                      
                                      6,055,378
                                      
                                      
                                      
                                      4,341,369Accrued
      pension obligation
                                      
                                      
                                      880,332
                                      
                                      
                                      
                                      882,332Warrant
      liabilities
                                      
                                      
                                      6,667,759
                                      
                                      
                                      
                                      5,621,070Total
      liabilities
                                      
                                      
                                      15,761,597
                                      
                                      
                                      
                                      13,021,502Stockholders’
      equity deficiency:Preferred
      stock, $. 10 par value; 1,000,000 shares authorized, none issued and
      outstanding
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Common
      stock, $. 10 par value; 250,000,000 shares authorized, 26,377,379 and
      26,026,172 shares issued and outstanding in 2009 and 2008
                                      
                                      
                                      2,637,738
                                      
                                      
                                      
                                      2,602,617Capital
      in excess of par value
                                      
                                      
                                      28,381,830
                                      
                                      
                                      
                                      28,461,538Deficit
                                      
                                      
                                      (45,125,020
                                      )
                                      
                                      
                                      (41,929,608
                                      )Accumulated
      other comprehensive income (loss)
                                      
                                      
                                      2,553
                                      
                                      
                                      
                                      (2,616
                                      )Total
      stockholders’ equity deficiency
                                      
                                      
                                      (14,102,899
                                      )
                                      
                                      
                                      (10,868,069
                                      )Total
      liabilities and stockholders’ equity deficiency
                                      
                                      $
                                      1,658,698
                                      
                                      
                                      $
                                      2,153,433
  See notes
to the condensed consolidated financial statements.
  2
 Pervasip
Corp. and Subsidiaries
 Condensed
Consolidated Statements of Operations and Comprehensive Loss
 (Unaudited)
   For
      the Six Months Ended
                                      
                                      
                                      For
      the Three Months EndedMay
      31, 2009
                                      
                                      
                                      May
      31, 2008
                                      
                                      
                                      May
      31, 2009
                                      
                                      
                                      May
      31, 2008Revenues
                                      
                                      $
                                      1,158,910
                                      
                                      
                                      $
                                      1,065,352
                                      
                                      
                                      $
                                      565,667
                                      
                                      
                                      $
                                      634,648Costs
      and expenses:Costs
      of services
                                      
                                      
                                      931,844
                                      
                                      
                                      
                                      1,068,436
                                      
                                      
                                      
                                      408,841
                                      
                                      
                                      
                                      615,386Selling,
      general and administrative
                                      
                                      
                                      1,141,691
                                      
                                      
                                      
                                      1,422,394
                                      
                                      
                                      
                                      409,793
                                      
                                      
                                      
                                      757,724Stock-based
      compensation expense
                                      
                                      
                                      256,469
                                      
                                      
                                      
                                      63,717
                                      
                                      
                                      
                                      126,771
                                      
                                      
                                      
                                      29,130Depreciation
      and amortization
                                      
                                      
                                      275,969
                                      
                                      
                                      
                                      246,718
                                      
                                      
                                      
                                      138,583
                                      
                                      
                                      
                                      124,741Total
      costs and expenses
                                      
                                      
                                      2,605,973
                                      
                                      
                                      
                                      2,801,265
                                      
                                      
                                      
                                      1,083,988
                                      
                                      
                                      
                                      1,526,981Loss
      from operations
                                      
                                      
                                      (1,447,063
                                      )
                                      
                                      
                                      (1,735,913
                                      )
                                      
                                      
                                      (518,321
                                      )
                                      
                                      
                                      (892,333
                                      )Other
      income (expense):Interest
      expense
                                      
                                      
                                      (1,112,717
                                      )
                                      
                                      
                                      (464,563
                                      )
                                      
                                      
                                      (650,717
                                      )
                                      
                                      
                                      (221,085
                                      )Interest
      and other income
                                      
                                      
                                      2,106
                                      
                                      
                                      
                                      12,401
                                      
                                      
                                      
                                      927
                                      
                                      
                                      
                                      1,448Change
      in warrant valuation
                                      
                                      
                                      (637,738
                                      )
                                      
                                      
                                      (2,092,117
                                      )
                                      
                                      
                                      (3,189,153
                                      )
                                      
                                      
                                      621,979Total
      other income (expense)
                                      
                                      
                                      (1,748,349
                                      )
                                      
                                      
                                      (2,544,279
                                      )
                                      
                                      
                                      (3,838,943
                                      )
                                      
                                      
                                      402,342Net
      loss
                                      
                                      
                                      (3,195,412
                                      )
                                      
                                      
                                      (4,280,192
                                      )
                                      
                                      
                                      (4,357,264
                                      )
                                      
                                      
                                      (489,991
                                      )Other
      comprehensive income (loss) –Foreign
      currency translation adjustment
                                      
                                      
                                      5,169
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      7,220
                                      
                                      
                                      
                                      -Unrealized
      loss on marketable securities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (24,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (9,000
                                      )Comprehensive
      loss
                                      
                                      $
                                      (3,190,243
                                      )
                                      
                                      $
                                      (4,304,192
                                      )
                                      
                                      $
                                      (4,350,044
                                      )
                                      
                                      $
                                      (498,991
                                      )Loss
      per share
                                      
                                      $
                                      (0.12
                                      )
                                      
                                      $
                                      (0.17
                                      )
                                      
                                      $
                                      (0.17
                                      )
                                      
                                      $
                                      (0.02
                                      )Shares
      used in computation of loss per share
                                      
                                      
                                      26,289,607
                                      
                                      
                                      
                                      25,835,458
                                      
                                      
                                      
                                      26,335,358
                                      
                                      
                                      
                                      25,835,458
 
  See notes
to the condensed consolidated financial statements.
  3
 Pervasip
Corp. and Subsidiaries
 Condensed
Consolidated Statements of Cash Flows
 (Unaudited)
   For
      the Six Months EndedMay
      31, 2009
                                    
                                    
                                    May
      31, 2008Net
      cash used in operating activities:
                                    
                                    $
                                    (932,766
                                    )
                                    
                                    $
                                    (1,609,041
                                    )Cash
      flows from investing activities:Purchase
      of property and equipment
                                    
                                    
                                    (58,500
                                    )
                                    
                                    
                                    (76,375
                                    )Cash
      flows from financing activities:Repayment
      of long-term debt
                                    
                                    
                                    (4,200
                                    )
                                    
                                    
                                    (25,460
                                    )Debt
      issue costs paid
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (71,500
                                    )Inflow
      from restricted cash
                                    
                                    
                                    937,874
                                    
                                    
                                    
                                    1,676,962Net
      cash provided by financing activities
                                    
                                    
                                    933,674
                                    
                                    
                                    
                                    1,580,002Decrease
      in cash and cash equivalents
                                    
                                    
                                    (57,592
                                    )
                                    
                                    
                                    (105,414
                                    )Cash
      and cash equivalents at beginning of period
                                    
                                    
                                    130,338
                                    
                                    
                                    
                                    132,078Cash
      and cash equivalents at the end of period
                                    
                                    $
                                    72,746
                                    
                                    
                                    $
                                    26,664See
      notes to the condensed consolidated financial statements.


4




PERVASIP
CORP.





Notes To Condensed
Consolidated Financial Statements (Unaudited)





Note 1-Basis of
Presentation





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the rules and regulations of the
Securities and Exchange Commission for Form 10-Q.  Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included.  Operating results for the six-month or three-month periods
ended May 31, 2009 are not necessarily indicative of the results that may be
expected for the year ended November 30, 2009.  For further
information, refer to the consolidated financial statements and footnotes
thereto included in our Annual Report on Form 10-KSB for the year ended November
30, 2008.





Note 2 – Going Concern
Matters and Realization of Assets




The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the ordinary course of business.  However, we have sustained
substantial losses from continuing operations in recent years and we have
negative working capital and a stockholders’ equity deficiency.  In
addition, we are experiencing difficulty in generating sufficient cash flow to
meet our obligations and sustain our operations. We expect our operating losses
and cash deficits to continue through fiscal 2009.





Based on
our current business plans, we are seeking additional financing from our
principal lender to fund our operating losses, capital expenditures, lease and
debt payments and working capital requirements through the end of fiscal
2009.  We need to raise additional cash through some combination of
borrowings, sale of equity or debt securities or sale of assets to enable us to
meet our cash requirements.





We may
not be able to raise sufficient additional debt, equity or other cash on
acceptable terms, if at all.  We have been trying to raise equity or
borrow funds from sources other than our principal lender with limited success
to date.  Failure to generate sufficient revenues, achieve certain
other business plan objectives or raise additional funds could have a material
adverse effect on our results of operations, cash flows and financial position,
including our ability to continue as a going concern, and may require us to
significantly reduce, reorganize, discontinue or shut down our
operations.





In view
of the matters described above, recoverability of a major portion of the
recorded asset amounts shown in the accompanying balance sheet is dependent upon
continued operations of our company which, in turn, is dependent upon our
ability to meet our financing requirements on a continuing basis, and to succeed
in our future operations.  The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should we be unable to continue operating.





5


Our plans
include (1) seeking additional financing to cover our operating deficit, (2)
continuing to grow our operations as a VoIP carrier and (3) increasing our sales
to existing wholesale customers, especially in the Mobile VoIP arena, where one
customer is projecting significant growth.





There can
be no assurance that we will be able to achieve our business plan objectives or
that we will achieve or maintain cash flow positive operating
results.  If we are unable to generate adequate funds from operations
or raise additional funds, we may not be able to repay our existing debt,
continue to operate our network, respond to competitive pressures or fund our
operations.  As a result, we may be required to significantly reduce,
reorganize, discontinue or shut down our operations.  Our financial
statements do not include any adjustments that might result from this
uncertainty.





Note 3 – Recent Accounting
Pronouncements





In March
2008, the FASB issued statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”(SFAS 161). SFAS 161
requires entities that use derivative instruments to provide qualitative
disclosures about their objectives and strategies for using such instruments, as
well as any details of credit-risk-related contingent features contained within
derivatives.  SFAS 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133 have been applied, and the
impact that hedges have on an entity’s financial position, financial
performance, and cash flows.  We adopted the provisions of SFAS 161
effective December 1, 2008. See Note 10 for our disclosures about our derivative
instruments.




Note 4-Major
Customers





During
the six-month and three-month periods ended May 31, 2009, one customer accounted
for approximately 36% and 39%, respectively, of our revenues.  During
the six-month and three-month periods ended May 31, 2008, one customer accounted
for approximately 27% and 28%, respectively, of our revenues and a second
customer accounted for approximately 27% and 20%, respectively, of our
revenues.  At May 31, 2009 and November 30, 2008, monies owed to us
from our major customers accounted for 29% and 32%, respectively, of our total
accounts receivable balances.




Note 5-Loss Per Common
Share





Loss per
common share is calculated by dividing our net loss for a period by the weighted
average number of common shares outstanding during that period.





Approximately
177,651,000 and 140,688,000 shares of common stock issuable upon the exercise of
our outstanding stock options or warrants were excluded from the calculation of
net loss per share for the six-month and three-month periods ended May 31, 2009
and 2008, respectively, because the effect would be anti-dilutive.





6





Note 6-Risks and
Uncertainties





We have
created a proprietary Internet Protocol (“IP”) telephony network and have
transitioned from being a reseller of traditional wireline telephone services
into a voice over IP service provider to take advantage of the network cost
savings that are inherent in an IP network.  While the IP telephony
business continues to grow, we face strong competition.  We have built
our IP telephony business with significantly less financial resources than many
of our competitors.  The survival of our business currently is
dependent upon the success of our IP operations.  Future results of
operations involve a number of risks and uncertainties.  Factors that
could affect future operating results and cash flows and cause actual results to
vary materially from historical results include, but are not limited
to:





·
            The
      availability of additional funds to successfully pursue our business
      plan;


·
            The
      performance of Unified Technologies Group Inc. under its wholesale master
      service agreement with us, including its performance of its minimum number
      of customer lines commitment and the payment of any required shortfall
      penalties;


·
            The
      cooperation of industry service partners that have signed agreements with
      us;


·
            Our
      ability to market our services to current and new customers and generate
      customer demand for our products and services in the geographical areas in
      which we operate;


·
            The
      impact of changes the Federal Communications Commission or State Public
      Service Commissions may make to existing telecommunication laws and
      regulations, including laws dealing with Internet
    telephony;


·
            The
      ability to comply with provisions of our financing
    agreements;


·
            The
      highly competitive nature of our
industry;


·
            The
      acceptance of telephone calls over the Internet by mainstream
      consumers;


·
            Our
      ability to retain key personnel;


·
            Our
      ability to maintain adequate customer care and manage our churn
      rate;


·
            Our
      ability to maintain, attract and integrate internal management, technical
      information and management information
systems;


·
            Our
      ability to manage rapid growth while maintaining adequate controls and
      procedures;


·
            The
      availability and maintenance of suitable vendor relationships, in a timely
      manner, at reasonable cost;


·
            The
      decrease in telecommunications prices to consumers;
  and


·
            General
      economic conditions.




Note 7-Stock-Based
Compensation Plans





We issue
stock options to our employees, consultants and outside directors pursuant to
stockholder-approved and non-approved stock option programs and record the
applicable expense in accordance with the Financial Accounting Standards Board
SFAS No. 123R, “Share-Based Payment”.  This expense is a non-cash
expense and it derives from the issuance of stock options, stock purchase
warrants and restricted stock. (See Note 13).  For the six-month
periods ended May 31, 2009 and 2008, we recorded approximately $256,000 and
$64,000, respectively, in stock-based compensation expense.  For the
three-month periods ended May 31, 2009 and 2008, we recorded approximately
$127,000 and $29,000, respectively, in stock-based compensation
expense.  For the six-month periods ended May 31, 2009 and 2008,
approximately $205,000 and $16,000 of the expense related to grants made to
consultants.  For the three-month periods ended May 31, 2009 and 2008,
approximately $102,000 and $7,000 of the stock option expense related to grants
to consultants.   As of May 31, 2009, there was approximately
$14,000 of unrecognized stock-compensation expense for previously-granted
options and restricted stock that will be expensed in the third quarter of
fiscal 2009.  As of May 31, 2009, there was approximately $179,000 of
unrecognized employee stock-compensation expense for previously-granted unvested
options that will be recognized over a three-year period.




7


Note 8-Accounts Payable and
Accrued Expenses





At May
31, 2009 and November 30, 2008, included in the caption accounts payable and
accrued expenses, are liabilities of approximately $796,000 in conjunction with
transactions related to the sale of former subsidiaries.  We believe
the total remaining liability is significantly less, based upon public
disclosures made by the entity that purchased our former subsidiaries. However,
the purchaser has not confirmed the reduction to us directly, and accordingly,
we have not reduced the amount of the liability.  One of our former
subsidiaries filed for bankruptcy protection on September 23, 2008, and is now
in a Chapter 7 liquidation.  We believe the bankruptcy filing further
decreases our potential liability to the purchaser.  However, there
can be no assurance that we will be successful in reducing such potential
liabilities and, ultimately, we may have to pay such amounts.





Note 9-Defined Benefit
Plan





We
sponsor a defined benefit plan covering a number of former
employees.  Our funding policy with respect to the defined benefit
plan is to contribute annually not less than the minimum required by applicable
law and regulation to cover the normal cost and to fund supplemental costs, if
any, from the date each supplemental cost was incurred.  Contributions
are intended to provide not only for benefits attributable to service to date,
but also for those expected in the future.





For the
six-month periods ended May 31, 2009 and 2008, we recorded pension expense of
$24,000 and $99,000, respectively.  For the three-month periods ended
May 31, 2009 and 2008, we recorded pension expense of $12,000 and $49,000,
respectively. In the second quarters of fiscal 2009 and 2008, we contributed
approximately $14,000 and $35,000, respectively, to our defined benefit
plan.  The expected long-term rate on plan assets is 8%.





We also
sponsor a 401(k) profit sharing plan for the benefit of all eligible employees,
as defined.  The plan provides for the employees to make voluntary
contributions not to exceed the statutory limitation provided by the Internal
Revenue Code.  We may make discretionary contributions.





Note 10 – Principal
Financing Arrangements





We have
executed seven financings agreements with our principal lender and its
affiliates.  The first financing was repaid in full in connection with
the sale of two subsidiaries, and the second, third and fourth financings were
amended upon the signing of the fifth financing on May 28, 2008. The fourth
financing, in the amount of $4,000,000, requires that we make principal payments
of $100,000 each month, beginning in October 2009, and a balloon payment, of the
remaining principal and interest, when the note is due on September 30,
2010.  The second, third and fifth financings are also due on
September 30, 2010, and there are no principal payments required to be made
until the notes mature.  Interest on the fifth financing is set at
20%. The interest rate on our fourth financing is set at prime plus 2%, subject
to a minimum of 9.75% per annum, and was 9.75% per annum at May 31,
2009.  Interest on the second and third notes is set at prime plus 2%
per annum, or 5.25% per annum at May 31, 2009.  In conjunction with
the fifth financing, all interest payments for the next twelve months are
accrued and added to the principal balances of the notes.  Cash
interest payments were to begin again on a monthly basis commencing in June
2009, but have been deferred on a month-to-month basis.  We remain
dependent on our principal lender to fund our cash needs and we have no
assurances that they will continue to fund such needs.





8


On
October 15, 2008, we entered into a sixth financing arrangement with our
principal lender and an affiliate of the lender (the “October 2008 Financing”).
This financing consisted of a note totaling $500,000 that matures on September
28, 2010.   Interest is calculated on the basis of a 360- day
year, and is payable monthly, in arrears, on the first business day of each
month through and including the maturity date.  Interest accrues at a
rate of 15% per annum.  There are no prepayment penalties on the
note.





On
December 12, 2008, we amended the October 2008 Financing and borrowed an
additional $600,000 from our lender.  This financing consisted of
amending the $500,000 note to a $1,100,000 note that matures on September 28,
2010.  Interest is calculated on the basis of a 360-day year, and is
payable monthly, in arrears, on the first business day of each month through and
including the maturity date.  Interest accrues at a rate of 15% per
annum.  There are no prepayment penalties on the note.





On
February 18, 2009, we consummated a private placement (the “February 2009
Financing”) pursuant to which we issued to two affiliates of our lender
(“Affiliates”), secured term notes in the aggregate principal amount of $600,000
and common stock purchase warrants (the “Warrants”) that entitle the Affiliates
to purchase in the aggregate up to 26,500,000 shares of our common
stock.





Proceeds
of the February 2009 Financing were deposited in a restricted cash account and
have been released to us to pay operating expenses upon our request and in the
sole discretion of our principal lender, similar to the arrangement we have had
with our lender with prior financings.  Absent earlier redemption with
no redemption premium payable by us, the loan matures on September 28, 2010 (the
“Maturity Date”).  Interest accrues on the unpaid principal on the
notes issued in the February 2009 Financing at a rate equal to twenty percent
(20%) per annum calculated on the basis of a 360-day year.  Interest
accruing at the rate of fifteen percent (15%) per annum will be payable monthly
in arrears, on the first business day of each calendar month through and
including the Maturity Date.  Interest accruing at the rate of five
percent (5%) per annum will be accrued and added to the principal balances of
the notes issued in the February 2009 Financing.  Principal payments
are due and payable on the Maturity Date.





To secure
the payment of all obligations to our lenders, including under any warrants, we
entered into a master security agreement that assigns and grants to an agent for
the lender a continuing security interest and first lien on all of our assets,
including the assets of our subsidiaries.





9


Note 11-Income
Taxes





At
November 30, 2008, we had net operating loss carryforwards for Federal income
tax purposes of approximately $30,000,000 that expire in the years 2009 through
2028.  We have provided an allowance for the full value of the related
deferred tax asset since it is more likely than not that any such benefit will
not be realized.





Note 12 – Related Party
Transactions





In
connection with our internal software development costs, we paid fees to a
third-party intellectual property development firm (the “Consultant”) for the
six-month periods ended May 31, 2009 and 2008, of $126,000 and $181,500,
respectively.  For the three-month periods ended May 31, 2009 and
2008, we paid fees of $63,000 and $72,000, respectively.  One of our
officers has performed work for the Consultant, including the function of
distributing such funds to appropriate vendors. Our officer received fees from
the Consultant of $30,000 during the six-month period ended May 31, 2009,
including $15,000 for the three-month period ended May 31, 2009. The funds paid
to the Consultant resulted in the capitalization of internal use software costs
and equipment of $30,000 in the six and three-month periods ended May 31,
2009,  $55,000 in the six-month period ended May 31, 2008 and $12,000
in the three-month period ended May 31, 2008.  The remaining fees for
the six-month periods ended May 31, 2009 and 2008 of $96,000 and $126,500 were
deemed to be operating costs.  The amount of operating costs for the
three-month periods ended May 31, 2009 and 2008 was $33,000 and $60,000,
respectively.




Note 13 –
Equity





On June
15, 2008 we contracted with Nationwide Solutions, Inc. (“Nationwide”) to perform
consulting, financing and acquisition services.  In addition to a
monthly cash fee, Nationwide was granted warrants to purchase up to 2 million
shares of our common stock. The warrants were exercisable through April 30, 2012
at a price of $0.25 per share.  We valued the warrants at $243,000
using the Black-Scholes method with an interest rate of 2.29%, volatility of
165%, zero dividends and expected term of 3.8 years.  We were
amortizing the consulting expense over the life of the contact, and recorded
expense of $28,699 in fiscal 2008.  The remaining value of $214,301
was recorded as a prepaid expense at November 30, 2008.  Effective
February 20, 2009, by mutual agreement, the consulting agreement with Nationwide
was terminated and Nationwide surrendered the warrants to us, resulting in a
reduction in prepaid expenses and equity of the remaining book balance of the
warrants at such date of $200,209.





In
December 2008, we issued 300,000 shares of common stock to a company in
conjunction with a contractual obligation for investor relation
services.  The stock was valued at its fair market value of $0.27 a
share, or $81,000, on the date a one-year services contract was signed and is
being amortized over the one-year period.





On May
27, 2009, we issued 40,000 shares of restricted common stock to a company in
conjunction with a contractual obligation for investor relation
services.  The stock was valued at its fair market value of $0.235 a
share, or $9,400, on the date that services began and is being amortized over a
one-month period.





10


During
the second quarter of fiscal 2009, a board member exercised options to purchase
25,000 shares of stock by surrendering free-trading shares of our common stock
to pay for the exercise price of such options, resulting in a net issuance of
11,207 shares of common stock.




Note 14-
Reclassifications





Certain
prior-year amounts have been reclassified to conform to the current year’s
presentation.





11




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





The
statements contained in this Report that are not historical facts are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to our financial condition, results
of operations and business, which can be identified by the use of
forward-looking terminology, such as “estimates,” “projects,” “plans,”
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or
other variations thereon, or by discussions of strategy that involve risks and
uncertainties.  Management wishes to caution the reader of the
forward-looking statements that such statements, which are contained in this
Report, reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors, including, but not
limited to, economic, competitive, regulatory, technological, key employee, and
general business factors affecting our operations, markets, growth, services,
products, licenses and other factors discussed in our other filings with the
Securities and Exchange Commission, and that these statements are only estimates
or predictions.  No assurances can be given regarding the achievement
of future results, as actual results may differ materially as a result of risks
facing us, and actual events may differ from the assumptions underlying the
statements that have been made regarding anticipated events.  Factors
that may cause our actual results, performance or achievements, or industry
results, to differ materially from those contemplated by such forward-looking
statements include, without limitation those factors set forth under Note 6 –
Risks and Uncertainties.





These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those
statements.  These risk factors should be considered in connection
with any subsequent written or oral forward-looking statements that we or
persons acting on our behalf may issue. All written and oral forward looking
statements made in connection with this Report that are attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements.  Given these uncertainties, we caution
investors not to unduly rely on our forward-looking statements. We do not
undertake any obligation to review or confirm analysts’ expectations or
estimates or to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this Report or to reflect
the occurrence of unanticipated events.  Further, the information
about our intentions contained in this Report are statements of our intentions
as of the date of this Report and are based upon, among other things, the
existing regulatory environment, industry conditions, market conditions and
prices, the economy in general and our assumptions as of such date. We may
change our intentions, at any time and without notice, based upon any changes in
such factors, in our assumptions or otherwise.





Overview





We are a
provider of local, long distance and international voice telephone
services.  We provide these services using a proprietary Linux-based
open-source softswitch that utilizes an Internet Protocol (“IP”) telephony
product.  IP telephony is the real time transmission of voice
communications in the form of digitized “packets” of information over the
Internet or a private network, which is analogous to the way in which e-mail and
other data is transmitted.  We provide our IP telephone services
primarily on a wholesale basis to other service providers, such as cable
operators, Internet service providers, WiFi and fixed wireless broadband
providers, data integrators, value-added resellers, and satellite broadband
providers. Our technology enables these carriers to quickly and inexpensively
offer premiere broadband telephone services, complete with order flow management
for efficient provisioning, billing and support services and user interfaces
that are easily customized to reflect the carrier’s unique brand.





12


We are
currently enhancing the reach of our IP telephony services by using the data
side of the cell phone network to run our telephone calls.  Cell phone
networks provide both voice and data services.  In a traditional cell
phone service, the users speak over the voice side of the network and receive
email messages and obtain Internet access over the data side of the
network.  With our service, the voice transmission runs over the data
side of the cell phone network, and the voice side is not used.  The
data side of the cell phone network is simply another avenue upon which we can
run our IP telephony services.  However, it is a low-cost method of
delivering telephone service and we believe it will attract a significant number
of subscribers to our service from the larger and more expensive cell phone
carriers.  We refer to our use of the data side of the cell phone
networks as voice-over-IP-enabled mobile phone service (“Mobile
VoIP”).





Our
company sells IP telephony services primarily on a wholesale basis to high-speed
Internet service providers, which is the manner in which we plan to sell Mobile
VoIP services.   In October 2008, we entered into a wholesale
agreement to sell Mobile VoIP services to Unified Technologies Group, Inc.
(“UTGI”), a diversified technology company that intends to sell our Mobile VoIP
service directly to end-users, or indirectly to end-users via multi-level
marketing companies, retail stores and cell phone
distributors.   UTGI utilizes the Global System for Mobile
(“GSM”) communications standard for the transmission of the Mobile VoIP
calls.  GSM is the most popular standard for mobile phones in the
world, with more than 3 billion users in more than 200 countries and
territories.  According to UTGI, it will have access to the data side
of the GSM network in approximately 130 countries, and usage of the product will
not generate roaming charges to end-users who travel to any of those countries,
as the entire call stays on the UTGI data network.   UTGI
believes it will be able to provide a high-quality call to hundreds of thousands
of customers because it uses its own virtual private network over the GSM
network to provide the high-speed Internet access to the mobile
phone.  By placing software on the mobile phone to create a dynamic
virtual stabilized network, UTGI intends to ensure the highest level of quality
by enhancing the call with services such as bandwidth limitation correction,
compression, sampling, jitter correction, echo cancellation and
buffering.  When the consumer uses the mobile device and makes a
Mobile VoIP telephone call, the entire operation is intended to be seamless to
the cell phone user, who receives no indication that the call is a VoIP
call.  Similar to our company, UTGI is primarily a software
entity.  UTGI’s software is designed to run on smart phones and other
mobiles devices that are manufactured by third-parties, including well-known
brand names, such as the iPhone and BlackBerry.  The initial launch of
the mobile phone service is on the Pharos Traveler 137 mobile
telephone.  These smart phones contain a variety of advanced features
and are now beginning to be imported into the U.S., as they were just approved
by the Federal Communications Commission for use in the United States in June
2009.  In March 2009, UTGI announced that after the initial commercial
launch, UTGI plans to have a “bring your own device” program, in which it will
encourage iPhone and BlackBerry users to keep their existing smart phone, but
switch service from their current GSM carrier to UTGI’s
service.  Although we believe the telephone calls on UTGI’s broadband
service are a very high carrier-grade quality, we also believe the entities that
are marketing UTGI’s product are focused more on low price and the fact that
UTGI does not require a contract with the consumer.





13


We do not
control the timing of the marketing, the marketing dollars or any of the
decisions regarding the selling and marketing of the UTGI
service.  Furthermore, UTGI has adopted the strategy of letting other
entities sell its mobile phone services to the end-user, and consequently UTGI’s
customers are the entities that plan and control the sales and marketing
activities of the UTGI product. UTGI has advised us that is has signed
distributor agreements with several entities and that each entity is entitled to
market the UTGI services as it sees fit, in its given territory.  As a
result, the distributor will make the sale of the smart phone and the service
plan, the data service will be provided by UTGI and we will provide the voice
service.  For each subscriber that is signed up, we will receive
revenue for the monthly voice service.  UTGI has also contracted with
us to provide the VoIP billing and customer service at a price of $2 per month
per line.





We
believe the wireless communications industry recognizes UTGI’s Mobile VoIP
product as a significant development in the industry, as evidenced by UTGI
receiving the award at the 2009 CTIA wireless show for “best overall
product.”  There can be no assurance that we will be successful with
our plan with UTGI, and our future revenue from UTGI depends upon, in part, the
success of UTGI’s distributors in selling its product and retaining
customers.  We cannot control the timing of the marketing efforts of
any distributor or the speed with which any distributor signs up
customers.  However, we see publicity from a large distributor that is
in the process of distributing the phone to its key insiders, and that it plans
to launch the product to the public in August 2009.   Our
agreement with UTGI does not prohibit us from providing our VoIP services to
other carriers who utilize the data side of the cell phone network, and we have
been approached by other companies who have expressed an interest in buying our
VoIP services for the purpose of carrying our VoIP service over the data side of
the cell phone network.   We anticipate that the majority of our
focus for at least the remainder of the year will be centered on Mobile
VoIP.




Plan
of Operation





Our
objective is to build a profitable IP telephone company on a stable and scalable
platform with minimal network costs.  We want to be known for our high
quality of service, robust features and ability to deliver any new product to a
wholesale customer or a web store without delay.   We believe
that to achieve our objective we need to have “cradle to grave” automation of
our back-office web and billing systems.  We have written our software
for maximum automation, flexibility and changeability.





We know
from experience in provisioning complex telecom orders that back-office
automation is a key factor in keeping overhead costs low.  Technology
continues to work for 24 hours a day and we believe that the fewer people a
company has in the back office, the more efficiently it can run, which should
drive down the cost per order.





Furthermore,
our strategy is to grow rapidly by leveraging the capital, customer base and
marketing strength of companies that sell broadband services, such as UTGI,
which sells a broadband service over GSM cell phone networks.  Many of
our targeted wholesale customers and some of our existing wholesale customers
have significant financial resources to market a private-labeled digital voice
product to their existing customer base or to new customers.  We
believe our strength is our technology-based platform.  In providing
our technology on a wholesale basis, our goal is to obtain and manage 500,000
individual end-users, or lines in service, by leveraging the sales, marketing,
financial and other resources of our wholesale customers.  Our
strategy is to focus on the Mobile VoIP product as a driving force to accelerate
our efforts to reach the level of 500,000 lines in service. We believe UTGI will
become our largest wholesale customer over the next 12 months, as UTGI has
represented to us that it has commitments from cell phone distributors to
purchase several hundred thousand Mobile VoIP lines within the next 12
months.





14





Six  Months Ended
May 31, 2009 vs. Six Months Ended May 31, 2008





Our revenue for the six-month period
ended May 31, 2009 increased by approximately $94,000, or approximately 9%, to
approximately $1,159,000 as compared to approximately $1,065,000 reported for
the six-month period ended May 31, 2008.  The increase in our revenues
was due to a combination of an increase in the number of wholesale VoIP
customers and an increase in the average revenue per wholesale VoIP
customer.  In the six-month period ending May 31, 2008, we recorded
international termination revenues of approximately $369,000, and we had no such
revenues in the six-month period ended May 31, 2009.  If we analyze
only our core VoIP revenues, without consideration to the international
termination revenues from fiscal 2008, in the six-month period ended May 31,
2009, our core VoIP revenue increased by approximately $463,000, or
approximately 67%, as compared to revenue from our core VoIP services of
approximately $696,000 in the six-month period ended May 31, 2008.  We
expect to see continued growth in our core VoIP revenues, as we have numerous
wholesale customers who have signed a contract with us but who are not
generating revenue yet, and we have other potential wholesale customers in
trial.  Our largest opportunity with an existing customer is with
UTGI, which signed a wholesale services agreement with us in October 2008 that
requires them to pay us for a minimum of 50,000 Mobile VoIP lines within one
year of the commercial launch of its Mobile VoIP product.  UTGI
announced its commercial launch on July 1, 2009.  We anticipate UTGI
will sell significantly more than 50,000 lines based upon the minimum
commitments it tells us it has received from its customers, and based upon the
positive industry reaction and publicity it has received from winning the “best
overall product” award at the CTIA wireless trade show on April 3,
2009.  We believe we will see significant revenues from the UTGI
contract in our fourth fiscal quarter.





For the
six-month period ended May 31, 2009, our gross profit amounted to approximately
$227,000, which was an improvement of approximately $230,000 over the negative
gross profit of approximately ($3,000) reported in the six-month period ended
May 31, 2008.  Our IP telephony facilities have significant unused
capacity and we have therefore only recently been able to generate a positive
gross profit on a quarterly basis.  We anticipate we can continue to
achieve higher sales volumes to cover fixed costs and to negotiate lower
variable costs with vendors, so that our gross profit and gross profit
percentage should continue to increase.





Selling,
general and administrative expenses decreased by approximately $281,000, or
approximately 20%, to approximately $1,142,000 for the six-month period ended
May 31, 2009 from approximately $1,422,000 reported in the same prior-year
fiscal period.  We made significant reductions to our salary and
consulting expense, which accounted for approximately $187,000 of the
decrease.  We also decreased marketing expense in the six-month period
ended May 31, 2009 by approximately $113,000, as compared to the six-month
period ended May 31, 2008.    We anticipate that we will be
able to hold down our salary expense until we need to hire more personnel in
conjunction with the Mobile VoIP product, which we began to do in our third
fiscal quarter.  We have no short-term plans to increase our marketing
expense.





Stock
based compensation expense, which is a non-cash item, increased by approximately
$193,000, or approximately 75%, to approximately $256,000 for the six-month
period ended May 31, 2009 from approximately $64,000 reported in the same
prior-year fiscal period.  This expense varies from period-to-period
depending upon the number of option grants, the vesting period of such grants
and the valuation of the grants.





15
 
 Depreciation
and amortization expense increased by approximately $29,000 for the six- months
ended May 31, 2009 to approximately $276,000 as compared to approximately
$247,000 for the same period in fiscal 2008.  The increase was a
result of slightly higher depreciation expense due to software and equipment
additions and slightly higher amortization due to additions to deferred finance
costs associated with recent financings.





Interest expense increased by
approximately $648,000, or approximately 139% to approximately $1,113,000 for
the six-months ended May 31, 2009 as compared to approximately $465,000 for the
six-months ended May 31, 2008.  The increase was due to additional
borrowings in the aggregate amount of $3.1 million in May, October and December
2008, and in February 2009 and the accretion of that debt.





The mark-to-market adjustment to our
warrant liability resulted in warrant expense for the six-month period ended May
31, 2009 of approximately $638,000, which was due to the increase in the market
value of our common stock from November 30, 2008 to May 31, 2009. During the
comparable period of fiscal 2008, we recorded warrant expense of approximately
$2,092,000, which resulted from an increase in the price of our common stock at
May 31, 2008, as compared to the value at November 30, 2007.  We
anticipate that our warrant income or expense will continue to fluctuate in
future fiscal periods as the price of our common stock in the market continues
to fluctuate.





Three Months Ended May 31,
2009 vs. Three Months Ended May 31, 2008





Our revenue for the three-month period
ended May 31, 2009 decreased by approximately $69,000, or approximately 11%, to
approximately $566,000 as compared to approximately $635,000 reported for the
three-month period ended May 31, 2008.  The decrease in our revenues
was due to the lack of any international termination revenues in the second
quarter of fiscal 2009 as compared to $260,000 in international termination
revenues in the second quarter of fiscal 2008.  Our core VoIP revenue
continued to increase in the second quarter of fiscal 2009, as compared to the
second quarter of fiscal 2008, as these revenues increased by approximately
$191,000, or approximately 51%, to approximately $566,000, as compared to
revenue from our core VoIP services of approximately $375,000 in the three-month
period ended May 31, 2008.  We anticipate that revenues for our third
fiscal quarter in 2009 will significantly exceed our revenues for the third
fiscal quarter of 2008, even though, as we noted above, we do not anticipate
significant revenues from UTGI until the fourth quarter of fiscal
2009.





For the
three-month period ended May 31, 2009, our gross profit amounted to
approximately $157,000, which was an improvement of approximately $138,000 over
the gross profit of approximately $19,000 reported in the three-month period
ended May 31, 2008.  Our IP telephony facilities have significant
unused capacity and we have therefore only recently been able to generate a
positive gross profit on a quarterly basis.  As discussed above, we
anticipate we will be able to continue to achieve higher sales volumes to cover
fixed costs and to negotiate lower variable costs with vendors, to improve our
gross profit and gross profit percentage.  We have already identified
new carriers and routes and we are beginning to incur lower domestic termination
costs.





16


Selling,
general and administrative expenses decreased by approximately $348,000, or
approximately 46%, to approximately $410,000 for the three-month period ended
May 31, 2009 from approximately $758,000 reported in the same prior-year fiscal
period. Reduction in personnel and consulting costs accounted for the majority
of the decrease.  We made significant reductions to our salary and
consulting expense during February 2009 and, consequently, our costs, beginning
in March 2009 were substantially lower.  The reduction in the quarter
ended May 31, 2009 for salary and consulting expense, as compared to the quarter
ended May 31, 2008, was approximately $259,000.  We also decreased our
marketing and travel expense by approximately $65,000 in the quarter ended May
31, 2009, as compared to the quarter ended May 31, 2008.  Because of
the commercial launch of the UTGI product, we have hired three additional
customer service personnel in the third fiscal quarter of 2009.





Stock-based
compensation expense, which is a non-cash item, increased by approximately
$98,000, or approximately 338%, to approximately $127,000 for the three-month
period ended May 31, 2009 from approximately $29,000 reported in the same
prior-year fiscal period.




Depreciation
and amortization expense increased by approximately $14,000 for the three-
months ended May 31, 2009 to approximately $139,000 as compared to approximately
$125,000 for the same period in fiscal 2008.  The increase was a
result of slightly higher depreciation expense due to software and equipment
additions and slightly higher amortization due to additions to deferred finance
costs associated with recent financings.





Interest expense increased by
approximately $430,000 to approximately $651,000 for the three-months ended May
31, 2009 as compared to approximately $221,000 for the three-months ended May
31, 2008.  The increase was due to the additional borrowings discussed
above.





The mark-to-market adjustment to our
warrant liability resulted in warrant expense for the three-month period ended
May 31, 2009 of approximately $3,189,000, which was due to the increase in the
market value of our common stock from February 28, 2009 to May 31, 2009. During
the comparable period of fiscal 2008, we recorded warrant income of
approximately $622,000, which resulted from a decrease in the price of our
common stock at May 31, 2008, as compared to the value at February 29,
2008.  We anticipate that our warrant income or expense will continue
to fluctuate in future fiscal periods as the price of our common stock in the
market continues to fluctuate.




Liquidity and Capital
Resources





At May 31, 2009, we had cash and cash
equivalents of approximately $73,000 and negative working capital of
approximately $1,609,000.





Net cash
used in operating activities aggregated approximately $933,000 and $1,609,000 in
the six-month periods ended May 31, 2009 and May 31, 2008,
respectively.  The principal use of cash in the fiscal 2009 was a net
loss of approximately $3,195,000, which included a mark-to-market charge of
approximately $638,000 and amortization of debt discount of approximately
$993,000.  The principal uses of cash in the fiscal year ended May 31,
2008 was a net loss of approximately $4,280,000, which included a non-cash
mark-to-market warrant adjustment charge of approximately
$2,092,000.





Net cash
used in investing activities in the six-month periods ended May 31, 2009 and
2008 aggregated approximately $59,000 and $76,000, respectively, resulting
primarily from expenditures related to enhancements to our IP telephony
software.





17


Net cash
provided by financing activities aggregated approximately $934,000 and
$1,580,000 in the six-month periods ended May 31, 2009 and May 31, 2008,
respectively. In fiscal year 2009, cash provided by financing activities
resulted primarily from cash received from a restricted bank account that was
funded in connection with financings on October 15, 2008 and February 18, 2009.
In the 2008 period, cash provided by financing activities resulted primarily
from cash received from a restricted bank account that was funded in connection
with financings on September 28, 2007 and May 28, 2008.




For the
six-month period ended May 31, 2009, we had capital expenditures of
approximately $59,000. We expect to make additional capital expenditures of
approximately $50,000 to $100,000 in the second half of fiscal year 2009;
however such purchases will be dependent on our growth and the availability of
cash or equipment financing.  We expect that other capital
expenditures over the next 12 months will relate primarily to a continued
roll-out of our IP telephony network that will be required to support our Mobile
VoIP customer.





The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of our
company as a going concern.  However, we have sustained net losses
from operations during the past several years, and we have limited
liquidity.  Management anticipates that we will be dependent, for the
near future, on additional capital to fund our operating expenses and
anticipated growth.  The audit report of our independent registered
public accounting firm on our financial statements for the year ended November
30, 2008 contained a paragraph expressing doubt about our ability to continue as
a going concern.  Our operating losses have been funded through the
sale of non-operating assets, the issuance of equity securities and borrowings,
including borrowings from our primary lender on eight separate occasions over
the past four years.  We continually evaluate our cash needs and
growth opportunities and we believe we will require additional equity or debt
financing immediately in order to achieve our overall business
objectives.  We believe we will be generating positive cash flow from
operations when we have approximately 10,000 Mobile VoIP lines added to a
projected modest growth of our current customer base.  Although we are
not yet profitable and we are not generating cash from operations, our lender
has indicated verbally that it plans to continue funding us and to arrange for
such a funding at the end of July 2009.  However, such commitment is
not in writing, and we cannot rely on our lender to continue to fund us in the
future.  While we continually look for other financing sources, in the
current economic environment, the procurement of outside funding is extremely
difficult and there can be no assurance that such financing will be available,
or, if available, that such financing will be at a price that will be acceptable
to us.  Our failure to generate sufficient revenues, raise additional
capital, or renegotiate payment terms of our debt would have an adverse impact
on our ability to achieve our longer-term business objectives, and would
adversely affect our ability to continue operating as a going
concern.





18


Item
4.   Controls and Procedures





(a) Disclosure Controls and
Procedures.   Our management, with the participation of
our chief executive officer/chief financial officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended  (the  "Exchange Act")) as of the end of the period
covered by this Report.  Based on such evaluation, our chief executive
officer/chief financial officer has concluded that, as of the end of such
period, for the reasons set forth below, our disclosure controls and procedures
were not effective.




(b) Internal Control Over Financial
Reporting.  There have not been any changes in our internal
control over financial reporting  (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended May 31,
2009.  As previously noted, due to lack of financial resources, in
fiscal 2009, we have no full-time bookkeeping or financial reporting personnel
and we are attempting to cover this function with temporary consultants and our
Chief Executive Officer, who also serves as our principal accounting and
financial officer.  As initially reported in fiscal 2005, we already
had a lack of staffing within our accounting department, both in terms of the
small number of employees performing our financial and accounting functions and
their lack of experience to account for complex financial
transactions.  This lack of staffing continued throughout fiscal 2008
and, as of the date of this Report, we have fewer employees in our accounting
department than we had at the end of our fiscal year, resulting in a further
decrease in our ability to segregate duties among our
employees.  Management believes the lack of qualified, accounting and
financial personnel amounts to a material weakness in our internal control over
financial reporting and, as a result, at November 30, 2008 and on the date of
this Report, our internal control over financial reporting is not effective. We
will continue to evaluate the employees involved, the need to engage outside
consultants with technical and accounting-related expertise to assist us in
accounting for complex financial transactions and the hiring of additional
accounting staff with complex financing experience.  However, we will
be unable to remedy this material weakness in our internal controls until we
have the financial resources that allow us to hire additional qualified
employees.





Our
management, including our chief executive officer/chief financial officer, does
not expect that our disclosure controls and procedures or our internal control
over financial reporting are or will be capable of preventing or detecting all
errors or all fraud.  Any control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system’s objectives will be met. The design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements, due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns may occur
because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of controls. The design of any system of controls is based
in part on certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risk.





19





PERVASIP
CORP.


PART II-OTHER
INFORMATION








Item
2.                      Unregistered
Sales of Equity Securities and Use of Proceeds





On May 27, 2009, we issued 40,000
shares of restricted common stock to a company in conjunction with a contractual
obligation for investor relation services. The shares were
issued in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933 (the “Act”) to an investor that represented to us
that it was an “accredited investor,” as defined in the Act.




Item
4.                      Submission
of Matters to a Vote of Security Holders





(a)
            Our
      annual meeting of shareholders was held May 13,
  2009





(b)
            At
      the annual meeting, the shareholders re-elected Greg M Cooper, Cherian
      Mathai, Mark Richards, Paul H. Riss and Scott Widham to our board of
      directors for a one-year term expiring at the 2010 annual meeting of
      shareholders pursuant to the following
vote:




VotesDirectors
                                    
                                    Votes For
                                    
                                    
                                    WithheldGreg
      M. Cooper
                                    
                                    
                                    19,068,769
                                    
                                    
                                    
                                    374,823Cherian
      Mathai
                                    
                                    
                                    19,069,069
                                    
                                    
                                    
                                    374,623Mark
      Richards
                                    
                                    
                                    18,552,169
                                    
                                    
                                    
                                    891,523Paul
      H. Riss
                                    
                                    
                                    19,058,831,
                                    
                                    
                                    
                                    384,861Scott
      Widham
                                    
                                    
                                    18,568,369
                                    
                                    
                                    
                                    875,323




(c)
            At
      the annual meeting, the shareholders also voted upon the
      following:





(i)
            The
      shareholders ratified the selection of Nussbaum, Yates, Berg, Klein &
      Wolpow, LLP as our independent registered public accounting firm for our
      fiscal year ending November 30, 2009, by a vote of 19,523,049 votes for,
      248,959 votes against and 5,418 votes
  abstaining.





(ii)
            The
      shareholders voted to approve the increase in the number of authorized
      shares of capital stock to 251,000,000 shares, by a vote of 17,299,286
      votes for, 2,379,189 votes against and 98,950 votes
      abstaining.





(iii)
            The
      shareholders voted to approve a reverse stock split of up to 1 for 10
      shares, if the board of directors deems it appropriate, by a vote of
      16,257,478 votes for, 3,422,822 votes against and 97,125 votes
      abstaining.





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(iv)
            The
      shareholders did not cast enough affirmative votes to approve our 2009
      Equity Incentive Plan, by a vote of 6,102,765 votes for, 555,240 votes
      against and 2,300 votes abstaining.





(v)
            The
      shareholders did not cast enough affirmative votes to approve our 2007
      Contingent Stock Option Plan, by a vote of 6,168,653 votes for, 489,040
      votes against and 2,612 votes
abstaining.








Item
6.                        Exhibits





Exhibit


Number                                    Description


31.1
            Certification
      of our Chief Executive Officer and Chief Financial Officer, Paul H. Riss,
      Pursuant to 18 U.S.C. 1350 (Section 302 of the Sarbanes-Oxley Act of
      2002)





32.1
            Certification
      of our Chief Executive Officer and Chief Financial Officer, Paul H. Riss,
      Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
      2002)





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SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.







Pervasip
      Corp.Date:July 15,
      2009
                    By:
                    /s/
      Paul H. RissPaul
      H. RissChief
      Executive Officer(Principal
      Financial andAccounting
      Officer)








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EXHIBIT
INDEX





Exhibit


Number                                    Description


31.1
            Certification
      of our Chief Executive Officer and Chief Financial Officer, Paul H. Riss,
      Pursuant to 18 U.S.C. 1350 (Section 302 of the Sarbanes-Oxley Act of
      2002)





32.1
            Certification
      of our Chief Executive Officer and Chief Financial Officer, Paul H. Riss,
      Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
      2002)






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