by Waheed Hassan, CFA
                                                                                   Waheed@spelmanres...
Currently, eGlobalphone markets its products through OEM resellers, principally via the Internet and through
a limited num...
IP Private Branch Exchange (IP PBX) is the best option if enterprise intends to reduce
deployment and maintenance costs


...
♦   Billing (pre paid, post paid, WiFi Hotspot and call shop)
♦   Web Site Integration (sign up, payments, account managem...
Main competitors of VOII.OB subsidiaries and products
eGlobalphone                              Vonage, Packet8, DeltaThre...
In terms of usage, VoIP carried only 5.9 billion minutes of international traffic or just 4% of the total minutes
carried ...
Rapidly growing market segment
As discussed in the Industry Trends section above, cable telephony business is likely to wi...
Comparative Valuation
                                   PRICE MRKT CAP EARNINGS EARNINGS
                    TICKER FISCA...
in the development of VoIP platforms, and has published many articles on VoIP configuration, some of which
are now conside...
EARNINGS MODEL
Aggregate Income Statement              3QFY04E      4QFY04E           FY04E         FY05E
Revenue
eGlobalP...
IP & Traditional Telephony




Waheed Hassan, CFA was a Senior Research Analyst at an affiliate of Merrill Lynch, UBS Warb...
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VOIP Inc.: OTC BB "VOII.OB"

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VOIP Inc.: OTC BB "VOII.OB"

  1. 1. by Waheed Hassan, CFA Waheed@spelmanresearch.com July 21, 2004 VOIP Inc.: OTC BB “VOII.OB” Rating: SPECULATIVE BUY 12 month Target Price: $3.93/share Financial Summary US$ ’000 2004E 2005E 52-Week Range $0.80-$6.75 Revenue 24,994 103,704 Recent Price (07/20/04) $2.75 Gross Profit 6,402 28,383 Market Cap $50.7 Current Shares Outstanding, mn 18.44 Operating Income 5,022 19,463 Float (mn) 1.7 Pre-tax Income 5,022 19,463 Avg. Daily Trading Volume (3m) 6,113 Net Income 3,265 12,651 Fiscal Year-End 31-Dec Current Book Value (per share) $0.005 Employees 23 EPS $0.16 $0.63 Next reporting date 08/15/04 P/E 17.25 4.34 Source: Finance Yahoo, SEC filings, Analyst Estimates Company background VoIP, Inc. (“VOII”) is an emerging facilities based global service provider of Voice over IP (VoIP) based solutions to residential and business customers. VOII also manufactures products and provides services to Internet Service Providers, Telecommunication Service Providers and Cable Operators. VoIP, Inc, through its subsidiaries, 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. On March 1, 2004, Millennia Tea Masters accepted an unsolicited offer from Mr. Steven Ivester, VOII’s Chairman and CEO. As part of the offer, Millennia Tea Masters issued 12.5 million shares representing 87.8% of shares outstanding in exchange for contributing the intellectual property rights and related assets of two start-up companies formed to engage in the Voice over Internet business and cash. VOII is headquartered in Fort Lauderdale, Florida. Business segments Telecommunication business VOII has established its IP telecommunication business using its patent pending Media Gateway technology and strategic acquisitions of related companies. Portfolio companies include: eGlobalphone, Inc VoIP Solutions, Inc, DTNet Technologies, Inc. and iMax Solutions Inc. eGlobalphone, Inc. VOII markets telecommunication services to residential and business consumers through its eGlobalphone, Inc. subsidiary. eGlobalphone uses broadband Internet access to provide VoIP solutions. Presently, eGlobalphone is the only VoIP company that offers 911 emergency access without using third party databases. This proprietary system is patent pending, and utilizes an automated built in switching service to route emergency calls to the user's local emergency service provider (911 call center). It also offers a "fail safe" connection in the event of a power outage or Internet service interruption. 1
  2. 2. Currently, eGlobalphone markets its products through OEM resellers, principally via the Internet and through a limited number of retailers. The company plans to focus its marketing efforts on US and international markets, with marketing efforts led by local marketing partner in each country. Manuals, interfaces, voice prompts, and operators will be tailored for the primary language of the nationality, and the sales force will operate locally in each market. Initially, eGlobalphone will offer three rate plans in the U.S market. A $29.95 per month plan with unlimited long distance geared toward home use, a $49.95 per month plan with free long distance for businesses, and a free monthly access plan with rates charged for long distance usage and a one-time equipment charge. All eGlobalphone unlimited calling plans will provide free voicemail, caller ID, call waiting, call transfer, caller ID blocking, call forwarding, three-way conference and three-way calling features. Low-priced directory information (411) services, conference call capabilities, "follow-me" calling, and many more features will be offered as additional line items or per-call products. Voice over Internet Protocol (VoIP) Technology What is VoIP? Internet Protocol (IP) telephony is an emerging technology system of hardware and software that allows Internet users to transmit voice communications to any other Internet user or other telephone customer. Analog voice signals are digitized by the VoIP and converted into data packets that are sent over IP-based networks. VoIP is best utilized by means of high-speed broadband Internet access. Calls made over VoIP are made in the same manner as with traditional telephony, and in many cases even use the same phone equipment which is plugged into a multi-media terminal adapter (MTA), instead of a traditional 2-wire copper loop delivered to the household by an ILEC. VoIP market potential In 2002, the North American wholesale VoIP sales were estimated to be around $400 million. VoIP equipment sales consist of VoIP gateways, soft switches, including IP Private Branch Exchange (IP PBX), and VoIP application servers. Total sale of VoIP equipment is expected to reach $12 billion by 2006, of which wired enterprise IP phones may account for $2.7 billion1. VOII’s subsidiaries are all aimed to capitalize on the different segments of the VOIP market. Advantages of VoIP systems Lower operating and maintenance cost. VoIP technology allows service providers to integrate both data and voice communication traffic into a single network, thereby reducing the total ownership costs. Moreover, unlike traditional switch based legacy telephone systems, new VoIP providers have relatively less investment in network equipment and thus can offer services at lower price. Additionally call servers, application servers, and client devices can be more easily integrated, allowing VoIP providers to scale up operations without incurring massive infrastructure capital costs. Increased efficiency. The traditional PSTN (Public Switched Telephony Network) systems are based on Time Division Multiplex (TDM) technology, where the communication capacity is continuously allocated to a user, even when the person is not speaking. As around half normal voice interaction is silence, half the capacity of the networks remains unused. Unlike PSTN networks, VoIP networks allocate capacity as needed, thereby reducing redundancy in the system, and increasing system efficiency. The ability to allocate capacity (which equates to expense) on an on-demand basis reduces costs during intervals of off-peak usage. Additionally, VoIP technology can compress voice traffic as much as 80% without significant quality degradation, thereby further increasing the efficiency of the network. Furthermore, the cost of transporting voice traffic data is significantly lower than that of transporting TDM voice traffic, due to the flexibility of IP routing technology and the current historic low prices for national and international IP data transport. 1 http://msdn.microsoft.com/embedded/devplat/voip/voiptrends/default.aspx 2
  3. 3. IP Private Branch Exchange (IP PBX) is the best option if enterprise intends to reduce deployment and maintenance costs VoIP Solutions, Inc. This subsidiary integrates proprietary software solutions, hardware, and project management services for ISP’s, MSO’s & PCO Service Operators. VoIP Solutions offers rapid project assessment and deployment of a voice services infrastructure to service providers with an existing IP network such as an ISP (Internet Service Provider), CLEC (Competitive Local Exchange Company), PTT (Public Telephone and Telegraph) or cable plant operator. Solutions offered, involve delivery of portions of a SIP- based infrastructure (cost-effective media gateways, transcoding solutions, SIP proxies) to a full turnkey system with components that are custom designed for quick and efficient integration. Services provided include: Billing systems/Platforms Telephone number management applications Service and application design Auto CPE provisioning systems Network design Wholesale call termination Back Office/OSS systems Installation and training Web site design and back office integration Support agreements VOII has developed intellectual property and software for the soft switch platform and associated applications related to the eGlobalphone service. An agreement with Porta One provides access to software source code and database schemas that permit custom application, layer development and integration. All systems have been designed for scalability, with the target being tens or hundreds of thousands of subscribers being managed by the platform. Along with the billing and back office application, VoIP Solutions can supply all of the components, services and customisation to fully equip a VoIP Telco. As software development projects are completed by VoIP Solutions for eGlobalphone, each module will be documented and effectively turned into a "product" that can be sold to other carrier customers and new market entrants. Ultimately, the Telco solution will consist of the following modules - ♦ Soft switch with SIP Proxy (authentication and call control) ♦ Media gateways (to connect T1 and E1 lines and special services, if required) 3
  4. 4. ♦ Billing (pre paid, post paid, WiFi Hotspot and call shop) ♦ Web Site Integration (sign up, payments, account management) ♦ Telephone number inventory management ♦ CPE stock control and logistics ♦ CPE auto provisioning (remote programming and updates) It is expected that many customers will opt to purchase long-distance services from the eGlobalPhone subsidiary in the packaging of a total solution, thus leading to additional continuing revenue for each service deployment. iMax Solutions Inc. iMax Solutions is 51% owned by VOII, with the remaining 49% held by iCable Systems Co., Ltd., a Korean corporation. Under the joint venture agreement, iCableSystem will license to iMax the right to sell iCableSystem products in the Western Hemisphere, and profits from such enterprise will be divided in accordance with ownership. VOII will pay iCableSystem $5 million during 2004 for the right to market these products, whereas iCableSystem will guarantee iMax turnover from operations of $10 million in 2004, $25 million in 2005 and $40 million in 2006. The iMax products consist of: ♦ Cable modem with built in VoIP (FXO/FXS or FXS/FXS,) WiFi (802.11b) and router ♦ ADSL modem with built in VoIP (FXO/FXS or FXS/FXS,) WiFi (802.11b) and router ♦ Stand-alone Multimedia Terminal Adaptor (MTA) with built in WiFi (802.11b) and router ♦ Stand-alone Multimedia Terminal Adaptor (MTA) with built in router ♦ Digital set-top box for receiving high-speed Internet, digital cable TV, VoIP (FXO/FXS or FXS/FXS) home networking, video conferencing and various other multi-media applications. iMax will also engage in research and development for the creation of new and next generation WiMax wireless networking products and protocols for incorporation into the product line. DTNet Technologies. On June 28, 2004, VOII acquired DTNet Technologies, Inc. in exchange for 2,500,000 shares of common restricted stock. DTNet is a value added reseller of customer premises equipment for cable and DSL Internet providers. DTNet has a strong customer base of more than 300 entities including six of the top ten cable companies in the United States, the National Cable Television Cooperative and Wide Open West. Customer base includes Time Warner Telecom, Cox, Comcast, CableVision, RCN and BrightHouse. DTNet’s sales for the past three years have increased rapidly from approximately $2 million in 2001 to $2.9 million in 2002 and $4.7 million in 2003. VOII’s management expects DTNet’s sales to increase up to 75% with the addition of the VoIP, Inc. products. Customers VOII has successfully established a customer base, which includes Anew Broadband Inc., STS Telecom, Radiant Holdings Inc., nTera Networks, VoIP Americas, CSI Consulting, Cima Telecom, Inc. and FMC Telecom, Inc. Meanwhile, Comcast, Bellsouth, Scientific Atlanta, Version, Sprint, Vonage, and AT&T are in various stages of testing the MTAs through its joint venture company with iCableSystem, iMAX Solutions. Moreover, VOII is also likely to benefit from AT&T’s recent commitment to purchase 900,000 MTAs from Scientific Atlanta. VOII’s iMAX Solutions & iCable System are likely to supply the MTA’s to Scientific Atlantic for AT&T. Competitors By virtue of being in a host of different sub-segments of VoIP telephony business, VOII has several competitors. The table below lists major competitor for each subsidiary. 4
  5. 5. Main competitors of VOII.OB subsidiaries and products eGlobalphone Vonage, Packet8, DeltaThree, Voicepulse VoIP Solutions ⇒ hardware products: iMax Solutions - Sipura, Grandstream, Cisco, Mediatrix ⇒ SIP soft switch products: - Nuera, Broadsoft, Pingtel, Nortel ⇒ integration solutions: - Accenture, Hughes, Software, NetCentrex DTNET Technologies - Arris, SMC, Motorola Industry trends VoIP service growth is highly dependent on High Speed Data (HSD)/broadband adoption rate. Global HSD growth data suggests rising penetration rates for both consumer and SoHo users. U.S. broadband penetration in May 2004 reached 48.61% of active Internet users at home. Moreover, cable telephony services continue to proliferate as cable TV operators expand their video, data and voice service portfolios. According to In-Stat/MDR, worldwide cable telephony subscribers are likely to increase from an estimated 10 million by the end of 2003 to over 19 million in 2007. Similarly, In-Stat/MDR expects 7 million VoIP phones to be in use by 2007. In a recent report on VoIP, Merrill Lynch2 (ML) had the following HSD sub growth forecasts: ♦ For the U.S., to 8.0mn from 6.4mn new subs for 2004E, with 4.4mn cable HSD sub additions (revised from 3.1mn) and 3.6mn DSL sub additions (revised from 3.2mn). In its new forecast, broadband penetration rises to 27% of US homes by YE04E, up 6.2 pts during the year, and to 32% by YE05E, up 5.1 pts (revised from 30%). ♦ For Canada, to 963K new subs for 2004E from 929K (VS. 1,042K in 2003) which brings YE04 penetration to 42.4% of homes, up 6.7pts YoY (vs. 7.1 pts in 2003 and 7.5 pts in 2002). We project 47.4% penetration by YE05E (revised from 47.0%). ♦ Over time, ML expects broadband penetration to reach at least 50% in the U.S. Internationally, Europe continues to account for the lion's share of cable telephony subscribers. As of late 2003, there were approximately 5.9 million cable telephony subscribers in Europe, in comparison to 2.7 million in the United States. Worldwide revenues from cable telephony service are projected to hit $3.7 billion in 2003, and rise to more than $6 billion in 2007. 2 Source: ‘Everything Over IP’, dated 12 March’04 5
  6. 6. In terms of usage, VoIP carried only 5.9 billion minutes of international traffic or just 4% of the total minutes carried in 2000. Three years later, TeleGeography estimate that VoIP carried 24.5 billion minutes in 2003, jumping to nearly 13% of international minutes. IDC also estimates that VoIP now carries about 10% of all voice traffic, international and domestic. Investment Highlights Exposure to VOIP space We believe that VOII offers a unique opportunity for relatively high-risk investors to participate in the rapidly growing VOIP market. We consider VOII to be a ‘pure-play’ VOIP company as its subsidiaries provide exposure to the major segments of the VOIP space. For instance, eGlobalphone offers an opportunity to participate in the rapidly growing broadband telephony market. Given that most companies that offer broadband telephony, such as Vonage, are privately held, investors have to little investment opportunity. Instead, they currently have to invest in telephone, cable or integrated service providers such as AT&T and Cox Cable, to get an exposure to broadband telephony market. ‘White label’ VOIP service model likely to be successful VoIP Solutions Inc., offers an opportunity to participate in the expected growth for the service provider segment. Our discussion with VOII management indicates that VoIP Solutions will largely focus on providing infrastructure services to broadband telephony service providers such as cable operators, instead of creating its own physical network to deliver services to end subscribers. In line with its strategy to provide ‘white label’ infrastructure services, VOII signed a Virtual Service Provider (VSP) Agreement with VOIP-4U, a United Kingdom based telco, in July’04. Under the Agreement, VOII will supply its proprietary media gateways for local Interconnection with British Telecommunications service providers to VOIP-4U (“4U”), provide MTAs to 4-U’s clients, and manage ECommerce, web site applications and customer billing functions. The service is expected to be launched in August 2004 with plans by VOIP-4U to expand operations into Western and Eastern Europe. The VOIP-4U web site and other sales channels will offer customers a choice of services, rate plans and local telephone numbers. The Agreement will permit VOIP-4U to market US geographic and 1-800 numbers from VOII’s wholly owned subsidiary, eGlobalphone Inc. Under the agreement eGlobalphone Inc. will be able to market U.K. telephone numbers to its customers globally. 6
  7. 7. Rapidly growing market segment As discussed in the Industry Trends section above, cable telephony business is likely to witness rapid growth over next few years. Rising HSD penetration rate, technological advancement resulting in improved quality of service (QoS), and greater price competition are likely to fuel the adoption rate for broadband telephone. With cable telephony subscribers likely to increase to 19 million in 2007 from 10 million in 2003, VOII can witness significant revenue and bottom line growth. The growth in cable telephone subscribers is likely to be accompanied by similar growth in DSL based broadband telephony subscribers. Furthermore, as consumers and SoHo transition to cheaper, ‘unlimited’ calling plans, we expect the share of VoIP related call volume to rise. Positive earnings We believe that VOII will start off with a strong earnings report. VoIP Solutions Inc. was awarded a $1 million contract by ANEW Broadband in May’04. According to the contract terms, ANEW Broadband will buy 15,000 MTA-V102 units, of which a minimum of 5,000 units will be sold in the first year, and the remaining 10,000 in the second year. Equipment sales will comprise of Multimedia Terminal Adaptors (MTA), Proxy Server and Provisioning server. Similarly, the iMax Solutions Inc. joint venture is likely to generate turnover of $10 million in 2004, $25 million in 2005 and $40 million in 2006. DTNet is already a profitable enterprise, with revenue of approximately $4.7 million in 2003. We estimate FY04 revenues to be $24.9mn, rising to $103.7mn in FY05. Competitive advantage of 911-service feature We believe that VOII’s patent pending 911 system will enable it to quickly capture market share of broadband telephony business. Lack of emergency calling features is a major problem faced by broadband telephone providers. VOII filed a patent application with the U.S. Patent and Trademark Office in May’04. The patent application pertains to technological process for a specific coding scheme to redirect certain call types based on emergency dialing patterns, such as "911." Based on the number pattern dialed, the call will be redirected to the legacy emergency telephony system, allowing the user to reach critical fire, police, and other services from VoIP-capable devices. In addition to specific call routing of emergency calls out to traditional "copper-based" 911 facilities, the device also provides a fail-safe mechanism for routing calls during power failure events. The device will automatically pass calls out to the traditional PSTN during power failures, thus guaranteeing connectivity even during A/C power failures, which would cause complete dialing failure with other VoIP equipment in the same class. These FCC-approved devices allow transparent connection to the PSTN network and the SIP-based VoIP next- generation networks and maintain the emergency services that customers have come to expect in telephony- style platforms. Valuation We estimate VOII’s target price at $3.93/share. Our fair value estimate is based on the average target price yielded by comparable Price/Sale (P/S) and PE multiples for FY05. We used a 15% discount rate to determine the present value of target price based on comparable multiples. We believe that a 15% discount rate sufficiently accounts for lack of track record. Having said that, we believe that VOII has yet to prove its business model and generate revenue. Thus our fair value is contingent upon the company successfully implementing its business plan, and may be revised downward due to integration/implementation related issues. 7
  8. 8. Comparative Valuation PRICE MRKT CAP EARNINGS EARNINGS TICKER FISCAL PER SHR (MILS) ESTIMATE ESTIMATE P/S P/S P/E P/E COMPANY NAME SYMBOL YEAR 7/16/04 7/16/04 CAL 2004 CAL 2005 2004 2005 2004 2005 COVD COVD.OB DEC 1.99 472 -0.20 -0.05 1.09 0.98 NM NM NET2PHONE NTOP JUL 3.51 164 -0.45 -0.29 1.99 1.57 NM NM PRIMUS TELECOM GRP PRTL DEC 3.82 343 0.41 0.58 0.24 0.22 9.30 6.60 8X8 EGHT MAR 1.75 75 - - 8.07 - NM - Average 2.85 0.92 9.30 6.60 VOIP Inc VOII.OB DEC 2.75 50.71 0.14 0.64 2.46 0.52 19.05 4.33 Source: Baseline, Analyst estimates. Valuation ratios exclude minority interest for iMax Solutions. Fair value Estimate P/S 2005 P/E 2005 Peer average 0.92 6.60 VOIP Inc 0.52 4.33 Derived Value 4.85 4.19 Discounted @ 15% p.a 4.22 3.64 Average Fair Value $3.93 Source: Baseline, Analyst estimates, Valuation ratios exclude minority interest for iMax Solutions. Management Steven Ivester - Chairman & Chief Executive Officer Steven Ivester has been a successful technology inventor and entrepreneur since 1982 with many small businesses. In 1985 he established a small chain of automotive service centers, All State Auto Centers (Founder & President) and sold the business in 1991. He subsequently established, expanded and sold a small chain of computer stores known as 21st Century Computers. In 1997, Mr. Ivester became President and CEO of Navigator, PC, which invented a series of rugged waterproof military grade navigational computer and display systems. From 2001 to present Mr. Ivester consulted for voice over IP companies and was responsible for the specification and development of IP desktop telephone devices, Multimedia Terminal Adaptors, and portable WiFi phones in addition to sourcing, negotiation and quality assurance. Clive Raines - President - International Operations Clive is a resident of New Zealand who has spent most of the past five years working for United States Internet Telephony start-ups. He has been involved in senior management roles and has extensive experience in all aspects of the computer, wireless and telecommunications industries. His international market knowledge and business development skills have been used to establish services and partnerships in a number of countries. These have included providing satellite telephone service for troops based in Bosnia and establishing the first "all you can eat" telephone companies in the United States and United Kingdom. Clive has a strong technical knowledge permitting him to design unique technical solutions to meet market demand. This knowledge was used to redesign the back office, web site and e-commerce applications for theglobe.com prior to establishing all aspects of an international business and technology model for the expansion of Voiceglo into overseas markets. Clive brings many valuable relationships, know how and years of VoIP experience to VoIP, Inc. John Todd - Chief Technical Officer John Todd has been involved with the Internet industry since 1994, as a member of the founding teams of Digex, Cidera, and other notable Internet infrastructure providers. His principal expertise is in the area of provisioning system development, deployment, and integration, in environments ranging from voice services to co-location, leased-lines, satellite, and GIS. He is also an accomplished project manager in the areas of software development, provisioning, network operations, and customer service, having managed large groups of technical staff during start-up operations. His skills are focused in the areas of Voice-over-IP systems integration, operations, and large-scale deployment of voice services. He has advised more than 30 companies 8
  9. 9. in the development of VoIP platforms, and has published many articles on VoIP configuration, some of which are now considered "must-read" documentation on the world's most popular VoIP PBX platform. John is a 1993 graduate of the University of Rochester, and a regular speaker or participant in operations and technology conferences like NANOG, VON, BSDcon, and OSDN. Osvaldo Pitters - Chief Financial Officer Osvaldo has a successful track record and progressive working experience managing finance, administration, accounting and auditing functions in the US, England, UK and Latin America. Osvaldo worked 10 years with Price Waterhouse Coopers in the Audit Department in Latin America and in England, UK. Osvaldo also worked 7 years with Pepsi Cola International in the Finance Area in several countries within Latin American Region. He also worked for two years as Deputy General Manager of Banco Republica in Lima, Peru. Before joining VOIP Inc, Osvaldo was the Controller of the Cima Telecom Group in Miami, Florida. Osvaldo is a 1983 graduate of the Santiago University, Chile and a 1985 post graduate of the Cambridge University, UK. Risks Government regulation The state and federal governments have yet to finalize the regulatory environment for VoIP service providers. Until now, VoIP service providers have experienced little interference from FCC or state agencies, and Chairman Powell of the FCC has strongly indicated his preference for a “hands-off” approach to regulation in the VoIP market. Some states have attempted to tax VoIP services, which has led to successful legal action by VoIP providers. Vonage and others continue to fight (and to win) legal cases filed by the state authorities. However, the risk of increased FCC and/or state regulation remains. Tea business According to the management, VOII plans to sell the Tea company. We believe sale of the Tea company will limit investors exposure to losses. Since its inception in 1998, Millennia Tea Masters has incurred losses of over $624,647 including the inventory amounts reserve of $251,534. Liquidity risk Investors also need to be wary about the liquidity risk. VOII has very small trading volume and hence increases exposure to liquidity risk. Financing risk Currently, no details about how VOII plans to finance its operations are available. Until recently, the company has largely financed acquisitions through share swap. We believe that the management will need to raise new equity or debt in order to fund its business plan. Lack of or delay in necessary financing could affect the company’s ability to meet our earning projections. 9
  10. 10. EARNINGS MODEL Aggregate Income Statement 3QFY04E 4QFY04E FY04E FY05E Revenue eGlobalPhone 1,373,750 3,097,500 4,471,250 56,140,000 VOIP Solutions 4,173,240 4,849,860 9,023,100 26,563,800 iMax Solutions 3,000,000 6,000,000 9,000,000 14,000,000 Dnet 1,250,000 1,250,000 2,500,000 7,000,000 Total Revenue 9,796,990 15,197,360 24,994,350 103,703,800 Cost of Sales eGlobalPhone 979,125 2,220,750 3,199,875 39,648,000 VOIP Solutions 3,129,930 3,637,395 6,767,325 19,922,850 iMax Solutions 2,250,000 4,500,000 6,750,000 10,500,000 Dnet 937,500 937,500 1,875,000 5,250,000 Total Cost of Sales 7,296,555 11,295,645 18,592,200 75,320,850 Gross Profit eGlobalPhone 394,625 876,750 1,271,375 16,492,000 VOIP Solutions 1,043,310 1,212,465 2,255,775 6,640,950 iMax Solutions 750,000 1,500,000 2,250,000 3,500,000 Dnet 312,500 312,500 625,000 1,750,000 Total Gross Profit 2,500,435 3,901,715 6,402,150 28,382,950 Selling and Marketing Expense 186,496 329,310 515,806 4,741,776 General and Admin. Expense 322,152 541,872 864,025 4,178,276 Total Operating Expense 508,648 871,182 1,379,830 8,920,052 Operating Income 1,991,787 3,030,533 5,022,320 19,462,898 Pre-tax Income 1,991,787 3,030,533 5,022,320 19,462,898 Tax 697,125 1,060,687 1,757,812 6,812,014 Net Income 1,294,661 1,969,847 - 3,264,508 12,650,884 Less Minority Interest (in iMax Sol.) 150,299 174,668 324,967 956,695 Adjusted Net Income 1,144,362 1,795,179 2,939,541 11,694,188 Shares outstanding 18,440,000 18,440,000 18,440,000 18,440,000 EPS 0.06 0.10 0.16 0.63 Source: Analyst Estimates 10
  11. 11. IP & Traditional Telephony Waheed Hassan, CFA was a Senior Research Analyst at an affiliate of Merrill Lynch, UBS Warburg, and Indosuez W.I. Carr Securities. He was ranked among the #1 Financial Services Research Analyst in The Reuters Survey of Glob al Emerging Markets in 1998. He was also member of the #1 ranked research teams in The Reuters Survey of 1999 and The Euromoney Awards for Excellence 2000. He worked as a Research Consultant in Dresdner Kleinwort Wasserstein’s equity research group in New York. Waheed got his CFA charter in 2000 and his MBA degree from Vanderbilt University, in 2002. Spelman Research Associates, ltd, is an independent fee based research, publishing and distribution firm whose contract analyst adhere to the ethics and standards of the Association for Investment Research Management . The views expressed in this research report reflect the analyst’s personal views about the issuer and its securities. Opinions and recommendations contained in this report are submitted solely for advisory and information purposes and are not intended as an offering or a solicitation to buy or sell the securities mentioned above. The analysts are responsible only to the public and this report is not a service to the company. We received a fee of $15,000 from the company for one year’s coverage. We do not inform any company in advance of the nature or conclusions of our analysts’ reports in advance of paying the fee nor can a company withdraw from coverage before the expiration of the one year term. Neither the Analysts nor the company own equity or debt securities of the companies on which our contract analysts report. More information about Spelman Research ‘s policies are available at www.spelmanresearch.com. Spelman Research Associates, Ltd., 545 Madison Avenue, Suite 200, New York City, NY 10028 Phone: (212) 838 5520 Fax: (212) 838 5352 Web: www.spelmanfinancial.comEmail: info@spelmanfinancial.com mailto:info@spelmanfinancial.com> 11

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