SOURCE: Elephant Talk Communications

Elephant Talk Communications

March 31, 2011 10:29 ET

Elephant Talk Communications Inc. Reports 2010 Financial Results and Provides Business Update

SCHIPOL, THE NETHERLANDS--(Marketwire - March 31, 2011) -


--  ValidSoft engagement with Visa Europe for ValidSoft Anti-fraud solution
    progressing well
--  Expects to Grow to over 1 Million SIMS to be hosted on the ET Mobile
    Platform Solution by end of 2011
--  The ET Mobile Platform will be operational in Europe, the Middle East,
    and South America by year end 2011
--  Strengthened Balance Sheet with Shareholder Equity Increasing to $28.7
    Million

Elephant Talk Communications, Inc. (OTCBB: ETAK) (www.elephanttalk.com), an international provider of business software and services to the telecommunications and financial services industries, announced today the results of operations for the Fiscal Year Ended December 31, 2010.

"During 2010 Elephant Talk achieved several critical milestones to increase its industry presence, monetize its anti-fraud technology, and position itself as a market leader within the mobile telecommunications and financial services industry," commented, Mr. Steven van der Velden, President and CEO. "We completed a key component of our strategy through the full integration of the ValidSoft acquisition into our company. Management focused its efforts on the formation of new relationships on multiple continents for our ET Mobile Platform and the initial rollout of ValidSoft's technology to Visa Europe, while initiating relationships with other global banking institutions."

Mr. van der Velden, continued, "In 2009, the majority of Elephant Talk's mobile revenues came from business operations in the Netherlands from Youfone which was lower margin business that we no-longer service. We spent 2010 focusing on globally growing subscribers and revenues on a steady basis which will continue to accelerate through the integration of new partners and the migration of Sims in Spain. Financially, Elephant Talk improved its shareholder equity to $28 million in 2010 from negative $6 million in 2009, an increase of over $34 million. Going forward, we anticipate achieving positive cash flow, connecting significant additional users to our platform, announcing an agreement with a major financial institution and listing our shares on a senior U.S. stock exchange."

Key Operational Highlights throughout 2010:

--  Wholly owned subsidiary, ValidSoft, entered into a contractual
    arrangement with Visa Europe for the provision of its
    fraud-prevention solutions, VALid-POS®, sophisticated card fraud
    detection and prevention solution, and VALid®, ValidSoft's
    multi-factor authentication platform.
    --  The agreement will allow Visa Europe to integrate and market the
        solutions as value-added services to its 4,000+ member banks in
        Europe
--  ValidSoft completed trials with two major banks for its card fraud
    protection solution VALid-POS.
--  ValidSoft will be engaging with major partner for country-wide card
    fraud prevention solution to 22 banks
--  ValidSoft is planning live trials with a European governmental agency
    to verify and improve its unemployment systems. ValidSoft has
    significant interest from additional European governments
--  ValidSoft released its commercially available Four-factor
    authentication solution; VALid-4F™. The technology is the world's
    first commercially available Four-factor authentication solution
    utilizing a single integrated platform.
--  Elephant Talk signed a Memorandum of Understanding (MOU) agreement with
    Cleartech to become its Mobile Virtual Network Enabler (MVNE) partner
    in Brazil. Elephant Talk will provide infrastructure services to the
    growing marketplace of Mobile Virtual Network Operators (MVNOs) in
    Brazil and their end-user customers.
    --  Cleartech, a joint-venture by the leading Brazilian IT companies
        EDS, CPqD and DBA Engenharia, is servicing a market that recently
        reached 100 percent mobile penetration in a population of about 200
        million people.
--  Announced a framework agreement with Iskratel (www.iskratel.com). Under
    the agreement Iskratel will expand Elephant Talk's enhanced convergent
    global network.
--  Management believes that the company's mobile platform will be
    operational on at least 3 Continents with at least 5 operators by
    year-end 2011.

Financial Results for the Year Ended December 31, 2010

Revenue for the year ended December 31, 2010 was $37,168,351, a decrease of $6,482,606 or (14.9%), compared to $43,650,957 for the year ending December 31, 2009. The decrease was the result of an unfavorable impact of a $2,008,830 currency translation effect arising from a lower USD/Euro exchange rate. The decrease in 2010 revenue of $4,473,776 over 2009, in constant currency, was attributable to a decrease in our Mobile revenue of $2,739,253; Middle East pre-paid calling cards revenue $584,135 and premium rate services ("PRS") revenue of $1,052,625. Other landline services decreased by $97,763 compared to the same period in 2009.

Cost of service for the year ended December 31, 2010 was $35,120,916, a decrease of $6,331,723 or 15.3%, compared to $ 41,452,639 for the year ended December 31, 2009. The decrease was primarily the result of the favorable impact of a $1,913,634 currency translation effect arising from a lower USD/Euro exchange rate.

In constant currency the cost of service decreased by $4,418,087 or 11.2% compared to the same period in 2009, primarily as a result of lower levels of revenue on a constant currency. Cost of service, as a percent of revenue, expressed in constant dollar terms was 94.5% and 95.0% for the years ended December 31, 2010 and 2009, respectively. Management expects cost of service to decline as a percent of revenue as a greater proportion of future revenue is comprised of our mobile services and ValidSoft solutions, which have a substantially lower cost of service than our traditional PRS business.

Revenue (in constant currency)
---------------------------------------------
   2009          2010       variance      %
$41,642,127  $37,168,351 ($ 4,473,776) (10.7%)
-----------  -----------  -----------   -----

Margin* (in constant currency)
---------------------------------------------
   2009          2010       variance      %
$ 2,103,124  $ 2,047,435 ($    55,689)  (2.7%)
-----------  -----------  -----------   -----

* Margin = Revenue less Cost of service

Selling, general and administrative ("SG&A") expense for the years ended December 31, 2010 and 2009 were $9,620,322 and $7,958,933, respectively. SG&A expenses increased by $1,661,389, or 20.9%, in 2010 compared to 2009.

In constant currency, SG&A increased by $1,921,469, or 25.0%, compared to the same period in 2009. The increase in expenses was mainly attributable to increased staffing levels and the inclusion of ValidSoft into our financials as of April 1, 2010.

Net Loss for the twelve months ended December 31, 2010 was $92.5m or (1.31) per share, compared to a loss of $17.3m or (0.32) per share for the same period in 2009.

Net Loss was impacted largely ($72.4m) by non-cash derivative accounting rules. Additional losses can be split between $10.9m non-cash, and $1.6m in interest charges while the balance of $7.6m adjusted EBITDA loss reflects mostly investments in in-house build-up of core competencies, next to an additional$1.5m in capex, supplied by third party vendors.

ADJUSTED EBITDA

Elephant Talk employs Adjusted EBITDA, defined as earnings before interest, taxes, depreciation and amortization as well as to market adjustments related to our warrant liabilities and conversion features which are accounted under derivative accounting rules as required by US GAAP, for several purposes, including as a measure of our operating performance. We use Adjusted EBITDA because it removes the impact of items not directly resulting from our core operations, thus allowing us to better assess whether the elements of our growth strategy are yielding positive results.


                                                 Year Ended December, 31
                                              ----------------------------
                                                  2010           2009
                                              -------------  -------------

Net loss                                      $ (92,483,360) $ (17,299,884)
Provision for income taxes                              800            800
Net loss attributable to noncontrolling
 interest                                             5,046          1,771
Depreciation and amortization                     5,312,469      3,051,461
Stock-based compensation                          5,588,392      1,727,870
Interest income and expenses                      1,563,091        778,092
Other non-cash financing charges                 72,440,675      5,499,275
                                              -------------  -------------

Adjusted EBITDA                               $  (7,572,887) $  (6,240,615)

(Note to Adjusted EBITDA: 2010 figures include ValidSoft as of 1 April 2010. In 2009 ValidSoft not in figures) "Other non cash financing charges" above consist of non-cash Interest expense related to debt discount, Change in fair value of warrant liabilities & conversion feature, and Amortization of deferred financing costs.

Conference Call Reminder

As a reminder the Company will be hosting a conference call with investment community today at 11:00 am (EDT)

Conference Call Details:
Date: Thursday March 31, 2011
Time: 11:00 a.m. ET
Dial In-Number: 1-877-941-8418
International Dial-In Number: 1-480-629-9809

It is recommended that participants dial in approximately 5 to 10 minutes prior to the start of the 11:00 a.m. call. A telephonic replay of the conference call may be accessed approximately two hours after the call through April 6, 2011, by dialing 1-877-870-5176 or 1-858-384-5517 for international callers and entering the replay access code 4427317.

There will also be a simultaneous audio feed webcast and archived recording of the conference call available at http://www.elephanttalk.com/ under the "Investor Relations" menu section or you may use the link audio feed and archived recording of the conference call available at http://viavid.net/dce.aspx?sid=00008304.

            ELEPHANT TALK COMMUNICATIONS, INC AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS
                    AS AT DECEMBER 31, 2010 AND 2009

                                                December 31,  December 31,
                                                    2010          2009
                                                ------------  ------------

ASSETS

CURRENT ASSETS

Cash and cash equivalents                       $  2,245,697  $  1,457,900
Restricted cash                                      190,312       192,116
Accounts receivable, net of an allowance for
 doubtful accounts of $119,044 and $764,302 at
 December 31, 2010 and December 31, 2009
 respectively                                      5,600,562     5,071,293
Prepaid expenses and other current assets          2,337,914     2,657,019
                                                ------------  ------------
   Total Current Assets                           10,374,485     9,378,328

LONG TERM DEPOSITS                                   610,486       330,946

DEFERRED FINANCING COSTS                                  --     3,033,277

PROPERTY AND EQUIPMENT, NET                        8,452,588     7,773,862

INTANGIBLE ASSETS, NET                            16,253,587     3,910,363

GOODWILL                                           3,230,786            --

                                                ------------  ------------
TOTAL ASSETS                                    $ 38,921,932  $ 24,426,776
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Overdraft                                       $    356,738  $    351,589
Accounts payable and customer deposits             4,703,875     6,475,074
Deferred revenue                                          --       132,205
Accrued expenses and other payables                3,843,938     2,738,998
Convertible 14% loan - related party (2009, net
 of discount of $ 2,489,175)                              --        13,287
Loans payable                                        877,357       880,536
                                                ------------  ------------
   Total Current Liabilities                       9,781,908    10,591,689

LONG TERM LIABILITIES
Loan from related party                              468,756       437,161
Warrant liabilities                                       --    16,626,126
Conversion feature                                        --     2,899,801
                                                ------------  ------------
   Total Long term Liabilities                       468,756    19,963,088

                                                ------------  ------------
   Total Liabilities                              10,250,664    30,554,777
                                                ------------  ------------

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 250,000,000 shares
 authorized, 88,660,848 issued and outstanding
 as of December 31, 2010 compared to 53,695,984
 shares issued and outstanding as of December
 31, 2009                                        183,825,665    54,880,778
Accumulated other comprehensive income (loss)       (519,020)    1,136,897
Accumulated deficit                             (154,818,436)  (62,335,076)
                                                ------------  ------------
   Elephant Talk Comunications, Inc.
    Stockholders' Equity                          28,488,209    (6,317,401)
                                                ------------  ------------

NON-CONTROLLING INTEREST                             183,059       189,400
                                                ------------  ------------
   Total Stockholders' Equity                     28,671,268    (6,128,001)
                                                ------------  ------------

                                                ------------  ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 (DEFICIT)                                      $ 38,921,932  $ 24,426,776
                                                ------------  ------------



            ELEPHANT TALK COMMUNICATIONS, INC AND SUBSIDIARIES
       CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
              FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

                                                  2010           2009
                                              -------------  -------------

REVENUES                                      $  37,168,351  $  43,650,957

COST AND OPERATING EXPENSES
Cost of service                                  35,120,916     41,452,639
Selling, general and administrative expenses      9,620,322      7,958,933
Non cash compensation to officers, directors
 and employees                                    5,588,392      1,727,870
Depreciation and amortization of intangibles
 assets                                           5,312,469      3,051,461
                                              -------------  -------------
  Total cost and operating expenses              55,642,099     54,190,903

LOSS FROM OPERATIONS                            (18,473,748)   (10,539,946)

OTHER INCOME (EXPENSE)
Interest income                                     239,713        160,535
Interest expense                                 (1,802,804)      (938,627)
Other expenses                                           --       (480,000)
Interest expense related to amortization of
 debt discount on promissory notes              (21,094,104)    (4,369,183)
Change in fair value of warrant liabilities     (48,107,969)      (538,382)
Amoritization of deferred financing costs        (3,238,602)      (591,710)
                                              -------------  -------------
     Total other income (expense)               (74,003,766)    (6,757,367)

LOSS BEFORE PROVISION FOR INCOME TAXES          (92,477,514)   (17,297,313)
Provision for income taxes                             (800)          (800)
                                              -------------  -------------
NET LOSS BEFORE NONCONTROLLING INTEREST         (92,478,314)   (17,298,113)
Net (loss) income attributable to
 noncontrolling interest                             (5,046)        (1,771)
                                              -------------  -------------
NET LOSS                                        (92,483,360)   (17,299,884)

OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation gain (loss)         (1,655,917)       190,063
                                              -------------  -------------
                                                 (1,655,917)       190,063

COMPREHENSIVE LOSS                            $ (94,139,277) $ (17,109,821)
                                              =============  =============

Net loss per common share and equivalents
 - basic and diluted                          $       (1.31) $       (0.32)
                                              =============  =============

Weighted average shares outstanding during
 the period - basic and diluted                  70,670,776     53,553,354
                                              -------------  -------------

About Elephant Talk Communications

Elephant Talk Communications, Inc. (OTCBB: ETAK) is an international provider of business software and services to the telecommunications and financial services industry. The company enables both mobile carriers and virtual operators to offer a full suite of products, delivery platforms, support services, superior industry expertise and high quality customer service without substantial upfront investments from clients. Elephant Talk provides global telecommunication companies, mobile network operators, banks, supermarkets, consumer product companies, media firms, and other businesses a full suite of products and services that enables them to fully provide telecom services as part of their business offerings. The company offers various dynamic products that include remote health care, credit card fraud prevention, mobile internet ID security, multi-country discounted phone services, loyalty management services, and a whole range of other emerging customized mobile services. For more information, visit (www.elephanttalk.com).

About ValidSoft

ValidSoft is a subsidiary of Elephant Talk Communications, Inc. (OTCBB: ETAK), (www.elephanttalk.com) and is a market leader in providing solutions to counter electronic fraud relating to card, the internet, and telephone channels. ValidSoft's solutions are at the cutting edge of the market and are used to verify the authenticity of both parties to a transaction (Mutual Authentication), and the integrity of the transaction itself (Transaction Verification) for the mass market, in a highly cost effective and secure manner, yet easy to use and intuitive. For more information, please visit (www.validsoft.com).

Forward-Looking Statements

Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements with respect to the Company's plans and objectives, projections, expectations and intentions. These forward-looking statements are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission (SEC), copies of which is available from the SEC or may be obtained upon request from the Company.

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