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
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934
For the transition period from _________ to ________
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Commission File Number: 0-28985
VoIP, Inc.
(Exact name of small business issuer as specified in its charter)
Texas 75-2785941
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(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: November 12, 2004: 23,251,482
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 September 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 18
Part II - Other Information
Item 1 Legal Proceedings 19
Item 2 Changes in Securities 19
Item 3 Defaults upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 21
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VoIP Inc.
Consolidated Balance Sheets
September 30, 2004 and December 31, 2003
(Unaudited) (Audited)
Sept.30,2004 Dec.31,2003
------------ ------------
ASSETS
Current Assets
Cash on hand and in bank $ 237,524 $ 3,499
Accounts receivable 806,686 --
Due from related parties -- --
Inventory 369,944 251,534
Other current assets 133,412 4,425
------------ ------------
Total Current Assets 1,547,566 259,458
------------ ------------
Property and equipment, net 385,405 --
Goodwill 6,618,864 --
Investment DTNet -- --
Investment Voipamericas -- --
Other assets 15,572 --
------------ ------------
TOTAL ASSETS $ 8,567,407 $ 259,458
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,169,840 $ --
Amounts due to affiliates -- 151,166
Other current liabilities 726,676 --
------------ ------------
Total Liabilities 1,896,516 151,166
------------ ------------
Commitments and contingencies -- --
Stockholders' equity Common stock - $0.01 par value
100,000,000 shares authorized
20,859,434 and 1,730,939 issued
and outstanding respectively 20,859 1,731
Additional paid in capital 11,885,049 731,208
Accumalitive deficit (5,235,017) (624,647)
------------ ------------
Total stockholders' equity 6,670,891 108,292
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,567,407 $ 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
Nine and Three months ended September 30, 2004 and December 31, 2003
(Unaudited)
Nine months Nine months Three months Three months
ended September ended September ended September ended September
30, 2004 30, 2003 30, 2004 30, 2003
------------ ------------ ------------ ------------
Revenues $ 1,015,065 $ 5,075 $ 929,767 $ 4,291
Cost of Sales 737,904 1,268 678,981 1,048
------------ ------------ ------------ ------------
Gross Profit 277,161 3,807 250,786 3,243
Operating expenses
General and administrative expenses 4,887,531 57,428 4,430,175 25,238
------------ ------------ ------------ ------------
Gain (Loss) from operations (4,610,370) (53,621) (4,179,389) (21,995)
Other income (expenses) -- -- -- --
------------ ------------ ------------ ------------
Gain (Loss) before income taxes (4,610,370) (53,621) (4,179,389) (21,995)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Gain (Loss) $ (4,610,370) $ (53,621) $ (4,179,389) $ (21,995)
============ ============ ============ ============
Loss per weighted average share
of common stock outstanding
computed on net loss - basic and
fully diluted $ (0.42) $ (0.03) $ (0.21) $ (0.01)
Weighted average number of
shares of common stock
outstanding-basic and fully
diluted 10,989,990 1,730,939 19,642,390 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
Nine months ended September 30, 2004 and 2003
(Unaudited)
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
----------- -----------
Cash flows from operating activities
Net loss $(4,610,370) $ (53,621)
Adjustments to reconcile net loss to net
cash used in operating activities -- --
Depreciation 2,964 --
Common shares issued for services 344,166 --
Warrants issued to employees 3,520,000 --
Changes in operating assets and liabilities
net of assets and liabilities acquired
Accounts receivable (4,583) --
Inventory (37,580) 1,229
Other current assets (76,760) (5,801)
Accounts payable (10,618) --
Other current liabilities 87,949 --
----------- -----------
Net cash used in operating activities (784,832) (58,193)
----------- -----------
Cash flows from investing activities
Cash from acquisitions 104,862 --
Purchase of property and equipment (43,550) --
Purchase of other assets (13,092) --
----------- -----------
Net cash provided by investing activities 48,220 --
----------- -----------
Cash flows from financing activities
Proceeds from sales of common stock 1,121,803 58,896
Due to affiliates (151,166) --
----------- -----------
Net cash flow provided by financing activities 970,637 58,896
----------- -----------
Net increase in cash 234,025 703
Cash at beginning of period 3,499 9
----------- -----------
Cash at end of period $ 237,524 $ 712
=========== ===========
Supplemental cash flow information:
Common stock issued for cash received
by and services to affiliates $ 337,000 $ --
=========== ===========
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 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 that
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 for all issued and outstanding shares of DTNet common
stock.
On August 4th, 2004, the Company issued 4,400,000 warrants to two executives to
acquire 4,400,000 shares at $1.00 per share.
Effective September 1st, 2004, VoIP Inc. closed the acquisition of Vox
Consulting Group, Inc., d/b/a VoIP Americas, a Florida corporation. The
acquisition took the form of an exchange of 1,000,000 shares of VoIP restricted
common stock in exchange the all issued and outstanding shares of Voip Americas
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-KSB 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. Management anticipates that the company will attempt to
obtain additional funds from private placements of debt and equity securities.
The revenues through third quarter 2004 are $1,015,065 and show an increase of
19,901% compared to the same period of 2003.
Accordingly, with the acquisitions consummated during last quarters and the
projected results for the year, management considers that the Company is no
longer in the 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.,
DTNet Technologies, Inc., and VoIP Americas 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 was charged to operations as incurred.
5. Advertising expenses
--------------------
Advertising and marketing expenses are charged to operations as incurred.
7
6. Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. At September 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 September 30, 2004 and December 31, 2003 deferred tax assets are related
solely to the Company's net operating loss carry forward of approximately
$1,400,000 and $303,000, respectively, which is fully reserved. If these carry
forwards are not utilized, they will begin to expire in 2018.
7. Earnings (loss) per share
-------------------------
Basic earnings (loss) per share are 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.
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 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 - Acquisitions
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.
In September 2004, VoIP Inc. closed the acquisition of Vox Consulting
Group, Inc., d/b/a VoIP Americas, a Florida corporation. The acquisition took
the form of an exchange of 1,000,000 shares of VoIP restricted common stock in
exchange for all issues and outstanding shares of VoIP Americas common stock.
The Goodwill amounting to $1,408,301 is the difference between the fair market
value of the Voip Americas assets as of the date of acquisition, and the
valuation of 1,000,000 company shares at market value at that date.
8
Note G - Warrants
On August 4th, 2004, the Company issued 4,400,000 warrants to two executives to
acquire 2,200,000 shares at $1.00 per share each. The additional compensation of
$3,520,000, shown in General and Administrative expenses in the Consolidated
Statement of Operations, is the difference between the market price of the
shares and the $1.00 purchase price.
Note H - Subsequent Events
On November 11th, 2004, the Company closed a subscription agreement to sell
1,937,500 shares of common stock to four investors for net proceeds to the
Company of approximately $1,400,000.The Company also issued Class A 5 year
warrants to purchase a total of 589,250 shares at an exercise price of $1.75 per
share, and Class B warrants to purchase a total of 968,700 shares for an
exercise price of $1.20 per share during a 30 day period following the
effectiveness of a registration statement to register the resale of all shares
issued.
9
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
Following the summarized unaudited pro forma consolidated statement of
operations for the nine months ended September 30, 2004 assuming the
acquisitions of eGlobalphone Inc., VoIP Solutions, Inc., DTNet Technologies,
Inc., and Voip Americas 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.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Footnotes to pro forma consolidated statement of operations - unaudited
1) Represents the results of operations form January 1, 2004 to April 15, 2004.
2) Represents the results of operations form January 1, 2004 to June 25, 2004.
3) Represents the results of operations form January 1, 2004 to August 31, 2004.
10
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 September 30, 2004 and 2003, the Company had
revenues of $929,767 and $4,291.
For the respective nine month periods ended September 30, 2004 and 2003, the
Company had revenues of $1,015,065 and $5,075.
The significant increase in revenues was provided primarily by Voipamericas and
DTNet. As mentioned in Note A, the company acquired DTNet Technologies, Inc. in
June 2004 and Voipamericas in September 2004. DTNet provides customer premises
equipment to cable and DSL Internet providers throughout North America. DTNet
sales were approximately $4.7 million in 2003. Voipamericas revenues for the
first nine months of the year were $1.4 million. Management believes that the
acquisitions of DTNet and Voipamericas will provide proven distribution channels
and leadership in sales throughout the Americas. DTNet and Voipamericas
complement the company's strategy to deliver Voice over Internet Protocol over a
wireless local loop and deliver service provider solutions to cable operators.
Net losses for the respective quarters ended September 30, 2004 and 2003 were
$4,179,389 and $21,955. Net loss per share was approximately $0.21 and $0.01
respectively for each period. Total net losses for the respective nine months
ended September 30, 2004 and 2003 were $4,610,370 and $53,621. Net loss per
share was approximately ($0.42) and $(0.03) respectively for each nine month
period. This included the one time event of the issuance of 4,400,000 warrants
to two executives to acquire 2,200,000 Company shares at $1.00 for each. The
difference between the market value and the $1.00 share price is $3,520,000.
Additionally, there is an increase of $ 884,937 in operating costs attributable
basically to start up operations.
(3) Liquidity and Capital Resources
Liquidity for the period from inception through September 30, 2004 has been
mainly provided by sales of common stocks through private placements and
borrowing from affiliates. 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 during 2005.
11
The Company anticipates 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.
As mentioned in Note H - Subsequent Events in the financial statements, in
November the Company formalized funding in the amount of $1,550,000 by issuing
1,973,500 shares of common stock to four subscribers.
The plans of operations are as follows:
eGlobalphone - a wholly owned subsidiary of VoIP Inc.
The Company will market its scriber bases 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 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. Even with the speed constraints of such an international
expansion, it is anticipated that a significant portion of customers added to
the network will not be based in the United States. 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.
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, virtual marketing and
online advertising in addition to an extensive network of resellers through out
the world. We have emphasized 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 VoIPSolutions, 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.
12
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.
VoIP Solutions, Inc. - a wholly owned subsidiary of VoIP Inc. The Company's VoIP
Solutions 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 to the marketplace.
SERVICES (Virtual Service Provider)
-----------------------------------
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 and staff intensive, which
put it 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. There are significant
cost savings provided by the economy of scale realized by combining many
operators into a single yet compartmentalized product offering. Each customer
remains in control of their customer base and product offerings, yet needs to
spend only a tiny fraction of what would be required to implement such a system
in-house. We term this product offering our "VSP" (Virtual Service Provider"
model.
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 taking customers by offering video and high-speed Internet capability. It is
very competitive in the home telephone market and one of the reasons that we
have put so much emphasizes on our VSP 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
10 Virtual Service Provider partners by the December 31, 2004, year end.
We have emphasized 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.
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
13
as parts of our outsourced service offering (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.
Services provided in a potential VoIP Solutions package to customer include:
o Billing systems/Platform
o Customer Premise Equipment (CPE)
o Service and application design
o Switching platforms
o Back Office/OSS systems
o Telephone number management applications
o Auto CPE provisioning systems
o Wholesale call termination
o Installation and training
o Support agreements
o Consultancy
HARDWARE
--------
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. Our VSP customers require extremely close
integration of equipment and services, so we have designed and implemented
provisioning systems and device firmware that matches our product offerings
precisely. However, this same provisioning and firmware design is also
applicable to other VOIP networks if appropriately marketed. Our experience with
various SIP (Session Initiation Protocol) customer premise devices has led us to
develop specific feature sets and innovative designs which have applications
outside of our VSP service offering. It is clear that capturing the entire
market with a combined service and hardware platform is overly ambitious, but
there has been significant demand for the hardware platform by itself for
integration into enterprise or other wholesale SIP solutions offered by other
vendors. Rather than deny that demand, we have developed a marketing strategy
that sells our hardware and provisioning systems as "standalone" products for
those customers who have specific requirements for high-quality and scalable
volume customer premise equipment.
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 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)
o A201C - 1 line VoIP, 1 line PSTNMTA-A201W - 2 lines VoIP / LAN (802.11b)
or (g)MTA-
o A201CW - 1 line VoIP, 1 line PSTN / LAN (802.11b) or (g)
14
The Company has developed intellectual property and software for the soft switch
platform and associated applications developed for the eGlobalphone service.
This includes 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.
VoIP Americas - a wholly owned subsidiary of VoIP Inc.
In September 2004, VoIP, Inc. acquired VoIP Americas, a Miami-based firm
providing services and long-distance call termination/origination via VoIP
protocols. Their focus has been to sell to wholesale and large enterprise
VoIP-enabled gateway operators as a cost-effective alternative to switched (TDM)
termination. Their products are as follows:
VoIP Americas is firmly committed to applying state of the art business
practices to all aspects of operations including a strong alternate channel
program for sales and marketing. By partnering with leading IP PBX
manufacturers, distributors, and integrators - VoIP Americas will be able to
easily and efficiently target this lucrative and underserved market. By
enhancing the value proposition of owning a next generation PBX, channel
partners will be able to increase adoption and enjoy residual revenue streams.
In return, VoIP Americas will enjoy ready access to this explosive segment, and
be able to leverage built-in VoIP adoption.
VoIP800(TM) & VoIPDID(TM)
VoIP800(TM) and VoIPDID(TM) allows emerging carriers to offer US local numbers
and toll free numbers to their customer base. The key differentiator of these
services is the instant on-line provisioning, which reduces the time to market
from months to minutes. Three service levels will be offered:
1. Basic -- Intended for the end-user or development phase for service provider.
This level of service allows the user to provision a total of 10 DID's and toll
free numbers. 2. Service Provider Basic -- This option allows an unlimited
number of DID's and Toll Free numbers. 3. Service Provider API--This will be the
most complete option and will allow the service provider to display VoIP
Americas' inventory of numbers to their end users, and have the numbers
provisioned in real time.
Wholesale VoIP
VoIP Americas highest revenue generating product is wholesalevoip(TM), which
allows emerging carriers from around the world to terminate US, Canada and
International traffic via SIP and H323. Setup is performed online allowing
customers to interconnect immediately. Typical carrier customers are small to
midsized ITSP firms seeking good rates and high quality of service. Often, it is
possible for these carriers to achieve better rates to directly neighboring
nations by looping their calls through the United States due to volume
discounts, which means VoIP Americas is well-positioned to terminate this
international traffic for existing customers as well as new customers brought on
by the VSP offering. The features of Wholesale VoIP are:
o Immediate Provisioning
o Real Time Billing
o H323 and SIP support
o Competitive Pricing
o Low Volume Commitments
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Corporate VoIP
Perhaps the most exciting product offering in the line up, corporatevoip(TM) is
intended to fill the wide niche that is currently being ignored by the large
traditional TDM carriers. This product is simply intended to provide dial tone
and termination services to existing users of IP PBX's via voiptrunking(TM) over
the Internet. While many service providers including XO, MCI and Bell South
offer IP Centrex, the existing IP PBX operator has no alternative but to
provision expensive gateways, typically on PRI lines which cost hundreds or
thousands of dollars per month depending on location and hardware requirements.
The corporatevoip(TM) offering allows almost instant configuration of trunking
to IP-enabled PBX systems and delivery of products over existing broadband
corporate Internet connectivity. The advantages of the products are:
o Immediate self service on-line Provisioning
o Full Access to DID & Toll Free Inventory o Real Time CDR's
o "Try before you buy" - Service has very little cost associated
and does not require any physical provisioning.
o Extensive cost, and provisioning cycle savings for end user
Going forward, this product can easily be extended to support a VoIP Appliance
for legacy PBX users. This appliance can come in multiple configurations (FXS;
FXO; 1 T-1; 4 T-1's). Sample production cost for the appliance is $1,100.00 for
1 T-1 configuration. Development and feature specifications on a product of this
type, if offered, are still pending.
The combination of VoIP Americas' current long-distance contracts and
infrastructure are a perfect compliment to the VSP offerings of the VoIP
Solutions VSP offerings. By bundling minute termination/origination at even
better wholesale rates, plus hardware and back office, the customer is served by
this combined offering on a single bill instead of negotiating separately for
each component. VoIP Americas is currently blending its network and termination
infrastructure with the rest of the Company, and significant cost savings have
already been realized since September due to better rates and reduction of
redundant expenses.
DTNet Technologies Inc. - a wholly owned subsidiary of VoIP Inc.
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). With the addition
of the products from VoIP, Inc., specifically the Multi Media Terminal Adaptor
and the Virtual Service Provider solution, 2005 ales 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.
The strong 5 year relationship DTNet has developed with the NCTC has positioned
DTNet to be a leader in marketing VoIP-Solutions, Inc. products and services
into this valuable 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.
16
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 developing its own
wireless fidelity technology through proprietary research and development and
smaller scale acquisitions.
On September 01, 2004 VoIP Inc. negotiated the relationship with iCable for a
distribution agreement for North America and South America. This agreement
appoints VoIP Inc. as the exclusive distributor for certain iCable products
including VoIP ADSL Modems A201, A201C, A201W, A201CW, VoIP Cable Modems C102,
C101C, C102W, C101CW, and MTAs G102, G102C, G102W, and G101CW. 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.
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 last quarter of 2004.
On October 19, 2004, VoIP Inc. announced at the Fall VON 2004 conference that it
has signed a Virtual Service Provider contract with J & N Cable Systems a
Private Cable Operator (PCO) located in the western US serving 10 cities in 2
states. J & N Cable Systems will offer voice over IP (VoIP) telephone service to
its customer base, allowing those customers to bypass traditional phone
companies, signaling the start of a technological shift that could change the
cable industry--one of the biggest and most important industries in the US
economy.
On October 8, 2004, VoIP Inc. announced the company has been awarded a VoIP
Service Provider Award by Technology Marketing Corporation (TMC(R))'s INTERNET
TELEPHONY(R) magazine at the INTERNET TELEPHONY Conference and EXPO Fall 2004 in
Los Angeles. The three day event is the largest VoIP trade show in the world.
The INTERNET TELEPHONY VoIP Service Provider Award is presented to companies
whose VoIP visions have delivered on the promise of excellence for their clients
in a genuine and measurable way.
On October 7, 2004, VoIP Inc. announced the company has been awarded a VoIP
Service Provider Award by Technology Marketing Corporation (TMC(R))'s INTERNET
TELEPHONY(R) magazine at the INTERNET TELEPHONY Conference and EXPO Fall 2004 in
Los Angeles. The three day event is the largest VoIP trade show in the world.
The INTERNET TELEPHONY VoIP Service Provider Award is presented to companies
whose VoIP visions have delivered on the promise of excellence for their clients
in a genuine and measurable way.
On September 29, 2004, VoIP Inc. announced that VoIP-Americas has been named to
the 2004 "pulver100" - which is the VoIP industry's premiere listing of growth
companies that represent the future of the communications ecosystem.
VoIP-Americas has been named to the list due to its most prestigious listing of
growth companies that represent the future of the communications ecosystem.
On September 24, 2004, VoIP Inc. announced a 1 million minute increase in its
wholesale traffic division VoIP-Americas. VoIP Americas is a wholly-owned
subsidiary of VoIP, Inc. and comprise the wholesale VoIP traffic division.
On September 15, 2004, VoIP Inc. announced that it's wholly owned subsidiary,
VoIP Solutions, Inc., has received a purchase contract for its MTA-V102
Multimedia Terminal Adapters valued at more than $1 million (USD) from FMC
Telecom of Davie, Florida.
17
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.
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.
18
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
SCHEDULE 5(h)
LITIGATION
VOIP Corp. v. VoIP, Inc., Case No. 04-CA-8140-35, in the Circuit Court of the
Ninth Judicial Circuit, Orange County, Florida. Plaintiff accuses VOIP of
deceptive trade practices and unfair competition in using a name deceptively
similar to Plaintiff's and seeks unspecified damages and injunctive relief. VoIP
intends to defend the case and believes it has meritorious defenses based upon
(i) VoIP, Inc. is qualified to do business in Florida under the name VoIP
Holdings; (ii) VoIP also conducts business in Florida under the name VoIP
Solutions; (iii) VoIP is a generic and unprotectable term - every federal
trademark using "VOIP" requires that the applicant disaffirm any protection of
"VOIP"; (iv) there are 24 other Florida companies using the name "VOIP" as part
of its name; and (v) the original Florida corporation known as "VOIP, Inc.",
which predates the Plaintiff's name filing, is now owned by VoIP.
Item 2 - Changes in Securities
The following unregistered securities have been issued during the third
quarter of 2004:
Effective July 2004, registrant issued 668,688 shares to six individual
existing accredited investors. Also effective July 2004, registrant issued
41,688 shares to four accredited individual investors.
Effective August 2004, registrant issued 50,000 shares to one individual
accredited investor in satisfaction of accounts payable totaling $50,000.
Effective August 2004, registrant issued 653,319 shares to 46 individual
accredited investors.
Effective September 10th, 2004, registrant issued 1,000,000 shares to
acquire all issues and outstanding shares of Voipamericas Inc., common stock.
Effective September 2004, registrant issued 38,461 shares to one accredited
investor.
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
19
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.
(b) Reports on Form 8-K
Form 8-K filed with the SEC on July 07, 2004
Form 8-K filed with the SEC on August 06, 2004
Form 8-K filed with the SEC on September 13, 2004
Form 8-K filed with the SEC on September 16, 2004
20
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.
November 12, 2004 /s/ Steven Ivester
---------------------------------
Steven Ivester
President and CEO
/s/ Osvaldo Pitters
---------------------------------
Osvaldo Pitters
Chief Financial Officer