UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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(Mark one)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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OF 1934
For the transition period from _________ to ________
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Commission File Number: 0-28985
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VoIP, Inc.
(Exact name of small business issuer as specified in its charter)
Texas 75-2785941
----------------------------- ----------------------------
(State of incorporation) (IRS Employer ID Number)
12330 SW 53rd Street, Suite 712, Fort Lauderdale, FL 33330
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(Address of principal executive offices)
(954) 434-2000
(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: August 1, 2004: 18,448,966
Transitional Small Business Disclosure Format (check one): YES NO X
Registrant is an accelerated filer (check one): YES NO X
VoIP, Inc.
Form 10-QSB for the Quarter ended June 30, 2004
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 11
Item 3 Controls and Procedures 17
Part II - Other Information
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 19
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VoIP, Inc.
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
(Unaudited) (Audited)
June 30, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets
Cash on hand and in bank $ 161,074 $ 3,499
Accounts Receivable 190,818 --
Due from related parties 461,896 --
Inventory 376,973 251,534
Other Current Assets 88,327 4,425
------------ ------------
Total current assets 1,279,088 259,458
------------ ------------
Property and equipment, net 299,732 --
Goodwill 5,210,563 --
Other assets 6,247 --
------------ ------------
TOTAL ASSETS $ 6,795,630 $ 259,458
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 861,149 $ --
Amounts due to affiliates -- 151,166
Other Current liabilities 478,604 --
------------ ------------
Total Liabilities 1,339,752 151,166
Commitments and contingencies
Stockholders' equity
Common stock - $0.001 par value
100,000,000 shares authorized 18,448,966 and
1,730,939 issued and outstanding, respectively 18,449 1,731
Additional paid-in capital 6,493,057 731,208
Accumulative Deficit (1,055,628) (624,647)
------------ ------------
Total stockholders' equity 5,455,877 108,292
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,795,630 $ 259,458
============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. The accompanying
notes are an integral part of these financial statements.
3
VoIP, Inc.
Consolidated Statements of Operations and Comprehensive Income
Six and Three months ended June 30, 2004 and 2003
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ 85,298 784 85,298 724
Cost of Sales 58,923 220 58,923 181
------------ ------------ ------------ ------------
Gross Profit 26,375 564 26,375 543
Operating expenses
General and administrative expenses 457,356 32,190 435,033 20,422
------------ ------------ ------------ ------------
Total operating expenses 457,357 32,190 435,033 20,422
------------ ------------ ------------ ------------
Loss from operations (430,981) (31,626) (408,658) (19,879)
Other income (expense) -- -- -- --
------------ ------------ ------------ ------------
Loss before income taxes (430,981) (31,626) (408,658) (19,879)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss (430,981) (31,626) (408,658) (19,879)
============ ============ ============ ============
Loss per weighted-average share of
common stock outstanding, computed
on net loss - basic and fully diluted $ (0.05) (0.02) (0.03) (0.01)
============ ============ ============ ============
Weighted-average number of shares of
common stock outstanding-basic
and fully diluted 8,255,570 1,730,939 16,233,813 1,730,939
============ ============ ============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. The accompanying
notes are an integral part of these financial statements.
4
VoIP, Inc.
Consolidated Statements of Cash Flows
Six months ended June 30, 2004 and 2003
(Unaudited)
Six months Six months
ended ended
June 30, June 30,
2004 2003
---------- ----------
Cash flows from operating activities
Net loss for the period $ (430,981) $ (31,626)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 293 --
Common share issued for services 143,000 --
Changes in Operating Assets and Liabilities net of
assets and liabilities acquired:
Inventories (2,460) 191
Other current assets (33,719) (365)
Accounts Payables 83,455 --
---------- ----------
Net cash used in operating activities (240,412) (31,800)
---------- ----------
Cash flows from investing activities:
Cash from acquisitions (173,182) --
Purchase of property and equipment (20,231) --
---------- ----------
Net Cash used in investing activities (193,413) --
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 591,400 --
---------- ----------
Net cash provided by financing activities 591,400 34,193
---------- ----------
INCREASE (DECREASE) IN CASH 157,575 2,393
Cash at beginning of period 3,499 9
---------- ----------
Cash at end of period $ 161,074 $ 2,402
========== ==========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. The accompanying
notes are an integral part of these financial statements.
5
VoIP, Inc.
Notes to Financial Statements
Note A - Organization and Description of Business
The Company was incorporated on August 3, 1998 under its original name of
Millennia Tea Masters, Inc. under the laws of the State of Texas. The Company
changed its name to VoIP, Inc. on April 13, 2004.
The Company began operations in October 1998 with its initial order of imported
teas from Sri Lanka, has elected a year-end of December 31 and uses the accrual
method of accounting.
On April 13, 2004 the Company changed its name to VoIP, Inc.
The Company and its subsidiaries develop and manufacture innovative IP telephony
customer premise equipment in addition to premium voice over the internet
subscriber based telephony services and state of the art long range WiFi
technology solutions, for residential and enterprise customers, including
multimedia applications.
On February 27, 2004 the Company entered into a stock purchase agreement which
provided for the sale of 12,500,000 shares of its common stock in exchange for
$12,500 and a commitment by the purchaser to contribute the assets of two
start-up companies, eGloblaphone, Inc. and VOIP Solutions, Inc., which occurred
effective April 15, 2004.
On June 25, 2004, the Company closed the acquisition of VCG Technology, Inc.
d/b/a DTNet Technologies, Inc. ("DTNet")a Florida corporation. The acquisition
took the form of the issuance of 2,500,000 shares of VoIP, Inc. restricted
common stock in exchange the all issued and outstanding share of DTNet common
stock.
During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the United States Securities and Exchange
Commission. The information presented herein may not include all disclosures
required by generally accepted accounting principles and the users of financial
information provided for interim periods should refer to the annual financial
information and footnotes contained in its Annual Report Pursuant to Section 13
or 15(d) of The Securities Exchange Act of 1934 on Form 10-SB when reviewing the
interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending December 31, 2004.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
Note B - Going Concern Uncertainty
The Company commenced operations during the fourth quarter of 1998 and focused
significant resources during prior periods in procuring and importing inventory
and developing sales and distribution channels. Accordingly, the Company had
generated only minimal revenues through first quarter 2004.
Management has taken actions directly related to the acquisition of new business
concept to provide, from their operations, sufficient working capital to
preserve the entity. Additional funds will be obtained from private placements
of debt and equity securities.
The revenues for second quarter 2004 amounted to $85,298 primarily from our VoIP
hardware solution sales.
Accordingly, with the acquisitions consummated during last quarter and the
projected results for the year, management consider the company is no longer
under development stage.
Note C - Summary of Significant Accounting Policies
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, eGlobalPhone, Inc., VoIP Solutions, Inc.
and DTNet Technologies, Inc. from their respective dates of acquisition.
All significant intercompany balances and transactions have been eliminated
in consolidation
2. Cash and cash equivalents
-------------------------
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with maturities
of three months or less, when purchased, to be cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
3. Inventory
---------
Inventory consists of finished goods and is valued at the lower of cost or
market using the first-in, first-out method.
4. Organization costs
------------------
The Company has adopted the provisions of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" whereby all organization
and initial costs incurred with the incorporation and initial
capitalization of the Company were charged to operations as incurred.
5. Advertising expenses
--------------------
Advertising and marketing expenses are charged to operations as incurred.
6. Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. At June 30, 2004 and December 31, 2003, the deferred tax asset and
deferred tax liability accounts, as recorded when material, are entirely
the result of temporary differences. Temporary differences represent
differences in the recognition of assets and liabilities for tax and
financial reporting purposes.
At June 30, 2004 and December 31, 2003 deferred tax assets are related
solely to the Company's net operating loss carryforward of approximately
$743,000 and $303,000, respectively, which is fully reserved. If these
carry forwards are not utilized, they will begin to expire in 2018.
7
7. Earnings (loss) per share
-------------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of June 30, 2004 and 2003, the Company had
no warrants and/or options outstanding.
Note D - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Note E - Related Party Transactions
As of June 30, 2004, the Company has a balance due from related parties of
approximately $462,000, coming with DTNet acquisition, which are due on demand
and non interest bearing.
As of December 31, 2003, the Company has amounts payable to affiliated entities
and/or officers of approximately $151,000. These advances are unsecured, due
upon demand and are non- interest bearing.
Note F - Acquisition
On May 25, 2004 (but effective for all purposes as of April 15, 2004), the
company completed the acquisition of two Florida-based subsidiaries,
eGlobalphone, Inc. and VoIP Solutions, Inc. Contribution of these start-up
companies was the basis for the original decision to issue a controlling block
of shares of common stock to Mr. Ivester. eGlobalphone, Inc. and VoIP Solutions
Inc. both Florida corporations.
In June 2004, the company acquired DTNet Technologies, Inc. a Florida
Corporation. The acquisition took the form of an exchange of 2,500,000 shares of
the company's common stock in exchange for all issued and outstanding shares of
DTNet common stock. The Goodwill amounting to $5,210,563 is the difference
between the fair market value of the DTNet assets as of the date of acquisition,
and the valuation of 2,500,000 company shares at market value at that date.
Note G - Subsequent Events
On August 11, the Company issue warrants to purchase 2,200,000 shares of common
stock, at an exercise price of $1.00 per share, to two members of Company's
senior management.
8
PRO FORMA CONSOLIDATED FINANCIALS STATEMENTS - UNAUDITED
Following the summarized unaudited consolidated balance sheet and pro forma
consolidated statement of operations for the six months ended June 30, 2004
assuming the acquisition of DTNet Technologies, Inc., had taken place at the
beginning of the year. The unaudited pro forma results are not necessarily
indicative of future earnings or earnings that would have been reported had the
acquisition been completed when assumed.
9
VoIP, Inc.
Unaudited Proforma Consolidated Balance Sheet
June 30, 2004
Assets
------
VoIP DTNet Pro Forma
VoIP, Inc. eGlobalphone Solutions Technologies Adjustments Pro Forma
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Current assets:
Cash $ 123,387 18,585 23,509 (4,407) -- 161,074
Accounts receivable -- 500 10,965 179,353 -- 190,818
Due from affiliate (2) 553,475 41,163 -- -- (594,638) --
Due from related parties -- -- 461,896 -- -- 461,896
Inventory 254,003 -- 56,609 66,361 -- 376,973
Other current assets 38,319 22,980 -- 27,028 -- 88,327
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Total current assets 969,184 83,228 91,083 730,231 (594,638) 1,279,088
Property and equipment, net 19,938 230,849 4,350 44,594 -- 299,732
Investment in DTNet (4) 4,757,400 -- -- -- (4,757,400) --
Goodwill (4) -- -- -- 5,210,563 -- 5,210,563
Other assets 676 1,680 3,891 -- -- 6,247
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Total assets $ 5,747,199 315,757 99,325 5,985,388 (5,352,038) 6,795,630
=====================================================================================
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Accounts payable $ 83,455 28,309 930 749,385 (930) 861,149
Due to affiliates -- -- -- -- -- --
InterCo EGLOBALPHONE (3) -- -- 41,163 -- (41,163) --
Other Current Liabilities -- -- -- 478,603 -- 478,603
InterCo VoIP, Inc. -- 500,375 53,100 -- (553,475) --
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Total current liabilities 83,455 528,684 95,193 1,227,987 (595,568) 1,339,752
=====================================================================================
Capital deficit
Common stock - $.001 no par value
100,000,000 shares authorized
18,448,966 shares issued and outstanding 18,449 -- -- -- -- 18,449
Paid in Capital 6,493,057 -- -- 4,750,000 (4,750,000) 6,493,057
Accummulative deficit (847,762) (212,927) 4,132 7,401 (6,471) (1,055,627)
Total Stockholder's Equity 5,663,744 (212,927) 4,132 4,757,401 (4,756,471) 5,455,879
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Total Liabilities and
Stockholder's Equity $ 5,747,199 315,757 99,325 5,985,388 (5,352,039) 6,795,630
=====================================================================================
VoIP, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Six months eneded June 30, 2004
Revenues $ 40,611 -- 40,486 1,093,078 -- 1,133,971
Cost of sales -- 193 27,991 781,958 -- 810,142
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Gross profit 406 (193) 12,495 311,121 -- 323,829
General and administrative expenses 230,922 212,734 8,364 569,036 (258,845) 762,211
-------------------------------------------------------------------------------------
(Loss)/Profit before income taxes (230,516) (212,927) 4,132 (257,915) -- (438,381)
Net loss (230,516) (212,927) 4,132 (257,915) 258,845 (438,381)
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Loss per weighted-average share of common (0.03) -- -- -- -- (0.05)
stock outstanding, basic and fully diluted
Weighted-average number of common shares 8,255,570 -- -- -- -- 8,255,570
outstanding
10
Footnotes to pro forma consolidated financial statements - unaudited
1) Historical Financial Results for VoIP, Inc.
2) Adjustment to eliminate advances affiliated entity
3) Adjustment to eliminate intercompanies account
4) Goodwill is the difference between the fair market value of the DTNet
assets and the valuation of 2,500,000 company shares at market value
at the acquisition date.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein.
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
(2) Results of Operations
For the respective quarters ended June 30, 2004 and 2003, the Company had
revenues of approximately $85,298 and $724.
For the respective six month periods ended June 30, 2004 and 2003, the Company
had revenues of approximately $85,298 and $784.
Net losses for the respective quarters ended June 30, 2004 and 2003 were
$408,658 and $19,879. Net loss per share was approximately $0.02 and $0.01 for
each period. Total net losses for the respective six months ended June 30,2004
and 2003 were $430,981 and $31,626. Net loss per share was approximately ($0.05)
and $(0.02) for each six month period.
As mentioned in Note A, the company acquired DTNet Technologies, Inc. in June
2004. DTNet provides customer premises equipment to cable and DSL Internet
providers through North America. DTNet sales were approximately $4.7 million in
2003. Management believes that the acquisition of DTNet will provide proven
distribution Channels and leadership in sales throughout the Americas. DTNet
complements the company's strategy to deliver Voice over Internet Protocol over
a wireless local loop and deliver service provider solutions to cable operators.
11
(3) Liquidity and Capital Resources
Liquidity for the period from inception through June 30, 2004 has been mainly
provided by sales of common stocks through private placements. Management has
taken actions directly related to the generation of product sales during
Calendar 2004 and anticipates that these efforts will be sufficient to provide
sufficient resources to sustain its operations.
The company has identified that all working capital requirements for the current
annual period will be satisfied from the operation of the newly acquired
business and the sales of additional common shares through private placements.
The plans of operations are as follows:
The Company will market its Voice over IP broadband telephony service to
business and residential consumers through its eGlobalphone, Inc. subsidiary.
eGlobalphone service requires that customers have a high-speed Internet
connection to their home or business. A growing number of households and
business both in the United States and abroad have access to these broadband
connections through their local cable or Telephone Company. Broadband
penetration in the United States is about 58 percent and is expected to reach 70
percent by 2007.
The company plans to expand its service footprint in about 25 new markets
monthly concentrating primary on the major United States metropolitan areas. The
company's plans is to launch service in over 200 markets by year's end as part
of VoIP, Inc.'s strategic focus on IP-based communications services.
International markets will be opened in parallel with domestic US markets, but
at a slower pace and only as market demand is evidenced. Due to the nature of IP
telephony, these markets are not significantly more complex to weave into the
existing back-office design, though often there are regulatory issues in each
nation which must be managed appropriately. The company's goal is to sign up 2.3
million business and consumer customers by 2007, including domestic and
international subscribers.
eGlobalphone plans to support the marketing of eGlobalphone Service with an
extensive communications campaign that will include mass market advertising on
television, radio and in print and through direct mail, viral marketing and
online advertising in addition to an extensive network of resellers through out
the world. We have emphasized on sales in the international marketplace through
resellers and wholesalers, believing that the need for a less expensive service
is vital in many countries globally. We will seek marketing partners in each
country that is identified as a potential market, in order to provide a local
presence. Manuals, interfaces, voice prompts, and operators will be tailored for
the primary language of the nationality, and the sales force will operate
locally to provide "high-touch" comfort to these localized markets. A major
opportunity for resale is being developed with a private retail wireless vendor,
to allow for a very "high-touch" interaction with customers. This model has
proven to be successful in wireless sales, and it is believed that the same
marketing strategy and distribution channel will be successful for other
telephony services that the company can offer consumers.
Customers can access the eGlobalphone network for long-distance telephony from
any high speed Internet connection anywhere in the world. The eGlobalphone
service provides a two line patent pending MTA (Multimedia Terminal Adaptor)
with built-in router and many enhanced functions such as Quality of Service
(QoS) bandwidth management, failure-resistant backup systems, and low-bandwidth
codec support. The MTA is manufactured by iCable System Co. Ltd. a Korean
company that is contractually tied to VoIP-Solutions, Inc a wholly owned
subsidiary of VoIP, Inc. By having our own propriety MTA with custom designed
enhanced features we feel that we have a distinct advantage over our competition
based on these enhancements and our patent pending 911 emergency access.
eGlobalphone is believed to be the only VoIP (voice over internet protocol)
company offering 911 emergency access and integration with the existing
infrastructure without the use of a third party database. This proprietary
system utilizes an automated switching circuit to route the call to the user's
local emergency service provider (911 call center) and will also "fail safe" in
the event of a power outage or internet service interruption.
eGlobalphone Service is different than traditional phone services because
through the use of IP-based networks it will offer customers typical features
such as call waiting, three-way calling, and call forwarding, and far more
12
advanced ones as well. Indeed, consumers will get unprecedented convenience and
control with advanced (and often free) features including: voicemail, caller ID,
, call transfer, caller ID blocking, call forwarding, and voicemail-to-email
service. Low-priced directory information (411) services, conference call
capabilities, "follow-me" calling, and other features are offered as additional
line items or per-call products which contribute to the revenue stream for this
product.
There are significant new features that the company will introduce in the next
year which are currently under development. These features will further extend
the abilities of the platform to function as a flexible telephony tool for end
users and not merely be a replacement for traditional telephony. Much in the
same way that cell phone features have driven the successful launch of new
companies in the mobile market, eGlobalphone believes that a combination of
features in the hardware and service will quickly develop the customer base.
The Company's VoIP Solutions, Inc. subsidiary is an emerging global service
provider of Voice over IP based solutions to Internet Service Providers,
Telecommunications Service Providers and Cable Operators in strategic countries
around the world. VoIP, Inc, through its subsidiary, provides a comprehensive
portfolio of IP multimedia-based solutions ranging from subscriber based voice
services, to SIP based infrastructure design and deployment, to broadband
customer premise equipment design and implementation services, as well as
engineering design, manufacturing and distribution of wireless broadband
technology. VoIP, Inc. has applied for a patent for its state of the art VoIP
Multimedia Terminal Adaptor which today supports the FCC Commission's desire for
VoIP providers to deliver Emergency 911 Calling and Law Enforcement Access
capabilities to the marketplace.
VoIP, Inc. plans to support marketing of the VoIP-Solutions subsidiary with an
extensive communications campaign that will include mass market advertising
directly to industry leaders, and through direct mail, viral marketing and
online advertising in addition to an extensive network of value added resellers
through out the world. The biggest problem facing small carriers and cable
operators, is that they lack the money to build a telephone network. Prior to
this year, getting into voice was considered capital-intensive and out of reach
for small and medium-level operators, thus one of the primary reasons that
VoIP-Solutions has been created. We have entered into the market to offer the
'back office' infrastructure to make voice possible for small and medium-sized
cable companies, IPS's and MSO's.
More and more cable companies want to get into phone service as a way to remain
competitive, especially as satellite companies and even local telephone carriers
are snatching away customers by offering video and high-speed Internet
capability. It's a free-for-all land grab in the home telephone market and and
one of the reasons that we have put so much emphasizes on our VSP (Virtual
Service Provider) model. This product is a perfect fit for the small and
medium-sized cable companies, IPS's and MSO's allowing them to maintain customer
ownership and increase revenues while eliminating the cost of network
infrastructure and the learning curve that is sometimes, an expensive lesson.
On July 14, 2004 the company announced its first Virtual Service Provider
partner; and continues to establish its products in a niche market with small-
and medium-sized cable companies, IPS's and MSO's. The company plans to add over
100 Virtual Service Provider partner's by the December 31, 2004, year end.
We have emphasized on sales in the international marketplace through resellers
and wholesalers, believing that the need for a less expensive service is vital
in many countries across the globe. We will seek marketing partners in each
country that is identified as a potential market, in order to provide a local
presence. Manuals, interfaces, voice prompts, and operators will be tailored for
the primary language of the nationality, and the sales force will operate
locally to provide "high-touch" comfort to these localized markets
13
Our experience in the IP networking and VoIP technology arenas allow us to offer
rapid project assessment and subsequent deployment of a voice services
infrastructure to a customer with an existing IP network such as an ISP
(Internet Service Provider), CLEC (Competitive Local Exchange Company), PTT
(Public Telephone and Telegraph) and PCO, (Private Cable Operator.) Our
solutions involve delivery of portions of a SIP-based infrastructure
(cost-effective media gateways, transcoding solutions, SIP proxies) or a full
turn-key system with components that are custom designed to work with each other
(Billing system, invoice system, least-cost-routing, rate import/exports, etc.)
Our combined technology, expertise, resources within the telephony community,
and ability to provide right-priced solutions comprise a strong value
combination for our customers as they bring their existing base of Internet
users into a VoIP product line
Our strategy is to be a recognized worldwide leader in providing IP telephony,
customer premise equipment in addition to premium voice over the Internet
subscriber based telephony services and innovated wireless fidelity ("WiFi")
technology solutions for residential and enterprise customers.
With the new benefits of wireless networks, VoIP Solutions can leverage the use
of the VoIP-Solutions MTA product and knowledge.
Services provided in a potential VoIP Solutions package to customer could
include:
o Billing systems/Platform
o Customer Premise Equipment (CPE)
o Service and application design
o Network design
o Switching platforms
o Back Office/OSS systems
o Web site design and back office integration
o Telephone number management applications
o Auto CPE provisioning systems
o Wholesale call termination
o Installation and training
o Support agreements
o Consultancy
The company maintains a stock of all VoIP-Solution's products for sale to
end-users, carriers and resellers. Included is the Flag Ship product "MTA"
(Multimedia Terminal Adaptor) the MTA's are manufactured with varying options to
meet the demands of today's network operators for tomorrows future IP networks,
products include:
VoIP ADSL Modem (SIP)
o MTA-A201C - 1 line VoIP, 1 line PSTN
o MTA-A201W - 2 lines VoIP / LAN (802.11b) or (g)
o MTA-A201CW - 1 line VoIP, 1 line PSTN / LAN (802.11b) or (g)
VoIP Cable Modem (SIP)
o MTA-C102 - 2 Line VoIP
o MTA-C101C - 1 Line VoIP, 1 Line PSTN
o MTA-C102W - 2 lines VoIP / LAN (802.11b) or (g)
o MTA-C102CW - 1 line VoIP, 1 line PSTN / LAN (802.11b) or (g)
14
VoIP MTA (SIP)
o MTA-102 - 2 lines VoIP
o MTA-102C - 1 line VoIP, 1 line PSTN
o MTA-102W - 2 lines VoIP / LAN (802.11b) or (g)
o MTA-102CW - 1 line VoIP, 1 line PSTN / LAN (802.11b) or (g)
The Company has developed intellectual property and software for the soft switch
platform and associated applications developed for the eGlobalphone service.
This includes the source code for the switching servers and related application
servers. An agreement with Porta One provides access to software source code and
database schemas that permit custom application, layer development and
integration. Along with the billing and back office application, VoIP Solutions
can supply all of the components, services and customization to fully equip a
VoIP Telco.
DTNet Technologies Inc. is a primary importer and distributor of cable network
components, cable modems, ADSL modems, wireless products and other Customer
Premise Equipment for the cable and Telco industries. Established in 1999, their
1000 plus clients include AT&T, Comcast, Cox Cable, Bell South, Time Warner as
well as regional and local Multiple Service Operators (MSO's). DTNet has
experienced strong growth sales for the past three years have increased from
approximately $2 million in 2001 to $2.9 million in 2002 and $4.7 million in
2003. With the addition of the products from VoIP, Inc., specifically the Multi
Media Terminal Adaptor and the Virtual Service Provider solution, 2004 sales are
projected to reach $7.5 million. DTNet has established itself as a respected
supplier to the cable industry. This includes a strong relationship with the
National Cable Television Cooperative (NCTC) representing over 1000 cable
operator members.
VoIP Inc. acquired 100% of DTNet on June 25, 2004 through a stock purchase. In
addition to the existing business and revenues, the acquisition provided VoIP
Inc. with direct access to a valuable market and a nationwide sales force to
sell products and services from other VoIP Inc. companies. There is also a
demand within the group for the existing products distributed by DTNet.
Additionally, the existing customer base of DTNet consists of firms which are
the primary target for other VoIP, Inc. products. This customer base and the
existing relationships that DTNet has developed is one of the primary benefits
of the acquisition strategy.
VoIP, Inc.'s DTNet subsidiary to pursue cable companies for voice deals: The
availability of VoIP hardware and services from other VoIP Inc. subsidiaries has
positioned DTNet to be a leader in marketing VoIP, Inc. products and services
into this channel. The NCTC is in the process of evaluating DTNet as the
preferred VoIP vendor and contracts are in progress with over 20 members for the
supply of outsourced services, Customer Premise Equipment (CPE), and wholesale
long-distance, local, and international call termination/origination. The desire
of cable companies to diversify their service offerings to increase their
revenue and profitability will be the motivation for interest in the combined
offerings of DTNet and VoIP, Inc.'s newly combined abilities and product lines.
The Company previously announced a joint venture arrangement known as iMax
Solutions with iCable Co., Ltd. to market iCable products in the Western
Hemisphere. Such venture required a $5 million capital contribution from the
Company in exchange for sales contracts and leads from iCable that would be
divided 51% to VoIP and 49% to iCable. The Company determined that its resources
would be better utilized by terminating the arrangement and develop its own
wireless fidelity technology through proprietary research and development and
smaller scale acquisitions.
On August 12, 2004 VoIP Inc. renegotiated the relationship with iCable to a
distribution agreement for North America and South America. As part of the new
Agreement in principle, iCable is no longer obliged to warrant the sales revenue
of iMax. This increases VoIP Inc.'s holding to 100% of iMax Solutions Inc. with
no further requirement for VoIP Inc. to pay iCable $5 million for the
distribution rights.
The Company has made an agreement in principle with iCable to terminate the
Investors Agreement and instead enter into a Distribution Agreement for North
and South America. Such arrangement will result in (i) elimination of the VoIP
capital contribution, (ii) iMax being owned 100% by VoIP, and (iii) the
elimination of the guarantee of sales from iCable. The parties will continue to
negotiate the Distributor Agreement.
15
VoIP Inc. is actively selling iCable products to a growing number of OEM
customers, resellers, wholesale Virtual Service Providers and uses of the
eGlobalphone VoIP service. The new agreement will not materially change the
forecasted sales of iMax. The joint development of products and features
specifically catering for the U.S. market continues.
Recent Developments
We have recently made a number of announcements regarding key business
development milestones that should start to materially contribute to our
revenues and profitability improvement during the second half of 2004.
On August 16, 2004, VoIP, Inc. announced the expansion of its residential and
business Voice over Internet Protocol (VoIP) phone service, eGlobalphone. The
expansion Includes Texas, Ohio, Washington, Pennsylvania, North Carolina,
Michigan, Minnesota and Missouri. The availability of the eGlobalphone Service
to residents and businesses in 8 additional states marks the commitment by VoIP,
Inc. the parent company of eGlobalphone to meet the needs of customers globally;
offering a high-tech alternative for their communications needs.
On July 14, 2004,VoIP, Inc. announced that it has signed a Virtual Service
Provider (VSP) Agreement with VOIP-4U, a United Kingdom-based Telco. Under the
Agreement, VoIP Inc. will supply their proprietary media gateways for local
Interconnection with British Telecommunications service providers in addition to
supplying MTA's (Multimedia Terminal Adaptors) from its wholly owned subsidiary,
VoIP-Solutions Inc. Additional equipment supplied will include ADSL Modems with
built in Multimedia Terminal Adaptor & router function that combines a DSL
modems with Voice
On July 13, 2004, VoIP, Inc. announced the unveiling of their Virtual Service
Provider (VSP) resale model for service providers. Using the industry-leading
SIP protocol and a flexible back-end billing and call routing service, VoIP Inc.
today announced a new service for network service providers. VoIP, Inc. will be
offering a complete Voice over Internet Protocol (VoIP) solution that enables
Internet service providers to offer low cost VoIP services to their customers
quickly and without the normal high cost of a program rollout.
On June 28, 2004,VoIP, Inc. announced that it has finalized the acquisition of
DTNet Technologies, Inc., a privately held company based in Tampa, Fla. DTNet
will operate as a wholly owned subsidiary of VoIP, Inc. Under the Purchase
Agreement, VoIP, Inc. has acquired 100% of the stock of DTNet Technologies, Inc.
in exchange for the issuance of 2.5 million common shares of VoIP, Inc. "The
acquisition of DTNet will provide proven distribution channels and top
leadership in sales throughout the Americas," stated Steven Ivester, CEO and
President of VoIP, Inc. "DTNet complements VoIP Inc.'s strategy to deliver Voice
Over Internet Protocol over a wireless local loop and deliver service provider
solutions to Cable Operators. DTNet is well established and respected in these
industries. The Company will provide valuable resources and a strong
distribution channel for our products and services
On June 7, 2004,VoIP, Inc. announced that it has executed a Letter of Intent to
acquire DTNet Technologies, Inc., a privately held company based in Tampa, Fla.
Under the proposed Purchase Agreement, VoIP, Inc. will acquire 100% of the stock
of DTNet Technologies, Inc. in exchange for the issuance of 2.5 million common
shares of VoIP, Inc.
On May 27, 2004, VoIP, Inc. announced that it has filed a patent application
with the U.S. Patent and Trademark Office. The patent application is titled
"Method and System for Back-up of Voice Over IP Emergency Calls." The ability to
use geographically-based emergency services location ability is a huge step
forward in the advancement of VoIP services and their integration into existing
telephony infrastructure.
16
On May 26, 2004, VoIP, Inc. announced that its wholly owned subsidiary, VoIP
Solutions, Inc. has received a purchase order contract from ANEW Broadband,
Inc., located in Miami. Under the contract, ANEW Broadband has committed to
purchase a total of 15,000 MTA-V102 units of which a minimum of 5,000 pieces are
to be purchased the 1st year, and a minimum of 10,000 pieces the 2nd year. The
contract is valued in excess of $1 million. The items to be purchased include
Multimedia Terminal Adaptors (MTA), Proxy Server and Provisioning server.
On April 15, 2004, we announced that as per the terms of the Feb. 27, 2004
change of control of the Company, Steven Ivester, president and CEO and
controlling shareholder of the Company, has today contributed the intellectual
property rights and related assets of two start-up companies formed to engage in
the Voice over Internet business. The following are the descriptions of the two
companies, who have become wholly owned subsidiaries of the Company.
Item 3. Controls and Procedures
Within the 90 days prior to the filing date of this report, the Company
performed an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's President and Chief Financial Officer. Based upon that evaluation,
they concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
the Company's disclosure obligations under the Exchange Act. The two executive
officers responsible for the financial reporting and disclosure are also in
control of the books and records of the Company and are involved first hand in
the decision making process of material transactions.
17
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
The following unregistered securities have been issued during the second
quarter of 2004:
Effective April 1, 2004, Registrant issued 142,902 shares to two accredited
investors in satisfaction of accounts payable totaling $71,421.
Effective May 10, 2004, Registrant issued 67,300 shares to 14 individual
accredited investors at a price of $3.00 per share.
Effective May 19, 2004, Registrant issued 196,340 shares to two accredited
investors in satisfaction of accounts payable totaling $79,745.
Effective June 25, 2004, Registrant issued 2,500,000 shares to acquire all
issues and outstanding shares of DTNet Technologies, Inc. common stock.
All securities described herein were issued in transactions exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
31.1 Certification by CEO pursuant to 18 USC Section 1350 as adopted
by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by CFO pursuant to 18 USC Section 1350 as adopted
by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by CEO pursuant to 18 USC Section 1350 as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by CFO pursuant to 18 USC Section 1350 as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002.
18
(b) Reports on Form 8-K
Form 8-K filed with the SEC on April 12, 2004
Form 8-K filed with the SEC on April 15, 2004
Form 8-K filed with the SEC on April 19, 2004
Form 8-K filed with the SEC on May 25, 2004
Form 8-K filed with the SEC on May 27, 2004
Form 8-K filed with the SEC on June 2, 2004
Form 8-K filed with the SEC on June 8, 2004
Form 8-K filed with the SEC on June 9, 2004
--------------------------------------------------------------------------------
SIGNATURES
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.
VoIP, INC.
August 18, 2004 /s/ Steven Ivester
---------------------------------
Steven Ivester
President and CEO
/s/ Osvaldo Pitters
---------------------------------
Osvaldo Pitters
Chief Financial Officer
19