SOURCE: Elephant Talk

Elephant Talk

August 16, 2011 08:00 ET

Elephant Talk Reports Increased Revenue for Mobile & Security Solutions for the First Six Months of 2011

SCHIPHOL, THE NETHERLANDS--(Marketwire - Aug 16, 2011) - Elephant Talk Communications, Inc. (OTCBB: ETAK) (www.elephanttalk.com), an international provider of business software and services to the telecommunications and financial services industries, today announced the results of operations for the three and six month period ended June 30, 2011.

"During the first half of 2011 Elephant Talk increased its footprint by further establishing MVNE operations across a number of countries," stated Steven van der Velden, Chairman and CEO of Elephant Talk. "This expansion of our high-margin customized mobile service offerings is expected to gain additional momentum in the second half of the year. Additionally, ValidSoft continued to make progress with Visa Europe, as well as several other key financial institutions for the commercialization of the ValidSoft suite of products and expects to finalize our first significant sale within the calendar year."

Mr. van der Velden continued, "With the recent operational success in both business segments and numerous opportunities that lay ahead, management intends to transition to a senior U.S. exchange in the second half of 2011. The recent appointment of an additional independent Board Member and an improved balance sheet now positions us to apply for an up-listing on a senior exchange. Management is extremely pleased with the current direction of the company and believes we will continue to garner traction in all business segments so that we are well positioned to increase earnings and market expansion."

Key Operational Highlights:

  • ValidSoft's agreement with Visa Europe is progressing ahead of schedule and the project recently passed the mid-way stage.
    • The agreement with Visa Europe, is for the utilization of VALid-POS®, for card fraud detection and prevention solution, and VALid®, ValidSoft's multi-factor authentication platform and allows Visa Europe to integrate and market these solutions to its 4,000+ member banks in Europe.
  • ValidSoft's program with the European Government Agency for Welfare Recipient Self-Certification is potentially Europe's largest ever voice Biometric implementation to date. When live, the European Government Agency solution will generate significant administrative cost savings and efficiencies through self certification.
    • ValidSoft has completed the first phase of the Live Trial and is now preparing for Phase 2 which will run throughout the third quarter.
  • Signed contract with Sogeti BeLux (www.sogeti.be), a prominent provider of IT services in Belgium and Luxembourg.
    • Sogeti BeLux will be the first reseller partner in continental Europe to provide ValidSoft's suite of multi-layered security products.
  • Signed a joint venture with MECO Holding AG to launch mobile virtual network enabler (MVNE) platforms.
    • The Elephant Talk-MECO venture will initially focus on up to ten countries, starting with MVNE platforms in Italy, Germany and the UK.
  • Signed agreement with Zain Saudi Arabia to deliver and manage mobile services for Zain mobile brands in the Kingdom of Saudi Arabia.
  • Appointed Jacques D. Kerrest to the Company's Board of Directors.
    • Having recently served as Chief Operating Officer and Chief Financial Officer of ActivIdentity Corp., and before that with, amongst others, Virgin Media. Mr. Kerrest has over 30 years of experience in banking, finance, operations and executive management.

Financial Results for the Three Month Period and Six Month Period Ended June 30, 2011

When we use the non-GAAP financial measurement term "constant currency" it means that we have translated financial data for a previous period into U.S. Dollars using the same foreign currency exchange rates that we used to translate financial data for the current period. We believe that this calculation is a useful measure, indicating the actual growth of our operations.

Revenue for the three months ended June 30, 2011 was $7,790,976, compared to $9,673,825 for the three months ended June 30, 2010. Revenue for the six months ended June 30, 2011 was $16,298,990, a decrease of $3,318,600 compared to $19,617,590 for the six months ended June 30, 2010. In constant currency, the revenue decreased by $4,406,617 compared to the same period in 2010, and was attributable to a decrease of $5,121,779 of our legacy landline business, which was partly off-set by the increase in our higher margin mobile and security solutions business of $715,162 compared to the same period in 2010.

Cost of service for the three months ended June 30, 2011 was $7,494,679, a decrease of $1,510,715 compared to $9,005,394 for the three months ended June 30, 2010. Cost of service for the six months ended June 30, 2011 was $15,052,164, a decrease of $3,327,118 compared to $18,379,282 for the six months ended June 30, 2010.

Selling, general and administrative ("SG&A") expense for the three months ended June 30, 2011 and 2010 were $3,824,756 and $2,079,359, respectively. SG&A expenses increased by $1,745,397, in 2011 compared to 2010. This was led by an increase of 23.4% in our staffing levels on June 30, 2011 compared to June 30, 2010, largely in sales and European hires, as well as by higher marketing and selling costs.

Selling, general and administrative ("SG&A") expense for the six months ended June 30, 2011 and 2010 were $7,241,113 and $3,984,709, respectively. SG&A expenses increased by $3,256,404, in 2011 compared to 2010. This increase was for 44.6% caused by the fact that the ValidSoft first quarter financials were not included in the six months ended June 30, 2010. The remainder of the increase was the result of the previously mentioned growth of the organization.

Income (Loss) was $(6,721,423) and $(14,358,524) for the three months ended June 30, 2011 and 2010 respectively, and $(11,434,647) and $(26,696,719) for the six months ended June 30, 2011 and 2010 respectively. Net loss was reduced following the conversion in Q4 2010 of convertible debt into equity, thus removing large warrant liability and conversion feature charges.

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.

Six months ended
June 30,
2011 2010 2010 in
constant
currency
(unaudited) (unaudited) (unaudited)
Net loss $ (11,434,647 ) $ (26,696,719 ) $ (26,938,975 )
Provision for income taxes 800 800 800
Net loss attributable to noncontrolling interest - 2,283 756
Depreciation and amortization 2,640,450 2,360,122 2,478,698
Stock-based compensation 3,167,966 3,253,669 3,253,669
Other income & expenses (368,856 ) 18,333,444 18,316,096
Adjusted EBITDA $ (5,994,287 ) $ (2,746,401 ) $ (2,888,956 )

(note: 2010 excludes ValidSoft financials for Q1 2010)

ELEPHANT TALK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2011 2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,652,182 $ 2,245,697
Restricted cash 192,962 190,312
Accounts receivable, net of an allowance for doubtful accounts of $102,101 and $119,044 at June 30, 2011 and December 31, 2010 respectively 7,299,893 5,600,562
Prepaid expenses and other current assets 4,948,585 2,337,914
Total Current Assets 17,093,622 10,374,485
LONG TERM DEPOSITS 697,278 610,486
PROPERTY AND EQUIPMENT, NET 13,882,407 8,452,588
INTANGIBLE ASSETS, NET 16,053,305 16,253,587
GOODWILL 3,515,089 3,230,786
TOTAL ASSETS $ 51,241,701 $ 38,921,932
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Overdraft $ 353,481 $ 356,738
Accounts payable and customer deposits 6,940,243 4,703,875
Deferred Revenue 407,110 --
Accrued expenses and other payables 5,075,273 3,843,938
Loans payable 877,334 877,357
Total Current Liabilities 13,653,441 9,781,908
LONG TERM LIABILITIES
Loan from related party 493,242 468,756
Total Long term Liabilities 493,242 468,756
Total Liabilities 14,146,683 10,250,664
STOCKHOLDERS' EQUITY
Common stock, no par value, 250,000,000 shares authorized, 101,101,456 issued and outstanding as of June 30, 2011 compared to 88,660,848 shares issued and outstanding as of December 31, 2010 200,414,451 183,825,665
Accumulated other comprehensive income (loss) 2,738,583 (519,020 )
Accumulated deficit (166,253,083 ) (154,818,436 )
Elephant Talk Comunications, Inc. Stockholders' Equity 36,899,951 28,488,209
NON-CONTROLLING INTEREST 195,067 183,059
Total Stockholders' Equity 37,095,018 28,671,268
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,241,701 $ 38,921,932
ELEPHANT TALK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three Months For the Six Months
Period ended, Period ended,
2011 2010 2011 2010
REVENUES $ 7,790,976 $ 9,673,825 $ 16,298,990 $ 19,617,590
COST AND OPERATING EXPENSES
Cost of service 7,494,679 9,005,394 15,052,164 18,379,282
Selling, general and administrative expenses 3,824,756 2,079,359 7,241,113 3,984,709
Non cash compensation to officers, directors and employees 2,037,903 2,712,756 3,167,966 3,253,669
Depreciation and amortization of intangibles assets 1,337,775 1,515,428 2,640,450 2,360,122
Total cost and operating expenses 14,695,113 15,312,937 28,101,693 27,977,782
LOSS FROM OPERATIONS (6,904,137 ) (5,639,112 ) (11,802,703 ) (8,360,192 )
OTHER INCOME (EXPENSE)
Interest income 24,145 32,520 47,131 65,119
Interest expense (71,511 ) (535,887 ) (138,275 ) (982,427 )
Other income 230,000 -- 460,000
Interest expense related to amortization of debt discount on promissory notes -- (4,959,044 ) -- (7,545,823 )
Change in fair value of warrant liabilities -- (2,660,727 ) -- (8,748,778 )
Amoritization of deferred financing costs -- (593,689 ) -- (1,121,535 )
Total other income (expense) 182,634 (8,716,827 ) 368,856 (18,333,444 )
LOSS BEFORE PROVISION FOR INCOME TAXES (6,721,503 ) (14,355,939 ) (11,433,847 ) (26,693,636 )
Provision for income taxes - (800 ) (800 ) (800 )
NET LOSS BEFORE NONCONTROLLING INTEREST (6,721,503 ) (14,356,739 ) (11,434,647 ) (26,694,436 )
Net (loss) income attributable to noncontrolling interest 80 (1,785 ) - (2,283 )
NET LOSS (6,721,423 ) (14,358,524 ) (11,434,647 ) (26,696,719 )
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation gain (loss) 938,039 (3,168,961 ) 3,257,603 (3,690,746 )
938,039 (3,168,961 ) 3,257,603 (3,690,746 )
COMPREHENSIVE LOSS $ (5,783,384 ) $ (17,527,485 ) $ (8,177,044 ) $ (30,387,465 )
Net loss per common share and equivalents - basic and diluted $ (0.07 ) $ (0.23 ) $ (0.12 ) $ (0.45 )
Weighted average shares outstanding during the period - basic and diluted 100,467,832 62,356,471 98,264,677 58,696,088
ELEPHANT TALK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months period ended,
June 30, June 30,
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,434,647 ) $ (26,696,719 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,640,450 2,360,122
Provision for doubtful accounts (26,465 ) (57,474 )
Stock based compensation 2,881,617 2,876,951
Noncontrolling interest - 2,283
Amortization of Shares issued for Consultancy 286,349 376,718
Issuance of stock -- 221,626
Excercise of warrants (cash less) -- 364,718
Exercise of convertible note (cash less) -- 112,443
Change in fair value of warrant liabilities -- 8,748,778
Amortization of deferred financing costs -- 1,121,535
Interest expense relating to debt discount and conversion feature -- 7,545,823
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,188,582 ) (1,342,543 )
Decrease (Increase) in prepaid expenses, deposits and other assets (2,409,125 ) 162,513
Increase (decrease) in accounts payable, proceeds from related parties and customer deposits 1,835,548 (1,789,851 )
Increase (decrease) in deferred revenue 396,484 (131,835 )
Increase (decrease) in accrued expenses and other payables 987,048 (717,070 )
Net cash used in operating activities (6,031,323 ) (6,841,983 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,754,894 ) (1,214,286 )
Restricted cash 24 20
Cash received from acquisition of subsidiary -- 48,577
Net cash used in investing activities (5,754,870 ) (1,165,689 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft (9,285 ) 18,721
Deferred financing costs -- (205,326 )
Loan from related party QAT Bridge Loan 19,277 2,513,195
Loan from related party Bridge SPA -- 2,885,000
Proceeds from Private Placement Offering -- 6,459,800
Exercise of warrants & options 13,587,674 25,000
Placement fees -- (1,197,073 )
Net cash provided by financing activities 13,597,666 10,499,317
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 595,012 327,169
NET DECREASE IN CASH AND CASH EQUIVALENTS 2,406,485 2,818,814
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 2,245,697 1,457,900
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 4,652,182 $ 4,276,714
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ -- $ 473,824
June 30, June 30,
2011 2010
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING & FINANCING ACTIVITIES:
Increase in Share Capital due to Acquisitions and Non-Cash Compensation $ -- $ 14,318,336
Increase in Share Capital due to Exercise of Warrants and Conversion of Notes $ -- $ 346,564
Decrease of Net Debt due to Conversion of Notes $ -- $ 425
Increase of Warrants due to fundraising of Convertible notes -- 7,539,585

Conference Call Reminder

As a reminder, Elephant Talk Communications will host a Shareholder Update conference call on August 16, 2011 at 11:00 a.m. Eastern Time.

Anyone interested in participating should dial 1-877-941-8418 if calling within the United States or 1-480-629-9809 if calling internationally approximately 5 to 10 minutes prior to 11 a.m. Participants should ask for the Elephant Talk Shareholder Update conference call. There will be a playback available until August 23, 2011. To listen to the playback, please call 1-877-870-5176 if calling within the United States or 1-858-384-5517 if calling internationally. Please use the pass code 4462750 for replay.

This call is being webcast by ViaVid Broadcasting and can be accessed at either Elephant Talk's website at www.elephanttalk.com or ViaVid's website at http://www.viavid.net. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit: http://www.microsoft.com/windows/windowsmedia/en/download/default.asp

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).

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