Initial Capital Inc.
TSX VENTURE : INK.P

November 06, 2006 18:26 ET

Initial Capital Announces Proposed Qualifying Transaction

CALGARY, ALBERTA--(CCNMatthews - Nov. 6, 2006) -

(Not for dissemination in the United States of America)

Initial Capital Inc. (TSX VENTURE:INK.P) ("Initial" or the "Corporation"), a capital pool company listed on the TSX Venture Exchange (the "Exchange"), announces the details concerning its proposed qualifying transaction being the acquisition of a controlling interest in Digifonica International Corp. ("Digifonica").

About Digifonica

Digifonica is a white-label, end-to-end turnkey Internet Telephony solution provider, offering a pre-paid service to subscribers. It enables its partners, namely hardware distributors, eCommerce businesses/content providers, Internet Service Providers (ISPs), wireless carriers and affinity groups to become Virtual Voice over Internet Protocol (VoIP) Network Operators (VVNO's) in an efficient, timely and cost-effective manner. Through this model of enabling partners, rather than selling directly to subscribers, Digifonica will acquire a large subscriber base, which will generate recurring revenue quickly and efficiently, without incurring high marketing costs.

Digifonica has been developing its VoIP network, partner sales and subscriber self-management tools since 2004.

Digifonica provides a license-free proprietary network with excellent call quality, and as a result of its senior management's contacts, has access to high-level decision makers within large European enterprise businesses.

Products and Services

VoIP is a method of routing voice calls through the Internet rather than through the regular telephone system. Voice calls are converted to data packets and directed through the Internet to their destination, then converted back to voice to complete the call. Digifonica has developed a "managed network" through which to route these calls. A "managed" network is one in which the data packets can be directed through the most efficient route to its destination, as opposed to routing the call through the public Internet. Building a "managed network" involves physical construction of nodes, which are key to routing Internet calls. Digifonica's ability to "manage" these routes, through strategic placement of nodes (combination of equipment and software designed for internet call routing), results in high call quality and low failure rates.

A "managed" network also involves establishing relationships with technical partners to facilitate access to the regular telephone system. Digifonica has established a number of these key relationships for origination and termination of calls, acquisition of telephone numbers and location of node equipment such as servers, gateways and routers.

In addition to the actual network itself, Digifonica has developed a number of key applications for management and administration of such a network. The Partner Administration Site, Partner Web Management Tool and the Subscriber-facing Website are all essential components for a VVNO to be fully operational. These tools allow partners to administer pricing, manage subscribers, and create and customize their own website to promote and sell the service. The website is also used by subscribers to purchase the service and manage their accounts.

Management, Staff and Operations

Members of Digifonica's senior management team and board of directors are highly experienced in the financial, sales and business development areas of the Telecommunications Industry. The Operations division of Digifonica is comprised of highly skilled network and software engineers with a diverse range of experience in all aspects of the Information Technology sector.

Digifonica is based in Burnaby, British Columbia with a satellite sales and marketing office in London, UK. Digifonica's vision is to be the leading provider of next-generation networked services to partners worldwide.

Marketing Plan

Digifonica's marketing strategy is to leverage existing brands and markets. It has focused sales efforts on partners, not subscribers, with the goal to add value to existing products and services. As a result of market conditions and senior management's contacts, Europe is the starting point for launching Digifonica's services.

Within Europe the target partners are hardware distributors, eCommerce businesses, ISPs, content providers, wireless carriers and affinity groups. Digifonica's business model is what sets it apart from most VoIP competitors such as Vonage and Skype who focus on end-users. There are however a small number of VoIP providers that are following the Digifonica model and allowing other companies to resell their services.

The growth of the Internet and the delivery of services (voice, video and data) converging to become very data-centric, are two of the key drivers of the VoIP industry. Research supports the opportunities that lie ahead for VoIP and Digifonica has positioned itself well to be able to offer attractive products and services now and into the future.

Major Customer

Dangaard Telecom is the world's second largest distributor of mobile phones and mobile phone accessories, established in 14 countries and employing more than 950 people.

On February 6, 2006, Digifonica entered an agreement with Dangaard Telecom A/S, a corporation incorporated under the laws of Denmark ("Dangaard"), to form a subsidiary in Luxembourg to provide VoIP telephone services marketed by Dangaard's existing 30,000 resellers throughout Europe. Digifonica will grant the subsidiary an irrevocable and exclusive license to use the VoIP technology and applications developed by Digifonica and to purchase the services from Digifonica on a wholesale basis. Dangaard will act as an agent for Digifonica, selling and promoting a pan-European brand service to their 30,000 plus retail stores and their customers.

In Q2 2006 Dangaard met with Digifonica in the Vancouver office to review and plan the rollout of service across the 14 European countries in which Dangaard operates. Q2 also marked the launch of the Dangaard "In-House" evaluation, whereby 100 employees were enlisted to sign up and use the service. Q4 will mark the finalization of the pan-European marketing strategy.

In Q1 2007 the service will be launched in Germany followed by Denmark, Sweden, France and The Netherlands by the end of Q2 2007.

Summary of Financial Information of Digifonica

Digifonica is an issuer reporting in the United States under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. Reference can be made to Digifonica's filings on www.edgar.com for complete financial statements and required filings.

Summary of Proposed Qualifying Transaction

Initial has entered into arm's length letter agreements ("Purchase Agreements") with Emil Malak, Gordon Blankstein, Yvonne Blankstein, Robert Blankstein and Clay Perreault (collectively, the "Vendors") to acquire, in total, up to 11,338,995 shares of Digifonica ("Digifonica Shares") or approximately 46.3% of the issued and outstanding Digifonica Shares. Emil Malak, Gordon Blankstein, Yvonne Blankstein and Robert Blankstein are residents of Vancouver, B.C. and Clay Perreault is a resident of Mexico. On closing, Initial will issue one Initial Share for each Digifonica Share at a deemed value of Cdn.$2.25 each (or Cdn.$0.45 each prior to the Consolidation described below) for a total deemed consideration of approximately Cdn.$25,844,000.

In addition to entering into the Purchase Agreements, Initial proposes to do the following:

(a) Initial will hold its annual and special meeting of shareholders on December 4, 2006 at which time, among other things, shareholders are expected to approve (i) a consolidation of the common shares of Initial ("Initial Shares") on a five for one (the "Consolidation"); and (ii) a change of Initial's name to reflect the Digifonica brand.

(b) Initial will use its best efforts to complete a pre-Consolidation private placement of up to 9,160,000 units ("Initial Units") at a price of Cdn.$0.45 per Initial Unit for gross proceeds of up to $4,122,000, where each Initial Unit is comprised of an Initial Share and one-half of a non-transferable common share purchase warrant (a "Initial Warrant"), with each whole Initial Warrant entitling the holder to acquire an additional Initial Share at a price of $0.56 for a period of 12 months from the date of issuance and at a price of $0.68 for the period 13 to 24 months from the date of issuance (the "Initial Private Placement").

(c) The proceeds of the Initial Private Placement will be used by Initial to subscribe for up to 1,816,000 units of Digifonica ("Digifonica Units") at a price of US$2.00 per Digifonica Unit (the "Digifonica Private Placement"). Each Digifonica Unit would be comprised of one Digifonica Share and one half of a non-transferable common share purchase warrant ("Digifonica PP Warrant") where one whole Digifonica PP Warrant allows the subscriber to purchase one Digifonica Share at a price of US$2.50 for a period of 12 months from the date of issuance and at a price of US$3.00 for the period 13 to 24 months from the date of issuance. After completion of the maximum Digifonica Private Placement, Digifonica will have 26,309,200 Digifonica Shares issued and outstanding of which 13,154,995 or slightly more than 50% will be owned by Initial.

(d) Blackmont Capital Inc. (the "Agent") will be appointed to act as agent for the Initial Private Placement and will receive a commission of 7% (payable in cash or Initial Units) and non-transferable broker warrants entitling the Agent to purchase 7% of that number of post-Consolidation Units sold under the Initial Private Placement until one year after closing of the Initial Private Placement at the price of Cdn.$2.25 per post-Consolidation Unit.

(e) The proceeds of the Digifonica Private Placement will be used by Digifonica in financing the installation of super-nodes and nodes to expand its present Burnaby, London and Denmark network and working to conclude the implementation of its contracted relationship with UK and German retailers and the rolling out of such partners' white-labeled VoIP systems.

(f) After completion of the Digifonica Private Placement, Initial will use its best efforts to acquire the remaining Digifonica Shares by way of take over bid, merger, amalgamation or otherwise.

Proposed Directors and Officers

The following is a description of the proposed directors and officers of Initial following completion of the Business Combination.

Emil Malak, Chairman and Director

Emil Malak, a resident of Vancouver, B.C., was appointed a director of Digifonica on October 18, 2005. He is currently the Chairman of Digifonica. Mr. Malak is Chairman of Albonia, Limited; an environmental technology company focused on waste, air purification and water production. Mr. Malak has extensive experience in real estate and restaurant development and management. Mr. Malak has written a musical operetta, a second world war novel and an animation series for children. He has obtained a Higher National Diploma (HND) in Hotel Administration from Hollings Faculty, Manchester, UK (1975) and was a guest lecturer at Sheffield Polytechnic, UK.

Mike Bowerman, President and Director

Mike Bowerman, a resident of London, England, was appointed director of Digifonica on October 20, 2005. He is a senior-level professional with over 30 years in the telecommunications industry including broad business development and management experience gained through tenures with, among others, Hutchison Telecom, Philips Industries and Orange Cellular, Europe. Prior to joining Digifonica, Mr. Bowerman was with the Rok Entertainment Group as Business Development Director where he managed senior relationships with all major European mobile networks to deliver partnership revenue opportunities. He earned his HNC qualifications in Business and Marketing in the United Kingdom.

W. Gordon Blankstein, Director

W. Gordon Blankstein a resident of Ft. Langley, B.C., was appointed director of Digifonica on October 10, 2005. He is a member of the board of directors of Genco Resources, Ltd., a TSX listed mining company and has been since 2002. He is also Director of Tribeworks, Inc., a publicly-traded OTC software company. From 1997 through 2002, Mr. Blankstein was Chairman and Chief Executive Officer of Global Light Telecommunications, Inc., an American Stock Exchange-listed company. Mr. Blankstein obtained a B.Sc. (Agri.) from the University of British Columbia in 1973 and an MBA from the University of British Columbia in 1976.

Dr. Thomas Sawyer, Director

Dr. Thomas Sawyer, a resident of Salt Lake City, Utah, was appointed director of Digifonica on October 20, 2005. Dr. Sawyer has been a Senior Scientific advisor to three US Presidents. He has been an innovator and entrepreneur in telecom hardware. From 1998 through 2002, Dr. Sawyer served as Director and Chief Technology Officer of Global Light Telecommunications, Inc. of Vancouver, B.C., and he was President and Chief Executive Officer of TeleCom, Inc. from 2002 through 2005. Dr. Sawyer obtained a B.Sc. (Engineering) from U.C.L.A, a M.A. (Business and Urban Affairs) from Occidental College, a Ph.D. (Clinical Psychology) from Florida State and a Ph.D. (Management) from Walden University. Dr. Sawyer performed Graduate Research (Public Affairs) at Coro Foundation and has completed other graduate studies at the University of Utah, the University of Southern California and California Institute of Technology.

Jeff Bates, Chief Financial Officer

Jeff Bates, a resident of Vancouver, B.C., was appointed Chief Financial Officer of Digifonica on September 21, 2006. Prior to joining Digifonica, Mr. Bates was a Senior Manager at KPMG. He has been a Chartered Accountant since 1998 and has management, finance and accounting experience. During the last six years he has been an auditor, financial controller and commercial controller in the European Telecommunications industry. Mr. Bates obtained a degree in Mathematics with Actuarial Studies from Southampton University in the UK.

Richard Boxer, Director

Richard Boxer, a resident of Toronto, Ontario, was appointed director of Initial on November 23, 2004. Mr. Boxer is a Chartered Accountant and has been a member of CICA since 1974. He received his B.A. at Queen's University in 1971 and received his MBA from York University in 1976. Mr. Boxer has served as a director and Audit Committee member on several public companies. He is a director of the following listed companies: AlarmForce Industries Inc., an alarm company, Manitou Capital Corporation, a wealth management company, Lingo Media Inc., a media company, Water Capital Inc., a capital pool company. He also served as a director of several private companies and Toronto area charities.

Gregory R. Harris, Director

Gregory Harris, a resident of Calgary, Alberta, was appointed director of Initial on November 23, 2004. Mr. Harris is a lawyer and has been a member of the Law Society of Alberta since 1979 and previously a member of the Law Society of British Columbia in 1972. Mr. Harris received his B.A. in 1971 and his L.L.B. in 1972 from the University of Alberta. Mr. Harris has served as a director and officer of several public companies. His legal practice is limited to securities law. He currently serves as a director and officer of the Corporation and no other public companies.

Conditions of Closing

The closings of the Purchase Agreements, the Initial Private Placement and the Digifonica Private Placement, are subject to certain conditions including Exchange approval, submission of a satisfactory Sponsor Report and other documentation as well as approval by the Initial shareholders of the Consolidation and name change. The Corporation expects to be a Tier One, Category Two, Technology Issuer on the Exchange.

Sponsor

Loewen, Ondaatje, McCutcheon Limited of Toronto, Ontario, subject to completion of satisfactory due diligence, has agreed to act as sponsor in connection with the Business Combination. An agreement to sponsor should not be construed as any assurance with respect to the merits of the transaction or the likelihood of completion. Loewen, Ondaatje, McCutcheon Limited will also be part of the selling group under the Initial Private Placement.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Initial will not update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect financial results is included in the documents filed from time to time with the Canadian securities regulatory authorities by Initial.






The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Initial Capital Inc.
    Gregory R. Harris
    President and CEO
    (403) 777-9222
    or
    Digifonica International Corp.
    W. Gordon Blankstein
    Director
    (604) 682-2205